NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1
- NATURE OF BUSINESS
Enumeral
Biomedical Corp. (“Enumeral”) was founded in 2009 in the State of Delaware as Enumeral Technologies,
Inc. The name was later changed to Enumeral Biomedical Corp.
On
July 31, 2014, Enumeral entered into an Agreement and Plan of Merger and Reorganization with Enumeral Biomedical Holdings, Inc.,
which was formerly known as Cerulean Group, Inc. (“Enumeral Biomedical” or the “Company”),
and Enumeral Acquisition Corp., a wholly owned subsidiary of Enumeral Biomedical (“Acquisition Sub”),
pursuant to which the Acquisition Sub merged with and into Enumeral (the “Merger”). Enumeral was the
surviving corporation in the Merger and became a wholly owned subsidiary of the Company. As a result of the Merger, all issued
and outstanding common and preferred shares of Enumeral were exchanged for common shares of Enumeral Biomedical Holdings, Inc.
On
June 29, 2017, the Company’s board of directors, having evaluated and pursued a range of potential strategic
transactions, and other alternatives for the sale or disposition of its assets on a going concern basis, determined that it
is in the best interests of the Company’s stockholders and creditors to wind down its remaining operations and effect
an orderly disposition of its remaining assets. In connection with that determination, Wael Fayad resigned as the
Company’s Chief Executive Officer and President, although he remains Chairman of the Board. The Company’s board
appointed Kevin G. Sarney, its Vice President of Finance, Chief Accounting Officer and Treasurer, as Interim Chief Executive
Officer and President, and also elected Mr. Sarney to the board.
The
Company is currently in the process of winding down its operations, disposing of its remaining assets, and resolving its outstanding
debts. The Company’s liquidity is dependent on its ability to manage all elements in this process in a manner favorable
to the Company. As the Company winds down its operations, the Company has continued to consider possible transactions pursuant
to which it may sell its remaining assets and/or effect a strategic transaction, such as a merger. The Company may also determine
to commence liquidation or bankruptcy proceedings.
As
of the date of this filing, the Company does not have sufficient cash resources to continue to fund its operations and pay all
of its outstanding creditors.
On
September 19, 2017, the Company received an OTCQB Bid Price Deficiency Notice from OTC Markets (the “Notice”).
The Notice stated that the Company’s bid price had closed below $0.01 for more than 30 consecutive calendar days
and no longer met the Standards for Continued Eligibility for OTCQB as per the OTCQB Standards Section 2.3(2). The Notice also
stated that pursuant to Section 4.1 of the OTCQB Standards, the Company is granted a cure period of 90 calendar days during which
the minimum closing bid price for the Company’s common stock must be $0.01 or greater for ten consecutive trading
days in order to continue trading on the OTCQB marketplace. The Company does not expect that the closing bid price for its common
stock will equal or exceed $0.01 for ten consecutive trading days prior to the end of this 90 day cure period. As a result, the
Company expects that its common stock will be removed from trading on the OTCQB marketplace on or about December 18, 2017.
Previously,
the Company’s business had been focused on the discovery of monoclonal antibodies and other novel biologics for use
in the diagnosis and treatment of cancer, infectious and inflammatory diseases. The Company utilized a proprietary platform technology,
exclusively licensed from the Massachusetts Institute of Technology, or MIT. In August 2017, MIT terminated the exclusive patent
license agreement between MIT and Enumeral.
In
the Company’s lead antibody program, it characterized certain anti-PD-1 antibodies, or simply “PD-1
antibodies,” using patient biopsy samples, in an effort to identify next generation PD-1 antagonists with enhanced
selectivity for the immune effector cells that carry out anti-tumor functions. The Company identified two antagonist PD-1 antibodies
that inhibit PD-1 activity in different ways. The distinction is that one of the antibodies (ENUM 388D4) blocks binding of the
ligand PD-L1 to PD-1, while the other antibody (ENUM 244C8) does not inhibit PD-L1 binding. However, both display activity in
various biological assays. In addition to the Company’s PD-1 antibody program, it also conducted development activities
related to antibody drug candidates for a number of other immunomodulatory protein targets, including TIM-3 and CD39. In October
2017, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Elpiscience
Biopharmaceuticals, Inc. Pursuant to the terms of the Purchase Agreement, the Company sold, assigned and transferred all of its
right, title and interest in and to specified assets of the Company’s TIM-3 antibody program and CD39 antibody program
in consideration for a cash payment in the amount of $300,000.
The
Company continues to be a “smaller reporting company,” as defined under the Exchange Act, and an “emerging
growth company” under the Jump Start Our Business Startup (JOBS) Act of 2012. The Company believes that as a result
of the Merger, it has ceased to be a “shell company” (as such term is defined in Rule 12b-2 under the
Securities and Exchange Act of 1934, as amended (the “Exchange Act”)).
2
- GOING CONCERN AND LIQUIDITY
The
Company’s unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted
accounting principles in the United States, or GAAP, which contemplate the Company’s continuation as a going concern.
As of September 30, 2017, the Company had cash and cash equivalents of $208,616.
Since
the Company’s inception in 2009, it has incurred significant net losses and negative cash flows from operations.
As of September 30, 2017, the Company had an accumulated deficit of $31,987,428.
The
Company is currently in the process of winding down its operations, disposing of its remaining assets, and resolving its outstanding
debts. The Company’s liquidity is dependent on its ability to manage all elements in this process in a manner favorable
to the Company. As the Company winds down its operations, the Company has continued to consider possible transactions pursuant
to which it may sell its remaining assets and/or effect a strategic transaction, such as a merger. The Company may also determine
to commence liquidation or bankruptcy proceedings.
As
of the date of this filing, the Company does not have sufficient cash resources to continue to fund its operations and pay all
of its outstanding creditors. Consequently, the Company may not be able to continue as a going concern.
The
unaudited condensed consolidated financial statements do not include any adjustments related to the recovery and classification
of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue
as a going concern. The Company expects to incur significant expenses and operating losses for the foreseeable future, and the
Company’s net losses may fluctuate significantly from quarter to quarter and from year to year. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
3
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements were prepared using GAAP for interim financial information
and the instructions to Form 10-Q and Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements
do not include all information or notes required by GAAP for annual financial statements and should be read in conjunction with
the 2016 Financial Statements as filed on the Company’s Annual Report on Form 10-K for the year ended December 31,
2016, which was filed with the SEC on March 28, 2017.
The
preparation of the unaudited condensed consolidated financial statements in conformity with these accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of
expenses during the reported period. Ultimate results could differ from the estimates of management.
In
the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary
to present fairly the Company’s financial position as of September 30, 2017 and the results of its operations and
cash flows for the nine months ended September 30, 2017 and 2016. Such adjustments are of a normal recurring nature. The results
of operations for the three and nine months ended September 30, 2017 may not be indicative of results for the full year.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis,
the Company’s management evaluates its estimates, which include, but are not limited to, estimates related to accruals,
stock-based compensation expense, warrants to purchase securities, and reported amounts of revenue and expenses during the reported
period. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that
it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.
Fair
Value of Financial Instruments
Fair
values of financial instruments included in current assets and current liabilities are estimated to approximate their book values,
due to the short maturity of such instruments. All debt is based on current rates at which the Company could borrow funds with
similar remaining maturities and approximates fair value. The Company’s assets and liabilities that are measured
at fair value on a recurring basis are measured in accordance with the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) Topic 820,
Fair Value Measurements and Disclosures
, which establishes a three-level valuation hierarchy for measuring fair value and expands financial statement disclosures about
fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability
as of the measurement date.
