ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition, changes in financial condition, plan of operations and results of operations should be read in conjunction with (i) our audited consolidated financial statements as at December 31, 2021 and December 31, 2020 and (ii) the section entitled “Business”, included in this annual report. The discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.
Company Overview
We are a clinical-stage immuno-oncology company specializing in the development and commercialization of novel T cell-based immunotherapies and innovative peptide-based vaccines for the treatment of hematological malignancies and solid tumor indications. We developed our lead product candidates from our MultiTAA-specific T cell technology, which is based on the manufacture of non-engineered, tumor-specific T cells that recognize multiple tumor associated antigens, or TAAs. MultiTAA-specific T cells are able to recognize multiple tumor targets to produce broad spectrum anti-tumor activity. When infused into a cancer patient, the MultiTAA-specific T cells are designed to kill cancer cells expressing the TAA targets and potentially recruit the patient’s immune system to participate in the cancer killing process.
We licensed the underlying technology for MultiTAA-specific T cell therapy from BCM in March 2018. BCM had utilized the therapy in seven exploratory clinical trials. In these studies, BCM treated over 150 patients suffering from a variety of cancers including lymphoma, multiple myeloma, acute myeloid leukemia, acute lymphoblastic leukemia, pancreatic cancer, breast cancer and various sarcomas. In those studies, BCM saw evidence of clinical benefit, expansion of infused cells, epitope spreading, and decreased toxicity compared to other cellular therapies.
We are advancing three product candidates as part of our MultiTAA-specific T cell program for:
1. autologous treatment of lymphoma, and selected solid tumors
2. allogeneic T cells for the treatment of acute myeloid leukemia, or AML
3. off-the-shelf products in various indications
Our current clinical development programs are:
We believe that the simplicity of our manufacturing process allows additional modifications to expand MultiTAA-specific T cell recognition of cancer targets. For example, we are currently analyzing the potential for a 12-antigen MultiTAA-specific T cell therapy and assessing the potential for combination therapies for our MultiTAA-specific T cell products.
We have positioned ourselves to be in full control of our research and development and clinical manufacturing needs by establishing a fully validated manufacturing facility. We believe that this has key advantages that distinguish us from our competitors, particularly because we are less reliant on contract manufacturing organizations, which are expensive and often have long lead times, shortages of skilled labor and a backlog of customers.
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Recent Development
On February 16, 2022, we received a notice from the Nasdaq Global Market that we were not in compliance with Nasdaq’s Listing Rule 5450(a)(1), as the minimum bid price of our common stock had been below $1.00 per share for 30 consecutive business days. We have 180 days, or until August 15, 2022, to regain compliance with the minimum bid price requirement. To regain compliance, the minimum bid price of our common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this 180-calendar day grace period. In the event we do not regain compliance with the minimum bid price requirement by August 15, 2022, we may be eligible for an additional 180-calendar day compliance period if we elect to transfer to the Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the bid price deficiency during the second compliance period.
Financial Overview
Research and Development Expenses
To date, our research and development expenses have related primarily to the development of our clinical platform and the identification and development of our product candidates. Clinical and research and development expenses consist of expenses incurred in performing research and development activities, cost of our clinical trials, including compensation, share-based compensation expense and benefits for research and development employees and consultants, facilities expenses, overhead expenses, cost of supplies, manufacturing expenses, fees paid to third parties and other outside expenses.
Clinical costs are expensed as incurred. Costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
● per patient clinical trial costs;
● the number of patients that participate in the clinical trials;
● the number of sites included in the clinical trials;
● the length of time required to enroll eligible patients;
● the number of doses that patients receive;
● the drop-out or discontinuation rates of patients;
● the duration of patient follow-up;
● the efficacy and safety profile of the product candidates; and
● the ability to successfully manufacture patient doses.
In addition, the potential for success of each product candidate will depend on numerous factors, including clinical trial outcomes, acceptance by regulatory authorities, competition, manufacturing capability and commercial viability. We determine which programs to pursue and how much to fund each program in response to ongoing scientific assessments, competitive developments, clinical trial results, as well as an assessment of each product candidate's commercial potential. We anticipate our research and development costs will continue to increase over the next several years due to increased spending on the clinical development and manufacturing of our product candidates.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in executive, finance, accounting, business development, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, insurance costs and professional fees for consultancy, accounting, audit and investor relations.
We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities, and the potential commercialization of our product candidates.
Income Taxes
We did not recognize any income tax expense for the years ended December 31, 2021 and 2020.
Other Income (Expense)
Other income (expense), net consists of interest income and change in fair value of warrant liabilities.
Results of Operations For the Years Ended December 31, 2021 and 2020
The following table summarizes the results of our operations (rounded to the thousand except for per share amounts) for the years ended December 31, 2021 and 2020, together with the changes to those items:
For the Years Ended
December 31,
Revenues:
Operating expenses:
Other income (expense):
Change in fair value of warrant liabilities — 31,000 (31,000) (100) %
Net loss per share, basic and diluted $ (0.55) $ (0.61) $ 0.06 (10) %
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Revenue
We did not generate any revenue during the years ended December 31, 2021 and 2020, respectively, from the sales or licensing of our product candidates.
In August 2021, we received notice of a Product Development Research award totaling approximately $13.1 million from the Cancer Prevention and Research Institute of Texas, or CPRIT, to support our Phase 2 clinical trial of MT-401. During the year ended December 31, 2021, we recognized $1.2 million of revenue associated with the CPRIT grant.
During the year ended December 31, 2020, we recognized $0.5 million of revenue associated with a grant awarded to Mayo Foundation from the US Department of Defense for the Phase 2 clinical trial of TPIV200 which Mayo paid to us for clinical supplies manufactured by us and provided for the clinical trial funded by the grant. We refer to this grant as the Mayo Grant.
Operating Expenses
Operating expenses incurred during the fiscal year ended December 31, 2021 were $40.7 million compared to $29.4 million in the prior year. Significant changes and expenditures in operating expenses are outlined as follows:
Research and Development Expense
Research and development expenses increased by 47% to $27.8 million for the year ended December 31, 2021, compared to $18.9 million for the year ended December 31, 2020.
The increase of $8.9 million in 2021 was primarily attributable to the following:
o increase of $1.4 million in process development expenses,
o increase of $1.1 million in rent, utility and facilities expenses,
o increase of $1.8 million in clinical trial expenses related to MT-401,
o increase of $0.4 million in professional fees,
o increase of $0.3 million in stock-based compensation expenses,
o increase of $0.3 million of other expenses, and
o decrease of $1.2 million in vaccine-based clinical trial expenses.
Included in research and development expenses are expenses related to agreements with BCM.
In November 2018 and February 2020, we entered in Sponsored Research Agreements with BCM, which provided for the conduct of research for us by credentialed personnel at BCM’s Center for Cell and Gene Therapy. During the years ended December 31, 2021 and 2020, we incurred $0.03 million and $0.3 million of expenses related to these agreements, respectively.
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In September 2019, we entered in a Clinical Supply Agreement with BCM, which provided for BCM to provide to us multi tumor antigen specific products. During the years ended December 31, 2021 and 2020, we incurred $1.2 million and $0.6 million related to this agreement, respectively.
In October 2019, we entered in a Workforce Grant Agreement with BCM, which provided for BCM to provide to us manpower costs of projects for manufacturing, quality control testing and validation run activities. During the years ended December 31, 2021 and 2020, we incurred $1.1 million and $0.6 million related to this agreement, respectively.
In August 2020, we entered in a Clinical Trial Agreement with BCM, which provided for BCM to provide to us investigator-initiated research studies. During the years ended December 31, 2021 and 2020, we incurred $0.5 million and $0.3 million related to this agreement, respectively.
General and Administrative Expenses
General and administrative expenses increased by 23% to $12.9 million for the year ended December 31, 2021 from $10.5 million during the prior period. The increase in general and administrative expenses of $2.5 million mainly comprised the following:
o increase of $0.4 million in rent and utility expenses,
o increase of $0.2 million in insurance expenses,
o increase of $0.4 million in legal and professional expenses,
o increase of $0.3 million in recruiting expenses, and
o increase of $0.5 million in stock-based compensation.
Other Income
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the year ended December 31, 2021 was $0 as compared to $31,000 for the fiscal year ended December 31, 2020.
Arbitration settlement
An arbitration proceeding was brought against us before the Financial Industry Regulatory Authority, Inc., or FINRA by a broker seeking to be paid compensation for two financing transactions that occurred in 2018, a warrant conversion and a private placement, each brokered by another broker. The broker’s claims were based on a placement agent agreement for a private placement it brokered in 2017, under which it alleged it was entitled to compensation for the 2018 transactions. The FINRA panel found in favor of the broker and awarded the broker $2.4 million for compensation, interest and attorney fees, which we recorded in the year ended December 31, 2021. We removed the case to the United States District Court for the Southern District of New York on September 27, 2021. On October 22, 2021, we filed a motion in federal court to vacate the award. On March 9, 2022, the Company was notified that its motion to vacate the award was denied and the broker was awarded an additional $0.1 million in interest. Post judgment interest will continue to accrue at 1.02% until the judgement is paid.
Interest Income
Interest income was $6,000 and $0.1 million for the years ended December 31, 2021 and 2020, respectively, and was attributable to interest income relating to funds that are held in U.S. Treasury notes and U.S. government agency-backed securities. As part of the reaction to the COVID-19 pandemic, the Federal Reserve cut rates in mid-March 2020 to a range of 0.0%-0.25%.
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Net Loss
The increase in our net loss during the year ended December 31, 2021 compared to the year ended December 31, 2020 was due to the continued expansion of our research and development activities, increased expenses relating to future clinical trials, and the overall growth of our corporate infrastructure. We anticipate that we will continue to incur net losses in the future as we continue to invest in research and development activities, including clinical development of our MultiTAA T cell product candidates.
Liquidity and Capital Resources
We have not generated any revenues from the sales or licensing of our product candidates since inception and only have limited revenue associated with grants. We have financed our operations primarily through public and private offerings of our stock and debt including warrants and the exercise thereof.