The
three levels are defined as follows:
|
●
|
Level
1
: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets in active markets.
|
|
●
|
Level
2
: Inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the
financial instrument.
|
|
●
|
Level
3
: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The
Company’s cash equivalents, carried at fair value, are comprised of investments in federal agency backed money market
funds. The following table presents information about the Company’s financial assets measured at fair value on a
recurring basis as of September 30, 2017 and December 31, 2016:
|
|
September 30,
2017
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
169,766
|
|
|
$
|
169,766
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds, included in cash equivalents
|
|
$
|
38,850
|
|
|
$
|
38,850
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
December 31,
2016
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,137,633
|
|
|
$
|
1,137,633
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds, included in cash equivalents
|
|
$
|
2,024,767
|
|
|
$
|
2,024,767
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Impairment
of Long-Lived Assets
Long-lived
assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted
expected future cash flows. If this comparison indicated that there is impairment, the amount of the impairment is calculated
as the difference between the carrying value and fair value. The Company has recorded an impairment of $493,541 on the disposal
of fixed assets during the nine months ended September 30, 2017 as a result of the Company’s decision to wind down
operations. The Company recorded no impairment during the three and nine months ended September 30, 2016.
Collaboration
and license revenue
Merck
In
December 2014, the Company entered into a study agreement with Merck Sharp & Dohme Corp., or Merck (the “Merck
Agreement”). In February 2016, the Company and Merck subsequently amended the work plan under the Merck Agreement
to also include non-small cell lung cancer tissues. Pursuant to the Merck Agreement, the Company conducted a specified research
program using its platform technology to identify functional response of single cell types in colorectal cancer and non-small
cell lung cancer in the presence or absence of immunomodulatory receptor modulators identified by Merck. Merck reimbursed the
Company for the cost of performing the work plan set forth in the Merck Agreement, for up to a specified number of full-time employees
at a pre-determined annual rate. In addition, Merck agreed to make certain milestone payments to the Company upon the completion
of specified objectives set forth in the Merck Agreement and related work plan.
On
May 31, 2017, the Company and Merck further amended the Merck Agreement to extend the term until the earlier of (i) delivery to
Merck of the final report of the study conducted pursuant to the terms of the Merck Agreement, or (ii) December 17, 2017. The
May 2017 amendment also provides for a revised work plan to be included in the Merck Agreement. During the nine months ended September
30, 2017, the Company achieved the second milestone under the Merck Agreement.
In
June 2017, the Company reduced headcount and eliminated its research and development function. In addition, the Company sold all
of the equipment related to its research and development activities. The Company is currently in the process of winding down its
operations, disposing of its remaining assets, and resolving its outstanding debts. Consequently, the Company does not expect
to conduct any further activities pursuant to its study agreement with Merck.
There
have been no other material changes to the significant accounting policies previously disclosed in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on March 28, 2017.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU No. 2014-09 provides
for a single comprehensive model for use in accounting for revenue arising from contracts with customers and supersedes most current
revenue recognition guidance. The accounting standard is effective for interim and annual periods beginning after December 15,
2016 with no early adoption permitted. In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date
, which deferred the effective date of ASU No. 2014-09 to annual periods beginning
after December 15, 2017, along with an option to permit early adoption as of the original effective date. The Company is required
to adopt the amendments in ASU No. 2014-09 using one of two acceptable methods. In April 2016, the FASB issued ASU No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.
The ASU clarifies
the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance.
The ASU does not change the core principle of the guidance in Topic 606. In May 2016, the FASB issued ASU No. 2016-12,
Revenue
from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
, related to disclosures of remaining
performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation
of sales and other similar taxes collected from customers. The new revenue standard allows for either full retrospective or modified
retrospective application. The Company anticipates using the modified retrospective approach to implement this standard. The effective
date and transition requirements for the ASUs are the same as the effective date and transition requirements in Topic 606. Public
entities should apply the ASUs for annual reporting periods beginning after December 15, 2017, including interim reporting periods
therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual
reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company
does not expect to record a material adjustment upon adoption as the Company’s current contracts with customers will
be completed prior to adoption of the new standard using the modified retrospective application, which requires a cumulative effect
of initially applying the standard to opening accumulated deficit as of January 1, 2018. The Company does anticipate changes in
its revenue recognition policies for revenue generating contracts the Company may enter into in the future.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. ASU No. 2016-02 is effective for annual periods beginning
after December 15, 2018, and requires a lessee to recognize assets and liabilities for leases with a maximum possible term of
more than 12 months. A lessee would recognize a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the leased asset (the underlying asset) for the lease term. Early application is permitted. The
Company is currently evaluating the impact the adoption of the accounting standard will have on its unaudited condensed consolidated
financial statements.
In
November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. ASU 2016-18 requires
entities to reconcile and explain the period-over-period change in total cash, cash equivalents and restricted cash within its
statements of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within, beginning after December 15,
2017. Early adoption is permitted. A reporting entity must apply the amendments in ASU 2016-18 using a full retrospective approach.
The Company is currently evaluating the impact the adoption of the ASU will have on its unaudited condensed consolidated financial
statements.
In
July 2017, the FASB issued ASU No. 2017-11,
Earnings per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.
The amendments in Part I of ASU 2017-11 change the
classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining
whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer
precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments
also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial
instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result
of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities
that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is
triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible
instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent
beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance
(in Topic 260). The amendments in Part II of ASU 2017-11 recharacterize the indefinite deferral of certain provisions of Topic
480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting
effect. For public entities, the amendments in Part I of ASU 2017-11 are effective for fiscal years beginning after December 15,
2018, and interim periods within fiscal years beginning after December 15, 2019, with early adoption permitted. The Company does
not believe that the adoption of ASU 2017-11 will have a material impact on its unaudited condensed consolidated financial statements.
Other
accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the Company’s unaudited condensed consolidated financial
statements.
4
- PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Laboratory equipment
|
|
$
|
—
|
|
|
$
|
2,398,685
|
|
Computer equipment and software
|
|
|
—
|
|
|
|
115,885
|
|
Furniture, fixtures and office equipment
|
|
|
—
|
|
|
|
73,734
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
75,262
|
|
Property and equipment, gross
|
|
|
—
|
|
|
|
2,663,566
|
|
Less - Accumulated depreciation
|
|
|
—
|
|
|
|
(1,761,469
|
)
|
Property and equipment, net
|
|
$
|
—
|
|
|
$
|
902,097
|
|
There
was no depreciation and amortization expense for the three months ended September 30, 2017. Depreciation and amortization expense
for the three months ended September 30, 2016 was $126,301. Depreciation and amortization expense for the nine months ended September
30, 2017 and 2016 was $219,389 and $480,301, respectively.
On
June 21, 2017, the Company completed an auction pursuant to which it sold all of the equipment related to its research and development
activities. The Company received $277,188 in net proceeds from the sale of this equipment. As a result of the equipment sale and
the impairment of the Company’s remaining fixed assets, the Company incurred a loss on disposal of fixed assets of
$435,011 during the nine months ended September 30, 2017. Loss on disposal of fixed assets is included in wind down expenses on
the condensed consolidated statement of operations for the nine months ended September 30, 2017.
5
- RESTRICTED CASH
The
Company held $5,000 and $534,780 in restricted cash as of September 30, 2017 and December 31, 2016, respectively. The balance
as of December 31, 2016 was primarily held on deposit with a bank to collateralize a standby letter of credit in the name of the
Company’s facility lessor in accordance with the Company’s facility lease agreement. The Company is
currently engaged in negotiations with the lessor regarding the disposition of the facility lease. The Company extinguished the
letter of credit and recorded wind down expenses of $529,699 during the nine months ended September 30, 2017. In October 2017,
following the Company’s determination to discontinue monthly rent payments for periods after July 2017, and the lessor’s
notice to the Company terminating the facility lease agreement, the lessor took possession of the Company’s cash
security deposit in the amount of $529,699.
6
- ACCRUED EXPENSES
The
Company’s accrued expenses consist of the following as of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accrued wages and benefits
|
|
$
|
43,337
|
|
|
$
|
222,141
|
|
Accrued professional fees
|
|
|
88,225
|
|
|
|
130,350
|
|
Accrued other
|
|
|
66,144
|
|
|
|
33,864
|
|
Total accrued expenses
|
|
$
|
197,706
|
|
|
$
|
386,355
|
|
7
- DEBT
Equipment
Lease Financing
In
December 2015, the Company and Fountain Leasing 2013 LP (“Fountain”) entered into a master lease agreement
and related transaction documents, pursuant to which Fountain provided the Company with $506,944 for the purchase of research
and development lab equipment (the “Fountain Lease”). Fountain’s security under the Fountain
Lease is the equipment purchased and a security deposit in the amount of $101,389. The initial term of the Fountain Lease is 36
months, with payments of $21,545 per month for the first 24 months and then $1,267 for the 12 months thereafter. Pursuant to the
terms of the Fountain Lease, the Company has an option at the end of the initial term to purchase the equipment for the greater
of $25,347 or current fair market value, provided that such amount shall not be in excess of $152,083. In addition, the Company
also has the option to extend the Fountain Lease for an additional 12 month period at a rate of $8,872 per month with the right
at the end of such extension term to purchase the equipment for fair value or to return the equipment to Fountain. The Fountain
Lease has a lease rate factor of 4.25% per month for the first 24 months and 0.25% for the final 12 months of the initial term.
The
Company recorded current equipment lease financing of $251,631 and long-term equipment lease financing of $14,840 as of December
31, 2016. The equipment is included in property and equipment on the Company’s unaudited condensed consolidated balance
sheet as of December 31, 2016.
On
June 13, 2017, the Company entered into an agreement with Fountain to buy out the remaining equipment lease. The Company agreed
to pay Fountain $204,045 (the “Buyout Price”) to terminate the Fountain Lease. Fountain applied security
deposits and prepayments in the aggregate amount of $111,389 to offset the Buyout Price, and the Company paid Fountain the remaining
amount of $92,656. As a result, the Company recorded a loss on disposal of fixed assets of $58,530 during the nine months ended
September 30, 2017. The Company subsequently sold this and other laboratory equipment in an auction that ended on June 21, 2017.
2017
Unit Offering
On
May 19, 2017 (the “Closing Date”), the Company entered into a Subscription Agreement (the “Subscription
Agreement”) with certain accredited investors, pursuant to which these investors (the “Holders”)
purchased 668 Units (the “2017 Units”) of the Company’s securities, at a purchase price
of $1,000 per Unit (the “2017 Unit Offering”). Each of the 2017 Units consists of (i) a 12% Senior Secured
Promissory Note (the “2017 Notes”), with a face value of $1,150, and (ii) a warrant (the “Investor
Warrant”) to purchase 11,500 shares of the Company’s common stock, $0.001 par value per share (the “Common
Stock”), exercisable until five years after the date of the closing, at an exercise price of $0.10 per share (subject
to adjustment in certain circumstances). The Company recorded $461,367 in net proceeds, after deducting placement agent expenses
and fees, as well as other transaction expenses, in connection with the sale of the 2017 Units.
Interest
on the 2017 Notes is payable on the face value of the 2017 Notes at the rate of 12% per annum, which is cumulative and due and
payable in shares of Common Stock (the “Interest Shares”). The 2017 Notes have a stated maturity date
of 12 months from the Closing Date. The 2017 Notes will rank senior to all existing indebtedness of the Company, except as otherwise
set forth in the 2017 Notes.
In
the event of any liquidation, dissolution or winding up of the Company, the Holders will be entitled to receive, out of assets
available therefor, an amount equal to 124% of the outstanding principal amount of the 2017 Notes, together with accrued and unpaid
interest due thereon. In the event of a sale of the Company during the term of the 2017 Notes, at the closing of such sale, at
the option of each Holder, the Holders will be entitled to receive an amount equal to 200% of the outstanding principal amount
of the 2017 Notes and the associated accrued and unpaid interest due thereon; provided, that such amount will be paid in either
cash or securities of the acquiring entity at such acquiring entity’s discretion.
The
2017 Notes are convertible at the option of the Holders, in whole or in part, into shares of Common Stock (the “Conversion
Shares” and together with the Interest Shares, the “Repayment Shares”) at any time after
the earlier of (i) the date a registration statement registering the Repayment Shares is declared effective by the SEC or (ii)
six months after the date of the initial closing of the 2017 Unit Offering. If no conversion has taken place within 12 months
after the Closing Date the 2017 Notes, together with accrued and unpaid interest thereon, will automatically convert into the
Repayment Shares.
The
conversion price per share of Common Stock in either event listed above is the lesser of (i) $0.10 per share (subject to adjustment
in certain circumstances), or (ii) 75% of the volume weighted average price of the Common Stock during 10 consecutive trading
days ending on the trading day immediately prior to the conversion date, subject to a floor of $0.03 per share (which floor is
subject to adjustment in certain circumstances if the Company issues Common Stock, or Common Stock equivalents, at a price below
$0.03 per share of Common Stock, and to proportionate adjustment in certain other circumstances).
The
2017 Notes provide that the outstanding principal amount of the 2017 Notes, together with accrued and unpaid interest due thereon,
will convert automatically into Common Stock on the date on which the Company completes and closes an offering involving the sale
of at least $5,000,000 of equity securities or securities convertible into or exercisable for equity securities by the Company
(a “Qualified Financing”). At the closing of a Qualified Financing, all outstanding principal and accrued
interest then due on the 2017 Notes shall automatically be converted into a number of shares of Common Stock based upon a 25%
discount to the lesser of (i) the lowest price at which Common Stock is sold in the Qualified Financing, or (ii) the lowest price
at which securities sold in the Qualified Financing can be exercised for or converted into Common Stock.
The
Company’s obligations under the 2017 Notes are secured, pursuant to the terms of an Intellectual Property Security
Agreement (the “Security Agreement”), dated as of the Closing Date, among the Grantors (as defined below),
the Holders and the collateral agent for the Holders named therein, by a first priority security interest in all now owned or
hereafter acquired intellectual property of the Company and Enumeral Biomedical Corp., a wholly-owned subsidiary of the Company
(the “Subsidiary” and together with the Company, the “Grantors”), except to
the extent such intellectual property cannot be assigned or the creation of a security interest would be prohibited by applicable
law or contract.
On
October 23, 2017, the Grantors entered into Amendment No. 1 to the Security Agreement (the “Amendment”)
with certain Holders who constituted Majority Holders (as defined in the Security Agreement). Pursuant to the terms of the Amendment,
the Security Agreement was amended to exclude from the definition of collateral in the Security Agreement all intellectual property
and other assets related to the Grantors’ TIM-3 antibody program and CD39 antibody program, and to terminate the
security interest held by the Holders in such assets.
Pursuant
to the terms of a Placement Agency Agreement (the “Placement Agency Agreement”), dated as of May 12,
2017, between the Company and the placement agents for the 2017 Unit Offering (the “Placement Agents”),
the Placement Agents are paid a commission equal to ten percent (10%) of the gross proceeds at each closing of the 2017 Unit Offering
(the “Placement Agent Cash Fee”). The Placement Agency Agreement also provides that the Placement Agents,
or their designees, will receive five-year warrants (the “2017 Placement Agent Warrants”) to purchase
a number of shares of Common Stock at an exercise price of $0.05 per share equal to 10% of the number of Conversion Shares issuable
upon conversion of the 2017 Notes issued at each closing of the 2017 Unit Offering, based on a conversion price of $0.10 per share.
In accordance with the terms of the Placement Agency Agreement, on the Closing Date the Company issued 2017 Placement Agent Warrants
to purchase an aggregate of 768,200 shares of Common Stock on the terms set forth above to the Placement Agents.