The following table sets forth our cash, cash equivalents and restricted cash and working capital as of December 31, 2021 and 2020:
December 31, December 31,
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2021 and 2020:
For the Years Ended
December 31,
Net cash provided by (used in):
Operating Activities
Net cash used in operating activities during the year ended December 31, 2021 was $27.3 million. The use of cash primarily related to our net loss of $41.9 million and a $5.5 million increase from changes in assets and liabilities. This was in addition to $6.0 million of stock-based compensation, $2.1 million of depreciation expense and $1.0 million of right-of-use asset amortization and lease liability accretion.
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Net cash used in operating activities during the year ended December 31, 2020 was $20.0 million. The use of cash primarily related to our net loss of $28.7 million and a $2.4 million increase from changes in assets and liabilities. This was in addition to $5.2 million of stock-based compensation, $0.5 million in depreciation expense and $0.6 million of right-of-use asset amortization and lease liability accretion.
Investing Activities
Net cash used in investing activities was $3.1 million and $9.3 million for the purchase of property and equipment and construction in progress for the years ended December 31, 2021 and 2020, respectively. This included the purchase of $1.6 million and $3.4 million of property and equipment as well as $1.6 million and $5.8 million for the purchase of construction in progress for the years ended December 31, 2021 and 2020 respectively.
2021 purchases of property and equipment were comprised of $1.0 million in laboratory equipment, $0.2 million of computers, software and equipment and $0.3 million of furniture and fixtures and $0.1 million of leasehold improvements. $1.6 million of purchases in construction in progress related to another modular cleanroom and the continued buildout of our manufacturing facility.
2020 purchases of property and equipment were comprised of $2.2 million of laboratory equipment, $0.6 million of computers and equipment, $0.3 million of furniture and fixtures as well as $0.3 million of leasehold improvements. $5.8 million of purchases in construction in progress related to modular cleanrooms and the initial build out of our manufacturing facility.
Financing Activities
Net cash provided by financing activities was $52.6 million during the year ended December 31, 2021, primarily due to the net proceeds received from the underwritten public offering.
Net cash provided by financing activities was $6.7 million during the year ended December 31, 2020, mainly due to the sale of 4,113,440 shares of stock under the Purchase Agreement with Aspire Capital that provided proceeds to the Company of approximately $6.2 million, along with $0.5 million of proceeds from the exercise of stock warrants.
Future Capital Requirements
To date, we have not generated any revenues from the commercial sale of approved drug products, and we do not expect to generate substantial revenue for at least the next several years. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue will be compromised. We do not know when, or if, we will generate any revenue from our product candidates, and we do not expect to generate significant revenue unless and until we obtain regulatory approval of, and commercialize, our product candidates. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of and seek marketing approval for our product candidates. In addition, if we obtain approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
On March 16, 2021, we issued an aggregate of 32,282,857 shares of our common stock, for net proceeds of $52.6 million pursuant to an underwritten public offering.
In August 2021, we received notice of a Product Development Research award totaling approximately $13.1 million from CPRIT to support our Phase 2 clinical trial of MT-401. To date, we have received $2.4 million of funds from the CPRIT grant.
As of December 31, 2021, we had working capital of $33.1 million, compared to working capital of $18.0 million as of December 31, 2020. Operating expenses incurred during the fiscal year ended December 31, 2021 were $40.7 million compared to $29.4 million in the prior year. Based on our revised clinical and research and development plans and our revised timing expectations related to the progress of our programs, we expect that our cash, cash equivalents and restricted cash as of December 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Furthermore, our
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operating plan may change, and we may need additional funds sooner than planned in order to meet operational needs and capital requirements for product development and commercialization. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, as we:
● initiate or continue clinical trials of our product candidates;
● evaluate strategic transactions we may undertake; and
Because all of our product candidates are in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability. Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements.
We plan to continue to fund our operations and capital funding needs through equity and/or debt financing. We may also consider new collaborations or selectively partner our technology. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our existing stockholders’ common stock. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us. We may also be required to pay damages or have liabilities associated with litigation or other legal proceedings involving our company.
In addition to the foregoing, based on our current assessment, we do not expect any material impact on our long-term liquidity due to the COVID-19 pandemic. However, we will continue to assess the effect of the pandemic on our operations. The extent to which the COVID-19 pandemic will impact our business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing 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.
Aspire Common Stock Purchase Agreement
In February 2020, we entered into a common stock purchase agreement, or the Purchase Agreement, with Aspire Capital Fund, LLC, or Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is
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committed to purchase up to an aggregate of $30.0 million of shares of our common stock over the 30-month term of the Purchase Agreement. As of December 31, 2021, Aspire Capital had purchased 4,113,440 shares under the Purchase Agreement, providing aggregate proceeds to the Company of approximately $6.2 million. In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, the Company issued to Aspire Capital 345,357 shares of the Company’s common stock.
The Purchase Agreement provides that we and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing sale price of our common stock is less than $0.25. There are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of sales of our common stock to Aspire Capital. Aspire Capital has no right to require any sales by us but is obligated to make purchases from us as directed by us on future funding, rights of first refusal, participation rights, penalties, or liquidated damages in the Purchase Agreement. The Purchase Agreement may be terminated by us at any time, at its discretion, without any cost to us. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the Purchase Agreement. We expect to use any proceeds under the Purchase Agreement for working capital and general corporate purposes.
The Purchase Agreement provides that the number of shares that may be sold pursuant to the Purchase Agreement will be limited to 9,232,814 shares, including the Commitment Shares, or the Exchange Cap, which represents 19.99% of our outstanding shares of common stock as of the date of the Purchase Agreement, unless stockholder approval is obtained to issue more than 19.99%. This limitation will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price paid for all shares issued under the Purchase Agreement is equal to or greater than $2.41, which was the closing price of our shares on the Nasdaq Global Market immediately preceding the execution of the Purchase Agreement. We are not required or permitted to issue any shares of common stock under the Purchase Agreement if such issuance would breach our obligations under the rules or regulations of the Nasdaq Global Market.
ATM Agreement
In August 2021, we entered into a Controlled Equity OfferingSM Sales Agreement, or the ATM Agreement, with Cantor Fitzgerald & Co. and RBC Capital Markets, LLC, or the Sales Agents, pursuant to which we can offer and sell, from time to time at our sole discretion through the Sales Agents, shares of our common stock having an aggregate offering price of up to $75.0 million. Any shares of our common stock sold will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-258687), which the SEC declared effective on August 19, 2021. The Sales Agents will be entitled to compensation under the Sales Agreement at a commission rate equal to 3.0% of the gross sales price per share sold under the ATM Agreement, and we have provided each of the Sales Agents with indemnification and contribution rights. To date, we have not sold any shares of our common stock under the ATM Agreement.
Going Concern
We have no sources of revenue to provide incoming cash flows to sustain our future operations. As outlined above, our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional capital.
These factors raise substantial doubt regarding our ability to continue as a going concern. Our consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenses in the periods presented.
On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under
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the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of expenses that are not readily apparent from other sources. Actual results could differ from those estimates, particularly given the significant social and economic disruptions and uncertainties associated with the ongoing coronavirus pandemic and the COVID-19 control responses.
Prior Period Reclassification
Certain reclassifications have been made to reclass certain non-cash capital expenditures on the consolidated statements of cash flows from a cash outflow from investing activity to a non-cash investing activity. The Company has evaluated the materiality of this correction and concluded it was not material to the previously issued consolidated financial statements and had no impact to the reported consolidated balance sheets, consolidated statements of operations or net loss per share.
For the year ended December 31, 2020, this immaterial adjustment had the effect of increasing net cash used in operating activities and decreasing net cash used in investing activities by $1.2 million from what was previously reported.
Property and Equipment
Leasehold improvements, furniture, equipment and software are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term.
Property and equipment - Construction in Progress
In June 2020, the Company entered into a lease for a manufacturing facility in Houston, Texas. In connection with the manufacturing facility, the Company has incurred costs pursuant to an agreement with a vendor to design, engineer, build and install modular cleanrooms in a manufacturing facility. The facility’s construction was completed during December 2020, and a certificate of occupancy was delivered to the Company in January 2021, and as such was placed into service in January 2021. All costs associated with the buildout will be recorded as either manufacturing equipment and/or leasehold improvements and amortized over the estimated useful life of the asset and/or leasehold lease.
During the third and fourth quarters of 2021, and in connection with the Company’s manufacturing facility in Houston, Texas, the Company incurred $2.2 million of costs pursuant to an agreement with a vendor to build and eventually install a second modular cleanroom. Such costs were recorded in fixed assets – construction in progress on the balance sheet as of December 31, 2021. Upon completion and installation of the modular cleanroom, all costs associated with the buildout will be recorded as manufacturing equipment and amortized over the estimated useful life.
Stock-Based Compensation
The Company incurs stock-based compensation expense related to the issuance of common stock and stock options. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and expected option life:
Expected Term — The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant.
Expected Volatility — The Company computes stock price volatility over expected terms based on its historical common stock trading prices.
Risk-Free Interest Rate — The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.
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Expected Dividend — The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
The Company amortizes the fair value of the awards expected to vest on a straight-line basis over the requisite service period of the awards. The Company recognizes fair value of stock options granted to nonemployees as stock-based compensation expense over the period in which the related services are received as if the Company had paid cash for those services. Forfeitures are accounted for as incurred.
Grant Income
The Company recognizes grant income in accordance with the terms stipulated under the grant awarded to the Company’s collaborators at the Mayo Foundation from the U. S. Department of Defense. In various situations, the Company receives certain payments from the Mayo Foundation for reimbursement of clinical supplies. These payments are non-refundable and are not dependent on the Company’s ongoing future performance. The Company has adopted a policy of recognizing these payments when received and as revenue in accordance with Accounting Standards Update No. 2014 09, “Revenue from Contracts with Customers (Topic 606)” issued by the Financial Accounting Standards Board (“FASB”).
In August 2021, we received notice of a Product Development Research award totaling approximately $13.1 million from CPRIT to support our Phase 2 clinical trial of MT-401.
In accordance with ASC 730-20-25-8, the extent the financial risk associated with the research and development has been transferred to CPRIT, because repayment of the grant depends solely on the results of research and development having future economic benefit, the Company accounts for this obligation as a contract to perform research and development for others. The funds received from CPRIT will initially be recorded as a deferred credit in the Company’s balance sheet.