The
Placement Agency Agreement also provides that if, within 12 months of the first closing of the 2017 Unit Offering, the Company
completes a financing or similar transaction (a “Subsequent Financing”) with a party introduced to the
Company by the Placement Agents in connection with the 2017 Unit Offering, and a Placement Agent does not participate in such
financing or similar transaction, the Placement Agent shall be entitled to receive a Placement Agent Cash Fee and 2017 Placement
Agent Warrants for such Subsequent Financing in the same manner as calculated for the 2017 Unit Offering.
Pursuant
to a Registration Rights Agreement, dated as of the Closing Date (the “Registration Rights Agreement”),
the Company granted registration rights to each Holder with respect to the Repayment Shares and the shares of Common Stock issuable
upon exercise of the Investor Warrants (the “Investor Warrant Shares”), and to the Placement Agent with
respect to the shares of Common Stock issuable upon exercise of the 2017 Placement Agent Warrants (the “Placement
Agent Warrant Shares,” and, together with the Repayment Shares and Investor Warrant Shares, the “Registrable
Shares”). Under the terms of the Registration Rights Agreement, the Company agreed to use its commercially reasonable
efforts to promptly, but no later than 60 calendar days from the final closing date of the 2017 Unit Offering (the “Final
Closing Date”), file a registration statement with the SEC (the “Registration Statement”)
to register the resale of the Registrable Shares. The Company also agreed to use its commercially reasonable efforts to ensure
that such Registration Statement is declared effective within 135 calendar days of the Final Closing Date.
The
Registration Rights Agreement provides that if the Company is late in filing the Registration Statement or if the Registration
Statement is not declared effective within 135 days of the Final Closing Date, or if certain other Registration Events (as defined
in the Registration Rights Agreement) occur, the Company will be required to pay the holders of Registrable Shares liquidated
damages at a rate of 12% per annum of (i) the aggregate purchase price paid by such holder for the Registrable Shares pursuant
to the Subscription Agreement, or (ii) $0.05 per share of Registrable Shares issued and issuable to such holder upon exercise
of the 2017 Placement Agent Warrants, subject to certain limitations set forth in the Registration Rights Agreement; provided,
however, that in no event shall the aggregate of any such liquidated damages exceed five percent (5%) of the applicable foregoing
amounts described above with respect to such holder’s Registrable Shares that are affected by all Registration Events
in the aggregate. No liquidated damages will accrue and accumulate with respect to (a) any Registrable Shares removed from the
Registration Statement in response to a comment from the staff of the SEC limiting the number of shares of Common Stock which
may be included in the Registration Statement. As of the date of this filing, the Company has not filed a Registration Statement,
and the Company has accrued approximately $17,000 for liquidated damages as of September 30, 2017.
The
2017 Notes were recorded at their face value of $768,200 and then subsequently reduced by the discount on the 2017 Notes of $100,200,
placement agent commissions, legal fees and related transaction expenses of $206,633, and a beneficial conversion feature and
debt discounts totaling $461,367. Some of these amounts were capped as they exceeded the face value of the 2017 Notes. The Company
subsequently accreted $768,200, the sum of the amounts above, to interest expense during the period ended June 30, 2017 as a result
of its decision to wind down the business. The Company recorded $23,316 and $33,702 in interest expense related to the 2017 Notes
during the three and nine month periods ended September 30, 2017, respectively.
8
- COMMITMENTS
Operating
Leases
In
March 2015, the Company relocated its offices and research laboratories to 200 CambridgePark Drive in Cambridge, Massachusetts.
The Company is leasing 16,825 square feet at this facility (the “Premises”) pursuant to Indenture of
Lease (the “Lease”) that the Company entered into in November 2014. The term of the Lease is for five
years, and the initial base rent is $42.50 per square foot, or approximately $715,062 on an annual basis. The base rent will increase
incrementally over the term of the Lease, reaching approximately $804,739 on an annual basis in the fifth year of the term. In
addition, the Company is obligated to pay a proportionate share of the operating expenses and applicable taxes associated with
the premises, as calculated pursuant to the terms of the Lease. The Company is also obligated to deliver a security deposit to
the landlord in the amount of $529,699, either in the form of cash or an irrevocable letter of credit. The Company has recorded
deferred rent in connection with the Lease as of December 31, 2016 in the amount of $63,116.
In
August 2017, the Company received a letter (the “Termination Letter”) on behalf of PPF OFF 200 Cambridge
Park Drive, LLC (the “Landlord”) terminating the Lease. The Termination Letter stated that the Landlord
has terminated the Lease effective immediately, pursuant to Section 20.2 thereof. The Termination Letter noted that the Company
had failed to pay certain items of rent and other charges due on August 1, 2017, and that such failure had continued through the
applicable cure period following initial notice delivered to the Company, which constitutes an Event of Default (as defined in
the Lease). The Termination Letter stated that the Company is directed to immediately quit, surrender and deliver up the premises
that are the subject of the Lease. The Termination Letter also noted that the Landlord reserves the right to avail itself of all
rights and remedies under the Lease, at law and/or in equity.
In
connection with the Company’s decision to wind down its remaining operations, the Company recorded wind down expenses
of $561,705 during the nine months ended September 30, 2017. This is the result of the extinguishment of prepaid rent of $99,115
and restricted cash of $529,699, offset by the extinguishment of deferred rent of $67,109, all of which were associated with the
Lease. In October 2017, following the Company’s determination to discontinue monthly rent payments for periods after
July 2017, and the Landlord’s delivery of the Termination Letter to the Company, the Landlord took possession of
the Company’s cash security deposit in the amount of $529,699.
In
addition, the Company maintained a small corporate office at 1370 Broadway in New York, New York, at an annual rent of $23,100.
The lease for the Company’s New York office expired on December 31, 2016.
Rent
expense was $18,966 and $282,423 for the three months ended September 30, 2017 and 2016, respectively. Rent expense was $638,485
and $929,243 for the nine months ended September 30, 2017 and 2016, respectively.
The
Company has made monthly rent payments under the Lease for periods through July 2017, but the Company has not made any monthly
rent payments that were subsequently due. The future operating lease commitments listed below do not reflect the $529,699 cash
security deposit that the Landlord took possession of in October 2017:
For the twelve months ended September 30,
|
|
Amount
|
|
2018
|
|
|
$
|
898,329
|
|
2019
|
|
|
|
794,996
|
|
2020
|
|
|
|
335,308
|
|
Total
|
|
|
$
|
2,028,633
|
|
Employment
Agreements
The
Company has letter agreements with its two remaining employees that contain provisions for continued payments of minimum annual
salaries and severance benefits in the event of certain terminations of employment.
9
- LICENSE AGREEMENT AND RELATED-PARTY TRANSACTIONS
License
Agreement
In
April 2011, Enumeral licensed certain intellectual property from the Massachusetts Institute of Technology (“MIT”),
then a related party (as one of Enumeral’s scientific co-founders was an employee of MIT), pursuant to an Exclusive
License Agreement (as subsequently amended, the “License Agreement”), in exchange for the payment of upfront license
fees and a commitment to pay annual license fees, patent costs, milestone payments, royalties on sublicense income and, upon product
commercialization, royalties on the sales of products covered by the licenses or income from corporate partners, and the issuance
of 66,303 shares of Enumeral common stock (which were subsequently converted into 73,074 shares of the Company’s
common stock in connection with the July 2014 Merger). The License Agreement also initially contained certain participation rights
and anti-dilution rights, pursuant to which MIT received additional shares of Enumeral common stock. These participation and anti-dilution
rights were removed in a subsequent amendment to the License Agreement. The intellectual property portfolio under the License
Agreement includes patents owned by Harvard University or co-owned by MIT and The Whitehead Institute, or MIT and Massachusetts
General Hospital.
In
addition to potential future royalty and milestone payments that Enumeral may have to pay MIT per the terms of the License Agreement,
Enumeral paid an annual fee of $50,000 in 2017. During the nine months ended September 30, 2017, the Company recorded an accrual
of $10,000 for the required percentage of the Merck milestone payment owed to MIT pursuant to the terms of the License Agreement.
During the nine months ended September 30, 2016, the Company recorded an accrual of $100,000 for the required percentage of the
Pieris license payments owed to MIT pursuant to the terms of the License Agreement. No royalty payments have been payable as Enumeral
has not commercialized any products as set forth in the License Agreement.
On
August 23, 2017, the Company received written notification from MIT, pursuant to which MIT terminated, effective immediately,
the License Agreement. Pursuant to the terms thereof, certain provisions of the License Agreement survive the termination. In
addition, the termination does not release the Company from any obligations accrued prior to the date of termination.
All
amounts incurred related to the license fees have been expensed as research and development expenses by Enumeral as incurred.
The Company incurred $12,500 and $10,000 in the three months ended September 30, 2017 and 2016, respectively. The Company incurred
$37,500 and $30,000 in the nine months ended September 30, 2017 and 2016, respectively.
Under
the terms of the now-terminated License Agreement, the Company reimbursed the costs to MIT and Harvard University for the continued
prosecution of the licensed patent estate. For the three months ended September 30, 2017 and 2016, the Company paid $14,156 and
$23,052 for MIT and $355 and $2,351 for Harvard, respectively. For the nine months ended September 30, 2017 and 2016, the Company
paid $43,648 and $162,692 for MIT and $21,198 and $17,692 for Harvard, respectively. The Company had accounts payable and accrued
expenses of $25,000 and $43,053 associated with the reimbursement of costs to MIT and Harvard as of September 30, 2017 and December
31, 2016, respectively.
Consulting
Agreements
In
September 2014, the Company and Barry Buckland, Ph.D., entered into a Scientific Advisory Board Agreement (the “SAB
Agreement”), which replaced Dr. Buckland’s previous consulting agreement and pursuant to which Dr. Buckland
served as chairman of the Company’s Scientific Advisory Board. In September 2016, the Company and Dr. Buckland entered
into an amendment to the SAB Agreement to extend the term of the agreement to September 2017. Pursuant to the terms of the
SAB Agreement, Dr. Buckland received compensation on an hourly or per diem basis, either in cash or, at Dr.
Buckland’s election, in options to purchase the Company’s common stock. The SAB Agreement limits the total amount
of compensation payable to Dr. Buckland at $100,000 over any rolling 12-month period. During the three months ended September
30, 2017, the Company recorded no expense related to the SAB agreement. During the three months ended September 30, 2016, the
Company recorded $4,000 of expense related to the SAB agreement. During the nine months ended September 30, 2017 and 2016,
the Company recorded $3,000 and $8,000 of expense related to the SAB agreement, respectively.
On
July 31, 2017, Dr. Buckland resigned as a member of the Company’s Board of Directors and as Chairman of the SAB.
10
- STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS
Stock
Options
On
July 31, 2014, the Company’s Board of Directors adopted, and the Company’s stockholders approved, the
2014 Equity Incentive Plan (the “2014 Plan”), which reserves a total of 8,100,000 shares of the Company’s
common stock for incentive awards. Generally, shares that are expired, terminated, surrendered or cancelled without having been
fully exercised will be available for future awards.
As
of September 30, 2017, there were 1,311,042 shares available for issuance under the 2014 Plan to eligible employees, non-employee
directors and consultants. This number is subject to adjustment in the event of a stock split, reverse stock split, stock dividend,
or other changes in the Company’s capitalization.
During
the nine months ended September 30, 2017 and 2016, there were 308,333 and 4,068,182 stock options granted to employees, directors
or consultants with weighted-average grant date fair values, using the Black-Scholes pricing model, of $0.12 and $0.16, respectively.
The
Company estimates the fair value of each stock award on the grant date using the Black-Scholes option-pricing model based on
the following assumptions and the assumptions regarding the fair value of the underlying common stock on each measurement
date:
|
|
For
the nine months
ended
September 30, 2017
|
Expected
Volatility
|
|
115% - 116%
|
Risk-free
interest rate
|
|
1.93% - 2.09%
|
Expected
term (in years)
|
|
5.0 - 6.0
|
Expected
dividend yield
|
|
0%
|
Stock-based
compensation expense for stock options was $33,149 and $260,343 for the three months ended September 30, 2017 and 2016, respectively.
Stock-based compensation expense for stock options was $177,150 and $803,747 for the nine months ended September 30, 2017 and
2016, respectively. The Company has an aggregate of $105,350 of unrecognized stock-based compensation expense for stock options
as of September 30, 2017 to be amortized over a weighted average period of 1.0 years.
In
connection with Wael Fayad’s appointment as the Company’s Chairman, Chief Executive Officer and President
in September 2016, the Company granted Mr. Fayad 1,750,000 options to purchase the Company’s common stock outside
of the 2014 Plan, and 850,000 options to purchase the Company’s common stock under the 2014 Plan.
On
June 29, 2017, Mr. Fayad resigned as the Company’s President and Chief Executive Officer. Mr. Fayad remains on the
Company’s Board of Directors and continues to serve as Chairman of the Board. Mr. Fayad’s options to
purchase shares of the Company’s common stock remain outstanding while he continues to serve on the Company’s
Board of Directors.
On
June 9, 2017, the Company entered into an amendment (the “Tinkelenberg Amendment”) to that certain separation
letter agreement (the “Separation Agreement”), dated as of August 4, 2016, by and between the Company
and Arthur H. Tinkelenberg, Ph.D., the Company’s former President and Chief Executive Officer. Pursuant to the terms
of the Separation Agreement, the Company had agreed, among other things, to make certain payments to Dr. Tinkelenberg in connection
with his separation of employment from the Company.
Pursuant
to the terms of the Tinkelenberg Amendment, Dr. Tinkelenberg agreed to forego the remaining amounts of the severance payments
due to him under the Separation Agreement, effective as of June 1, 2017. In addition, the Company agreed that all remaining unvested
options to purchase shares of the Company’s common stock held by Dr. Tinkelenberg fully vest and become exercisable
as of June 1, 2017. The Company’s stock-based compensation expense includes $55,929 recorded during the nine months
ended September 30, 2017 as a result of the accelerated vesting of Dr. Tinkelenberg’s common stock options.
A
summary of aggregate stock option activity both under the 2014 Plan and outside of the 2014 Plan for the nine months ended September
30, 2017 is as follows:
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (years)
|
|
Outstanding as of December 31, 2016
|
|
|
|
7,670,823
|
|
|
$
|
0.41
|
|
|
|
8.8
|
|
Granted
|
|
|
|
308,333
|
|
|
$
|
0.15
|
|
|
|
|
|
Canceled
|
|
|
|
(422,023
|
)
|
|
$
|
0.26
|
|
|
|
|
|
Outstanding as of September 30, 2017
|
|
|
|
7,557,133
|
|
|
$
|
0.40
|
|
|
|
7.8
|
|
Exercisable as of September 30, 2017
|
|
|
|
4,837,885
|
|
|
$
|
0.49
|
|
|
|
7.7
|
|
The
aggregate intrinsic value of stock options exercisable as of September 30, 2017 was $0. The aggregate intrinsic value was calculated
as the difference between the exercise price of the stock options and the fair value of the underlying common stock as of the
unaudited condensed consolidated balance sheet date.
Restricted
Stock
Stock-based
compensation expense for restricted stock awards was $2,495 and $20,633 for the three months ended September 30, 2017 and 2016,
respectively. Stock-based compensation expense for restricted stock awards was $9,980 and $79,551 for the nine months ended September
30, 2017 and 2016, respectively.