Cash received from grants in advance of incurring qualifying costs is recorded as deferred revenue and recognized as revenue when qualifying costs are incurred. During the fourth quarter of 2021, the Company received $2.4 million advancement of funds in relation to the CPRIT grant. The Company recorded $1.2 million of grant income related to CPRIT grant as revenue for the year ended December 31, 2021. At December 31, 2021 approximately $1.1 million was recorded as deferred revenue on the Company’s consolidated financial statements.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Tax Loss and Credit Carryforwards
As of December 31, 2021, we have approximately $130.5 million of federal and $38.6 million of state net operating loss carryforwards that may be available to offset future taxable income, if any. The federal net operating loss carryforwards of $41.6 million, if not utilized, will expire between 2029 and 2037. The federal net operating loss carryforwards of $88.9 million generated in 2018 and thereafter are subject to an 80% limitation on taxable income, do not expire and will carry forward indefinitely. The state net operating loss carryforwards of $21.9 million, if not utilized, will begin to expire in 2035. The state net operating loss carryforwards of $16.7 million generated in 2018 and thereafter are subject to an 80% limitation on taxable income, do not expire and will carry forward indefinitely. Any change in ownership greater than 50% under Section 382 of the Internal Revenue Code places significant annual limitations on the use of such net operating loss carryforwards.
At December 31, 2021 and 2020, we recorded a 100% valuation allowance against our deferred tax assets of approximately $36.4 million and $27.6 million, respectively, as our management believes it is uncertain that they will be fully realized. If we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards, an adjustment to valuation allowance against our deferred tax assets would increase net income in the period in which we make such a determination.
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Inflation
Inflation affects the cost of raw materials, goods and services that we use. In recent years, inflation has been modest. However, fluctuations in energy costs and commodity prices can affect the cost of all raw materials and components. The competitive environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. Although we cannot precisely determine the effects of inflation on our business, it is management’s belief that the effects on future revenues and operating results will not be significant. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to payroll-related costs and other costs arising from or related to government-imposed regulations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 8. FINANCIAL STATEMENTS
The Financial Statements are incorporated herein by reference to pages F-1 to F-21 at the end of this report and the supplementary data is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no changes in, or disagreements with our principal independent accountants.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2021 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. Our management, with participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2021 to provide reasonable assurance that the information required to be disclosed by us in this Annual Report was (a) reported within the time periods specified by SEC rules and regulations and (b) communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding any required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive, financial and accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the framework in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.
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Cybersecurity
We utilize information technology for internal and external communications with vendors, clinical sites, banks, investors and shareholders. Loss, disruption or compromise of these systems could significantly impact operations and results.
We are not aware of any material cybersecurity violation or occurrence. We believe our efforts toward prevention of such violation or occurrence, including system design and controls, processes and procedures, training and monitoring of system access, limit, but may not prevent unauthorized access to our systems.
Other than temporary disruption to operations that may be caused by a cybersecurity breach, we consider cash transactions to be the primary risk for potential loss. We and our financial institution take steps to minimize the risk by requiring multiple levels of authorization and other controls.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Internal Controls
In designing and evaluating the disclosure controls and procedures, management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item and not set forth below will be set forth in the sections headed “Election of Directors,” “Executive Officers” and “Delinquent Section 16(a) Reports” in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, or our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference.
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial and accounting officer or controller, or persons performing similar functions, known as the Code of Ethics and Business Conduct. The Code of Ethics and Business Conduct is available on our website at www.markertherapeutics.com under the Corporate Governance section of our Investors page. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth in the section headed “Executive Compensation” in our Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be set forth in the section headed “Securities Authorized for Issuance Under Equity Compensation Plans” and “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement and is incorporated herein by reference.
The information required by Item 201(d) of Regulation S-K will be set forth in the section headed “Executive Compensation " and "Information Regarding the Board of Directors and Corporate Governance” in our Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth in the section headed “Transactions with Related Persons and Indemnification” and “Information Regarding the Board of Directors and Corporate Governance” in our Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth in the section headed “Principal Accountant Fees and Services” in our Proxy Statement and is incorporated herein by reference.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The documents filed as part of this report are as follows:
1. The financial statements and accompanying report of independent registered public accounting firm are set forth immediately following the signature page of this report on pages F-1 through F-22.
2. All financial statement schedules are omitted because they are inapplicable, not required or the information is included elsewhere in the financial statements or the notes thereto.
3. The following is a list of exhibits filed as part of this Annual Report on Form 10-K.
EXHIBIT INDEX
Incorporated by Reference
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Incorporated by Reference
95
Table of Contents
Incorporated by Reference
96
Table of Contents
Incorporated by Reference
21.1 List of Subsidiaries X
24.1 Powers of Attorney (included on signature page) X
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Incorporated by Reference
101.INS XBRL Instance Document X
101.SCH XBRL Taxonomy Extension Schema Document X
101.LAB XBRL Taxonomy Extension Label Linkbase Document X
* Executive management contract or compensatory plan or arrangement.
** Confidential treatment has been granted as to certain portions of this exhibit pursuant to Rule 406 of the Securities Act of 1933, as amended, or Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
*** Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for conditional treatment and this exhibit has been submitted separately with the SEC.