A
summary of restricted stock activity for the nine months ended September 30, 2017 is as follows:
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
Balance of unvested restricted stock as of December 31, 2016
|
|
|
—
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
66,666
|
|
|
$
|
0.15
|
|
Vested
|
|
|
(50,000
|
)
|
|
$
|
0.15
|
|
Balance of unvested restricted stock as of September 30, 2017
|
|
|
16,666
|
|
|
$
|
0.15
|
|
The
Company has a
de minimis
amount of unrecognized stock-based compensation expense for restricted stock awards as of September
30, 2017.
Warrants
A
summary of the warrants outstanding as of September 30, 2017 is as follows:
Warrant Type
|
|
Warrants
|
|
|
Exercise
Price
|
|
PPO
|
|
|
13,686,510
|
|
|
$
|
2.00
|
|
PPO Agent
|
|
|
2,000,000
|
|
|
$
|
0.125
|
|
Enumeral Series B Financing
|
|
|
421,969
|
|
|
$
|
0.726
|
|
Enumeral 2014 Convertible Promissory Note Financing
|
|
|
510,236
|
|
|
$
|
0.245
|
|
2016 Placement Agent
|
|
|
4,880,655
|
|
|
$
|
0.0625
|
|
2017 Unit Offering
|
|
|
7,682,000
|
|
|
$
|
0.10
|
|
2017 Unit Offering Agent
|
|
|
768,200
|
|
|
$
|
0.05
|
|
Total
|
|
|
29,949,570
|
|
|
|
|
|
Warrant
Issuance Transactions
On
July 29, 2016, the Company entered into a Subscription Agreement with certain accredited investors (the “Buyers”),
pursuant to which the Buyers purchased the Company’s 12% Senior Secured Promissory Notes (the “2016
Notes”) in the aggregate principal amount of $3,038,256 (the “2016 Note Offering”).
On
December 12, 2016, the Company consummated an offer to amend and exercise certain outstanding warrants to purchase an aggregate
of 21,549,510 shares of its common stock originally issued to investors who participated in the Company’s July 31,
2014 private placement financing (the “Warrant Tender Offer”). Pursuant to the Warrant Tender Offer,
an aggregate of 6,863,000 warrants were tendered by their holders, and the Company received gross proceeds in the amount of $3,431,500
for the issuance of 27,452,000 shares of the Company’s common stock. In addition, pursuant to the Warrant Tender
Offer, the full principal balance and accrued interest of the 2016 Notes was converted into 48,806,545 shares of the Company’s
common stock. In connection with the conversion of the 2016 Notes and pursuant to the terms of the placement agent agreement associated
with the 2016 Notes, the Company issued warrants to purchase 4,880,655 shares of the Company’s common stock at an
exercise price of $0.125 per share to designees of the placement agent (the “2016 Placement Agent Warrants”).
On
March 21, 2017, the Company entered into an amendment with the holders of the 2016 Placement Agent Warrants to reduce the exercise
price of such warrants from $0.125 per share to $0.0625 per share in consideration of the past efforts as well as future support
and cooperation of the agent and its designees on behalf of the Company. The estimated fair value of these warrants at the time
of the amendment was determined to be $601,144 using the Black-Sholes pricing model and the following assumptions: expected term
of 9.7 years, exercise price of $0.0625 per share, 126.0% volatility, a risk-free rate of 2.43%, and no expected dividends. The
Company recorded expense of $8,276 as a result of this amendment.
In
connection with the 2017 Unit Offering, the Company issued warrants to purchase 7,682,000 shares of the Company’s
common stock to the Buyers (the “Investor Warrants”). The estimated fair value of these warrants at
the time of issuance was determined to be $773,252 using the Black-Sholes pricing model and the following assumptions: expected
term of 5.0 years, exercise price of $0.10 per share, 118.5% volatility, a risk-free rate of 1.79%, and no expected dividends.
The value of the Investor Warrants exceeded the net proceeds from the 2017 Unit Offering and were recorded at the maximum value
available after allocation of the beneficial conversion feature. See Note 7, 2017 Unit Offering.
Pursuant
to the terms of a Placement Agency Agreement (the “Placement Agency Agreement”), dated as of May 12,
2017, between the Company and the placement agents for the Offering (the “Placement Agents”), the Placement
Agents are paid a commission equal to ten percent (10%) of the gross proceeds at each closing of the Offering (the “Placement
Agent Cash Fee”). The Placement Agency Agreement also provides that the Placement Agents, or their designees, will
receive five-year warrants (the “Placement Agent Warrants”) to purchase a number of shares of Common
Stock at an exercise price of $0.05 per share equal to 10% of the number of Conversion Shares issuable upon conversion of the
2017 Notes issues at each closing of the Offering, based on a conversion price of $0.10 per share. In accordance with the terms
of the Placement Agency Agreement, on the Closing Date the Company issued Placement Agent Warrants to purchase an aggregate of
768,200 shares of Common Stock on the terms set forth above to the Placement Agents. The estimated fair value of these warrants
at the time of issuance was determined to be $82,065 using the Black-Sholes pricing model and the following assumptions: expected
term of 5.0 years, exercise price of $0.05 per share, 118.5% volatility, a risk-free rate of 1.79%, and no expected dividends.
In
September 2017, one of the Company’s warrant holders abandoned all of its warrants to purchase shares of the Company’s
common stock and returned those warrants to the Company. The abandoned warrants consist of warrants to purchase (a) 1,000,000
shares of the Company’s common stock at a price of $2.00 per share, expiring on July 30, 2019, and (b) 255,120 shares
of the Company’s common stock at an exercise price of $0.2451, expiring on February 2, 2024.
Derivative
Liability Warrants (Amended in connection with the Warrant Tender Offer)
PPO
and PPO Agent Warrants
In
July 2014, the Company issued warrants to purchase 23,549,510 shares of the Company’s common stock in connection
with the Company’s private placement offering that closed on July 31, 2014 (the “PPO”),
of which warrants to purchase 21,549,510 shares of the Company’s common stock had an exercise price of $2.00 per
share and were issued to the investors in the PPO, and warrants to purchase 2,000,000 shares of the Company’s common
stock had an exercise price of $1.00 per share and were issued to the placement agents for the PPO (or their affiliates). Due
to a price protection provision included in the warrant agreements, the warrants were deemed to be and were recorded as a derivative
liability. As such, these outstanding warrants were revalued each reporting period with the resulting gains and losses recorded
as the change in fair value of derivative liabilities on the unaudited condensed consolidated statement of operations.
Derivative
Liability Re-Measurement
The
Company used the Black-Scholes option-pricing model to estimate the fair values of the issued and outstanding warrants during
the nine months ended September 30, 2016. The Company recorded income of $409,891 and $1,232,425 for the three and nine months
ended September 30, 2016 due to the change in the fair value of the warrants for those periods. Outstanding warrants were revalued
each reporting period with the resulting gains and losses recorded as the change in fair value of derivative liabilities on the
unaudited condensed consolidated statements of operations. Due to the removal of the anti-dilution provisions in connection with
the Warrant Tender Offer, the derivative liabilities were re-valued on December 12, 2016 and any remaining value was reclassified
to equity upon extinguishment of the derivative liabilities.
11
- CONCENTRATIONS
During
the three months ended September 30, 2017, the Company recorded no revenue. During the three months ended September 30, 2016,
the Company recorded revenue from two entities in excess of 10% of the Company’s total revenue in the amounts of
$226,115 and $94,696, which represents 70% and 30% of the Company’s total revenue for that period.
During
the nine months ended September 30, 2017, the Company recorded revenue from two entities in excess of 10% of the Company’s
total revenue in the amounts of $104,246 and $100,000, which represents 51% and 49% of the Company’s total revenue
for that period. During the nine months ended September 30, 2016, the Company recorded revenue from three entities in excess of
10% of the Company’s total revenue in the amounts of $1,000,000, $878,599 and $375,641, which represents 44%, 39%
and 17% of the Company’s total revenue for that period.
As
of September 30, 2017, the Company’s accounts receivable balance was $0. As of December 31, 2016, accounts receivable
consisted of amounts due from two entities which represented 64% and 36% of the Company’s total outstanding accounts
receivable balance, respectively.
12
– SUBSEQUENT EVENTS
As
further detailed Note 7 above, on October 23, 2017, the Company and Enumeral entered into Amendment No. 1 to the Security Agreement
(the “Amendment”) with certain Holders who constituted Majority Holders (as defined in the Security
Agreement). Pursuant to the terms of the Amendment, the Security Agreement was amended to exclude from the definition of collateral
in the Security Agreement all intellectual property and other assets related to the Company’s TIM-3 antibody program
and CD39 antibody program, and to terminate the security interest held by the Holders in such assets.
On
October 27, 2017, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with
Elpiscience Biopharmaceuticals, Inc. Pursuant to the terms of the Purchase Agreement, the Company sold, assigned and transferred
all of its right, title and interest in and to specified assets of the Company’s TIM-3 antibody program and CD39
antibody program in consideration for a cash payment in the amount of $300,000.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis
of Presentation
The
following discussion of our financial condition and results of operations should be read with our unaudited condensed consolidated
interim financial statements as of September 30, 2017 and for the three months ended September 30, 2017 and 2016 and related notes
included in Part I. Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and
notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors,
included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 28, 2017. This Management’s
Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates,
forecasts, and projections and the beliefs and assumptions of our management and include, without limitation, statements with
respect to our expectations regarding our research, development and commercialization plans and prospects, results of operations,
general and administrative expenses, research and development expenses, and the sufficiency of our cash for future operations.
Words such as “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “may,” “plan,”
“predict,” “project,” “target,” “potential,”
“will,” “would,” “could,” “should,”
“continue,” and similar statements or variation of these terms or the negative of those terms and similar
expressions are intended to identify these forward-looking statements. Readers are cautioned that these forward-looking statements
are predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results
may differ materially and adversely from those expressed in any forward-looking statements. Among the important factors that could
cause actual results to differ materially from those indicated by our forward-looking statements are those discussed in “Item
1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March
28, 2017, and elsewhere in this report. We undertake no obligation to revise the forward-looking statements contained herein to
reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview
Unless
the context indicates otherwise, all references in this report to “Enumeral Biomedical,” the “Company,”
“we,” “us” and “our” refer to Enumeral Biomedical
Holdings, Inc., and its wholly-owned subsidiaries, Enumeral Biomedical Corp. and Enumeral Securities Corporation; and references
to “Enumeral” refer to Enumeral Biomedical Corp.
On
June 9, 2017, we implemented a plan that eliminated a significant portion of our existing headcount, including our research and
development function. On June 21, 2017, we completed an auction process pursuant to which we sold all of the equipment related
to our research and development activities. We received $277,188 in net proceeds from the sale of this equipment.
On
June 29, 2017, our board of directors, having evaluated and pursued a range of potential strategic transactions, and other
alternatives for the sale or disposition of its assets on a going concern basis, determined that it is in the best interests
of our stockholders and creditors to wind down our remaining operations and effect an orderly disposition of our remaining
assets. In connection with that determination, Wael Fayad resigned as our President and Chief Executive Officer. Our board
appointed Kevin G. Sarney, our Vice President of Finance, Chief Accounting Officer and Treasurer, as Interim President and
Chief Executive Officer, and also elected Mr. Sarney to the board.
In
August 2017, we received a termination letter (the “Termination Letter”) on behalf of PPF OFF 200 Cambridge
Park Drive, LLC (the “Landlord”) terminating the lease for our facility in Cambridge, Massachusetts.
The Termination Letter stated that the Landlord has terminated our lease effective immediately, pursuant to Section 20.2 thereof.
The Termination Letter noted that we had failed to pay certain items of rent and other charges due on August 1, 2017, and that
such failure had continued through the applicable cure period following the delivery of an initial, which constitutes an event
of default (as defined in the lease). The Termination Letter stated that we are directed to immediately quit, surrender and deliver
up the premises that are the subject of the lease. The Termination Letter also noted that the Landlord reserves the right to avail
itself of all rights and remedies under the lease, at law and/or in equity. In October 2017, following the Company’s
determination to discontinue monthly rent payments for periods after July 2017, and the Landlord’s delivery of the
Termination Letter to the Company, the Landlord took possession of the Company’s cash security deposit in the amount
of $529,699.
On
September 19, 2017, we received an OTCQB Bid Price Deficiency Notice from OTC Markets (the “Notice”).
The Notice stated that our bid price had closed below $0.01 for more than 30 consecutive calendar days and no longer met the Standards
for Continued Eligibility for OTCQB as per the OTCQB Standards Section 2.3(2). The Notice also stated that pursuant to Section
4.1 of the OTCQB Standards, we are granted a cure period of 90 calendar days during which the minimum closing bid price for our
common stock must be $0.01 or greater for ten consecutive trading days in order to continue trading on the OTCQB marketplace.
We do not expect that the closing bid price for our common stock will equal or exceed $0.01 for ten consecutive trading days prior
to the end of this 90 day cure period. As a result, we expect that our common stock will be removed from trading on the OTCQB
marketplace on or about December 18, 2017.
We
are currently in the process of winding down our operations, disposing of our remaining assets, and resolving our outstanding
debts. Our liquidity is dependent on our ability to manage all elements in this process in a manner favorable to us. As we wind
down our operations, we have continued to consider possible transactions pursuant to which we may sell our remaining assets, and/or
effect a strategic transaction, such as a merger. We may also determine to commence liquidation or bankruptcy proceedings. As
of the date of this filing, we do not have sufficient cash resources to continue to fund our operations and pay all of our outstanding
creditors.
Previously,
our business had been focused on the discovery of monoclonal antibodies and other novel biologics for use in the diagnosis and
treatment of cancer, infectious and inflammatory diseases. We utilized a proprietary platform technology, exclusively licensed
from the Massachusetts Institute of Technology, or MIT. In August 2017, MIT terminated the exclusive patent license agreement
between MIT and Enumeral, effective immediately. Pursuant to the terms thereof, certain provisions of the license agreement survive
the termination. In addition, the termination does not release Enumeral from any obligations accrued prior to the date of termination.
In
our lead antibody program, we characterized certain anti-PD-1 antibodies, or simply “PD-1 antibodies,”
using patient biopsy samples, in an effort to identify next generation PD-1 antagonists with enhanced selectivity for the immune
effector cells that carry out anti-tumor functions. We identified two antagonist PD-1 antibodies that inhibit PD-1 activity in
different ways. The distinction is that one of the antibodies (ENUM 388D4) blocks binding of the ligand PD-L1 to PD-1, while the
other antibody (ENUM 244C8) does not inhibit PD-L1 binding. However, both display activity in various biological assays.
In June 2016, we entered into a Definitive License and Transfer
Agreement (the “Definitive Agreement”) with Pieris Pharmaceuticals, Inc. and Pieris Pharmaceuticals GmbH (collectively,
“Pieris”). Pursuant to the terms and conditions of the Definitive Agreement, Pieris is licensing from us specified
intellectual property related to our anti-PD-1 antibody program 388D4 for the potential development and commercialization by Pieris
of novel multispecific therapeutic proteins comprising fusion proteins based on Pieris’ Anticalins
®
class
of therapeutic proteins and our antibodies in the field of oncology. We had previously entered into a License and Transfer Agreement
(the “License Agreement”) with Pieris in April 2016, which the Definitive Agreement superseded. Pieris paid us an
upfront license fee in the amount of $250,000 in connection with execution of the License Agreement, and paid us a $750,000 license
maintenance fee to continue the licensing arrangements under the License Agreement.