# These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350 and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 17, 2022
Marker Therapeutics, Inc.
By: /s/ Peter Hoang
Peter Hoang
Chief Executive Officer (Principal Executive Officer)
By: /s/ Anthony Kim
Anthony Kim
Chief Financial Officer (Principal Financial and Accounting Officer)
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POWER OF ATTORNEY
Each of the undersigned officers and directors of Marker Therapeutics, Inc., hereby constitutes and appoints Peter Hoang and Anthony Kim, their true and lawful attorney-in-fact and agent, for them and in their name, place and stead, in any and all capacities, to sign their name to any and all amendments to this Report on Form 10-K, and other related documents, and to cause the same to be filed with the Securities and Exchange Commission, granting unto said attorneys, full power and authority to do and perform any act and thing necessary and proper to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present, and the undersigned for himself hereby ratifies and confirms all that said attorney shall 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 March 17, 2022 on behalf of the registrant and in the capacities indicated.
Signature Title Date
Peter Hoang
/s/ Frederick Wasserman Director March 17, 2022
Frederick Wasserman
/s/ David Laskow-Pooley Director March 17, 2022
David Laskow-Pooley
/s/ John Wilson Director March 17, 2022
John Wilson
/s/ Juan Vera Director March 17, 2022
Juan Vera
/s/ N. David Eansor Director March 17, 2022
N. David Eansor
/s/ Steve Elms Director March 17, 2022
Steve Elms
/s/ Katharine Knobil Director March 17, 2022
Katharine Knobil
Anthony Kim
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MARKER THERAPEUTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND DECEMBER 31, 2020
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders’ Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to the Consolidated Financial Statements F-7
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Marker Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Marker Therapeutics, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to sustain its operating expenses and capital expenditure requirements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2014.
Houston TX
March 17, 2022
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MARKER THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
ASSETS
Current assets:
Non-current assets:
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue 1,146,186 —
Non-current liabilities:
Stockholders' equity:
The accompanying notes are an integral part of these consolidated financial statements.
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MARKER THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
Revenues:
Operating expenses:
Other income:
Change in fair value of warrant liabilities — 31,000
Arbitration settlement (2,406,576) —
Net loss per share, basic and diluted $ (0.55) $ (0.61)
The accompanying notes are an integral part of these consolidated financial statements.
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MARKER THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Total
Common Stock Additional Paid- Accumulated Stockholders'
Shares Par value in Capital Deficit Equity
Stock options exercised for cash 1,456 2 3,085 — 3,087
The accompanying notes are an integral part of these consolidated financial statements.
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MARKER THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
Cash Flows from Operating Activities:
Reconciliation of net loss to net cash used in operating activities:
Changes in fair value of warrant liabilities — (31,000)
Changes in operating assets and liabilities:
Deferred revenue 1,146,186 —
Cash Flows from Investing Activities:
Cash Flows from Financing Activities:
Proceeds from exercise of warrants — 550,000
Proceeds from exercise of stock options 3,087 —
For the Years Ended
December 31,
Capital expenditures included in accounts payable $ 2,160,765 $ 1,180,276
Issuance of common stock as commitment fee for future financing $ — $ 345
The accompanying notes are an integral part of these consolidated financial statements.
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MARKER THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS DECEMBER 31, 2021 AND 2020
NOTE 1: NATURE OF OPERATIONS
Marker Therapeutics, Inc., a Delaware corporation (the “Company” or “we”), is a clinical-stage immuno-oncology company specializing in the development and commercialization of novel T cell-based immunotherapies and innovative peptide-based vaccines for the treatment of hematological malignancies and solid tumor indications. The Company’s MultiTAA-specific T cell technology is based on the selective expansion of non-engineered, tumor-specific T cells that recognize tumor associated antigens, which are tumor targets, and kill tumor cells expressing those targets. These T cells are designed to recognize multiple tumor targets to produce broad spectrum anti-tumor activity. The Company was incorporated in Nevada in 1992 and reincorporated in Delaware in October 2018.
NOTE 2: FINANCIAL CONDITION, GOING CONCERN AND MANAGEMENT PLANS
As of December 31, 2021, the Company had cash, cash equivalents and restricted cash of approximately $43.5 million. The Company’s activities since inception have consisted principally of acquiring product and technology rights, raising capital, and performing research and development. Successful completion of the Company’s development programs and, ultimately, the attainment of profitable operations are dependent on future events, including, among other things, its ability to access potential markets; secure financing; successfully progress its product candidates through preclinical and clinical development; obtain regulatory approval of one or more of its product candidates; maintain and enforce intellectual property rights; develop a customer base; attract, retain and motivate qualified personnel; and develop strategic alliances and collaborations. From inception, the Company has been funded by a combination of equity and debt financings.
On March 16, 2021, the Company issued an aggregate of 32,282,857 shares of its common stock, for net proceeds of $52.6 million.