In
addition to our PD-1 antibody program, we also conducted development activities related to antibody drug candidates for a number
of other immunomodulatory protein targets, including TIM-3 and CD39. In October 2017, we entered into an Asset Purchase Agreement
(the “Purchase Agreement”) with Elpiscience Biopharmaceuticals, Inc. Pursuant to the terms of the Purchase
Agreement, we sold, assigned and transferred all of our right, title and interest in and to specified assets of our TIM-3 antibody
program and CD39 antibody program in consideration for a cash payment in the amount of $300,000.
To
date, all of our revenue has resulted from payments from strategic partners and the National Cancer Institute, or NCI, and we
have not received any revenue from the sale of products or services. As of September 30, 2017, we had total stockholders’
deficiency of $1,157,534, including an accumulated deficit of $31,987,428. As of September 30, 2017, we had cash and cash equivalents
totaling $208,616, excluding restricted cash of $5,000.
On
May 19, 2017 (the “Closing Date”), we entered into a Subscription Agreement (the “Subscription
Agreement”) with certain accredited investors, pursuant to which these investors (the “Holders”)
purchased 668 Units (the “2017 Units”) of our securities, at a purchase price of $1,000 per Unit (the
“2017 Unit Offering”). We recorded $461,367 in net proceeds, after deducting placement agent expenses
and fees, as well as other transaction expenses, in connection with the sale of the 2017 Units. Each of the 2017 Units consists
of (i) a 12% Senior Secured Promissory Note (the “2017 Notes”), with a face value of $1,150, and (ii)
a warrant (the “Investor Warrant”) to purchase 11,500 shares of our common stock, exercisable until
five years after the date of the closing, at an exercise price of $0.10 per share (subject to adjustment in certain circumstances).
Interest on the 2017 Notes is payable on the face value of the 2017 Notes at the rate of 12% per annum, which is cumulative and
due and payable in shares of our common stock (the “Interest Shares”) on the applicable conversion date,
or in cash in the case of a redemption of the 2017 Notes by us (each as further described below). The 2017 Notes have a stated
maturity date of 12 months from the Closing Date. The 2017 Notes will rank senior to all of our existing indebtedness, except
as otherwise set forth in the 2017 Notes.
In
the event of any liquidation, dissolution or winding up of our company, the Holders will be entitled to receive, out of assets
available therefor, an amount equal to 124% of the outstanding principal amount of the 2017 Notes, together with accrued and unpaid
interest due thereon. In the event of a sale of our company during the term of the 2017 Notes, at the closing of such sale, at
the option of each Holder, a Holder will be entitled to receive an amount equal to 200% of the outstanding principal amount of
the 2017 Notes, together with accrued and unpaid interest due thereon; provided, that such amount will be paid in either cash
or securities of the acquiring entity at such acquiring entity’s discretion.
The
2017 Notes are convertible at the option of the Holder, in whole or in part, into shares of our common stock (the “Conversion
Shares” and together with the Interest Shares, the “Repayment Shares”) at any time after
the earlier of (i) the date a registration statement registering the Repayment Shares is declared effective by the SEC or (ii)
six months after the date of the initial closing of the 2017 Unit Offering. If no conversion has taken place within twelve months
after the Closing Date, the 2017 Notes, together with accrued and unpaid interest thereon, will automatically convert into Repayment
Shares.
The
conversion price per share of common stock in either event listed above is the lesser of (i) $0.10 per share (subject to adjustment
in certain circumstances), or (ii) 75% of the volume weighted average price of our common stock during 10 consecutive trading
days ending on the trading day immediately prior to the conversion date, subject to a floor of $0.03 per share (the floor is subject
to adjustment in certain circumstances if we issue common stock, or common stock equivalents, at a price below $0.03 per share
of our common stock, and a proportionate adjustment in certain other circumstances).
The
2017 Notes provide that the outstanding principal amount of the 2017 Notes, together with accrued and unpaid interest due thereon,
will convert automatically into shares of our common stock on the date on which we complete and close an offering involving the
sale of at least $5,000,000 of equity securities or securities convertible into or exercisable for equity securities by us (a
“Qualified Financing”). At the closing of a Qualified Financing, all outstanding principal and accrued
interest then due on the 2017 Notes shall automatically be converted into a number of shares of our common stock based upon a
25% discount to the lesser of (i) the lowest price at which common stock is sold in the Qualified Financing, or (ii) the lowest
price at which securities sold in the Qualified Financing can be exercised for or converted into our common stock.
Our
obligations under the 2017 Notes are secured, pursuant to the terms of an intellectual property security agreement (the “Security
Agreement”), dated as of the Closing Date, among the Grantors (as defined below), the Holders and the collateral
agent for the Holders named therein, by a first priority security interest in all now owned or hereafter acquired intellectual
property of both us and Enumeral Biomedical Corp., our wholly-owned subsidiary (the “Subsidiary” and
together with Enumeral Biomedical Holdings, Inc., the “Grantors”), except to the extent such intellectual
property cannot be assigned or the creation of a security interest would be prohibited by applicable law or contract.
On
October 23, 2017, the Grantors entered into Amendment No. 1 to the Security Agreement (the “Amendment”)
with certain Holders who constituted Majority Holders (as defined in the Security Agreement). Pursuant to the terms of the Amendment,
the Security Agreement was amended to exclude from the definition of collateral in the Security Agreement all intellectual property
and other assets related to the Grantors’ TIM-3 antibody program and CD39 antibody program, and to terminate the
security interest held by the Holders in such assets.
Pursuant
to the terms of a placement agency agreement (the “Placement Agency Agreement”), dated as of May 12,
2017, between us and the placement agents for the 2017 Unit Offering (the “Placement Agents”), the Placement
Agents are paid a commission equal to ten percent (10%) of the gross proceeds at each closing of the 2017 Unit Offering (the “Placement
Agent Cash Fee”). The Placement Agency Agreement also provides that the Placement Agents, or their designees, will
receive five-year warrants (the “2017 Placement Agent Warrants”) to purchase a number of shares of our
common stock at an exercise price of $0.05 per share equal to 10% of the number of Conversion Shares issuable upon conversion
of the 2017 Notes issues at each closing of the 2017 Unit Offering, based on a conversion price of $0.10 per share. In accordance
with the terms of the Placement Agency Agreement, on the Closing Date we issued 2017 Placement Agent Warrants to purchase an aggregate
of 768,200 shares of our common stock on the terms set forth above to the Placement Agents.
The
Placement Agency Agreement also provides that if, within 12 months of the Closing Date, we complete a financing or similar transaction
(a “Subsequent Financing”) with a party introduced to us by the Placement Agents in connection with
the 2017 Unit Offering, and a Placement Agent does not participate in such financing or similar transaction, the Placement Agent
shall be entitled to receive a Placement Agent Cash Fee and 2017 Placement Agent Warrants for such Subsequent Financing in the
same manner as calculated for the 2017 Unit Offering.
Pursuant
to a Registration Rights Agreement, dated as of the Closing Date (the “Registration Rights Agreement”),
we granted registration rights to each Holder with respect to the Repayment Shares and the shares of our common stock issuable
upon exercise of the Investor Warrants (the “Investor Warrant Shares”), and to the Placement Agent with
respect to the shares of our common stock issuable upon exercise of the 2017 Placement Agent Warrants (the “Placement
Agent Warrant Shares,” and, together with the Repayment Shares and Investor Warrant Shares, the “Registrable
Shares”). Under the terms of the Registration Rights Agreement, we agreed to use our commercially reasonable efforts
to promptly, but no later than 60 calendar days from the final closing date of the 2017 Unit