In August 2021, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the "ATM Agreement") with Cantor Fitzgerald & Co. and RBC Capital Markets, LLC (the "Sales Agents"), pursuant to which the Company can offer and sell, from time to time at its sole discretion through the Sales Agents, shares of its common stock having an aggregate offering price of up to $75.0 million. Any shares of its common stock sold will be issued pursuant to the Company's shelf registration statement on Form S-3 (File No. 333-258687), which the SEC declared effective on August 19, 2021. The Sales Agents will be entitled to compensation under the Sales Agreement at a commission rate equal to 3.0% of the gross sales price per share sold under the ATM Agreement, and the Company has provided each of the Sales Agents with indemnification and contribution rights. To date, the Company has not sold any shares of its common stock under the ATM Agreement.
In August 2021, the Company received notice of a Product Development Research award totaling approximately $13.1 million from the Cancer Prevention and Research Institute of Texas ("CPRIT") to support the Company's Phase 2 clinical trial of MT-401. The CPRIT award is intended to support the adjuvant arm of the Company's Phase 2 clinical trial evaluating MT-401 when given as an adjuvant therapy to patients with acute myeloid leukemia following a hematopoietic stem cell transplant. The primary objectives of the adjuvant arm of the trial are to evaluate relapse-free survival after MT-401 treatment when compared with a randomized control group. To date, the Company has received $2.4 million of funds from the CPRIT grant. The Company recorded $1.2 million of grant income related to the CPRIT grant as revenue for the year ended December 31, 2021. At December 31, 2021, $1.1 million was recorded as Restricted Cash and Deferred Revenue on the Company’s consolidated financial statements.
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The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute its business plan, the Company will need to complete certain research and development activities and clinical trials. Further, the Company’s product candidates will require regulatory approval prior to commercialization. These activities will span many years and require substantial expenditures to complete and may ultimately be unsuccessful. Any delays in completing these activities could adversely impact the Company. The Company plans to meet its capital requirements primarily through issuances of debt and equity securities and, in the longer term, revenue from sales of its product candidates, if approved.
Based on the Company’s clinical and research and development plans and its timing expectations related to the progress of its programs, the Company expects that its cash, cash equivalents and restricted cash as of December 31, 2021 will enable the Company to fund its operating expenses and capital expenditure requirements into the first quarter of 2023, as such these factors raise substantial doubt regarding the Company's ability to continue as a going concern. The Company has based this estimate on assumptions that may prove to be wrong, and the Company could utilize its available capital resources sooner than it currently expects. Furthermore, the Company’s operating plan may change, and it may need additional funds sooner than planned in order to meet operational needs and capital requirements for product development and commercialization. Because of the numerous risks and uncertainties associated with the development and commercialization of the Company’s product candidates and the extent to which the Company may enter into additional collaborations with third parties to participate in their development and commercialization, the Company is unable to estimate the amounts of increased capital outlays and operating expenditures associated with its current and anticipated clinical trials. The Company’s future funding requirements will depend on many factors, as it:
● initiates or continues clinical trials of its product candidates;
● maintains and enforces intellectual property rights;
● evaluates strategic transactions the Company may undertake; and
These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
In addition to the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its long-term liquidity due to the COVID-19 pandemic. However, the Company will continue to assess the effect of the pandemic on its operations, including its clinical programs. The extent to which the COVID-19 pandemic will impact the Company’s business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, the emergence of any new variant strains of COVID-19, the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements, the timing, distribution, rate of public acceptance and efficacy of vaccines and other treatments, and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the duration of the COVID-19 pandemic may be difficult to assess or predict it could result in significant disruption of global financial markets, reducing 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 and any variant strains thereof could materially affect the Company’s business and the value of its common stock.
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NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Any reference in these footnotes to applicable guidance is meant to refer to the authoritative U.S. generally accepted accounting principles (“GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Marker Cell Therapy, Inc. and GeneMax Pharmaceuticals Inc. – a dormant subsidiary that wholly owns GeneMax Pharmaceuticals Canada, Inc. All significant intercompany balances and transactions are eliminated upon consolidation.
Prior Period Reclassification
Certain reclassifications have been made to reclass certain non-cash capital expenditures on the consolidated statements of cash flows from a cash outflow from investing activity to a non-cash investing activity. The Company has evaluated the materiality of this adjustment and concluded it was not material to the previously issued consolidated financial statements and had no impact to the reported consolidated balance sheets, consolidated statements of operations or net loss per share.
For the year ended December 31, 2020, this immaterial adjustment had the effect of increasing net cash used in operating activities and decreasing net cash used in investing activities by $1.2 million from what was previously reported.
Use of Estimates
Preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ materially from those estimates. Significant areas requiring management’s estimates and assumptions include valuation allowance on deferred tax assets, determining the fair value of stock-based compensation and stock-based transactions, the fair value of the components of the warrant liabilities and accrued liabilities.
Cash, Cash Equivalents, Restricted Cash and Credit Risk
The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash, cash equivalents and restricted cash at December 31, 2021 consisted of cash and certificates of deposit in institutions in the United States. Balances at certain institutions have exceeded Federal Deposit Insurance Corporation insured limits and U.S. government agency securities.
The Company maintains cash in accounts which are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits of $250,000. As of December 31, 2021, approximately $3.2 million in cash was uninsured based upon the FDIC insurance coverage limits.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.
December 31, December 31,
Cash, cash equivalents and restricted cash 2021 2020
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Cash received from grants in advance of incurring qualifying costs are recorded as restricted cash and deferred revenue until they are earned and recorded to grant income.
Property and Equipment
Leasehold improvements, furniture, equipment and software are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term.
Property and equipment - Construction in Progress
In June 2020, the Company entered into a lease for a manufacturing facility in Houston, Texas. In connection with the manufacturing facility, the Company has incurred costs pursuant to an agreement with a vendor to design, engineer, build and install modular cleanrooms in a manufacturing facility. The facility's construction was completed during December 2020, and a certificate of occupancy was delivered to the Company in January 2021, and as such was placed into service in January 2021. All costs associated with the buildout will be recorded as either manufacturing equipment and/or leasehold improvements and amortized over the estimated useful life of the asset and/or leasehold lease.
During the third and fourth quarters of 2021, and in connection with the Company's manufacturing facility in Houston, Texas, the Company incurred $2.2 million of costs pursuant to an agreement with a vendor to build and eventually install a second modular cleanroom. Such costs were recorded in fixed assets - construction in progress on the balance sheet as of December 31, 2021. Upon completion and installation of the modular cleanroom, all costs associated with the buildout will be recorded as manufacturing equipment and amortized over the estimated useful life.
Fair Value Measurements
The Company follows Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“ASC 820”) for the Company’s financial assets and liabilities that are re-measured and reported at fair value at each reporting period and are re-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three levels. Level inputs are defined as follows:
Patents and Patent Application Costs
Although the Company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Patent costs are, therefore, expensed as incurred.
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Stock-Based Compensation
The Company incurs stock-based compensation expense related to the issuance of common stock and stock options. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and expected option life:
Expected Term — The expected life of stock options was estimated using the "simplified method," as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant.
Expected Volatility — The Company computes stock price volatility over expected terms based on its historical common stock trading prices.
Risk-Free Interest Rate — The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.
Expected Dividend — The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. The Company amortizes the fair value of the awards expected to vest on a straight-line basis over the requisite service period of the awards. The Company recognizes fair value of stock options granted to nonemployees as stock-based compensation expense over the period in which the related services are received as if the Company had paid cash for those services. Forfeitures are accounted for as incurred.
Research and Development Costs
Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for research and development employees and consultants, facilities expenses, overhead expenses, cost of laboratory supplies, manufacturing expenses, fees paid to third parties and other outside expenses.
Research and development costs are expensed as incurred. Clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the clinical trial or project and the invoices received from its external service providers. The Company estimates depend on the timeliness and accuracy of the data provided by the vendors regarding the status of each project and total project spending. The Company adjusts its accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements, the milestone payment obligations are expensed when the milestone events are achieved.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax balances. Potential deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on potential deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the date of allowances against deferred tax assets.
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Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of December 31, 2021 and 2020, no liability for unrecognized tax benefits was required to be reported. The guidance also discusses the classification of related interest and penalties on income taxes. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the years ended December 31, 2021 and 2020.
Grant Income
The Company recognizes grant income in accordance with the terms stipulated under the grant awarded to the Company’s collaborators at the Mayo Foundation from the U. S. Department of Defense. In various situations, the Company receives certain payments from the Mayo Foundation for reimbursement of clinical supplies. These payments are non-refundable and are not dependent on the Company’s ongoing future performance. The Company has adopted a policy of recognizing these payments when received and as revenue in accordance with Accounting Standards Update No. 2014 09, "Revenue from Contracts with Customers (Topic 606)" issued by FASB.
In August 2021, we received notice of a Product Development Research award totaling approximately $13.1 million from CPRIT to support our Phase 2 clinical trial of MT-401.
In accordance with ASC 730-20-25-8, the extent the financial risk associated with the research and development has been transferred to CPRIT, because repayment of the grant depends solely on the results of research and development having future economic benefit, the Company accounts for this obligation as a contract to perform research and development for others. The funds received from CPRIT will initially be recorded as a deferred credit in the Company’s balance sheet.
Restricted cash received from grants in advance of incurring qualifying costs is recorded as deferred revenue and recognized as revenue when qualifying costs are incurred. During the fourth quarter of 2021, the Company received $2.4 million advancement of funds in relation to the CPRIT grant. The Company recorded $1.2 million of grant income related to the CPRIT grant as revenue for the year ended December 31, 2021. At December 31, 2021, $1.1 million was recorded as restricted cash and deferred revenue on the Company's consolidated financial statements.
Loss per Common Share
Basic loss per share includes only the weighted average common shares outstanding, without consideration of potentially dilutive securities. Diluted loss per share includes the weighted average common shares outstanding and any potentially dilutive common stock equivalent shares in the calculation.
New Accounting Standards
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, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on its financial position or results of operations upon adoption.
Recent Accounting Standards Adopted in the Year
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company has adopted the new standard effective January 1, 2021 and has concluded that the adoption of this standard did not have a material impact on its consolidated financial statements and related disclosures.
F-12
Table of Contents
NOTE 4: NET LOSS PER SHARE APPLICABLE TO COMMON SHAREHOLDERS
Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per common share is computed similarly to basic loss per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
The following table sets forth the computation of net loss per share for the years ended December 31, 2021 and 2020, respectively: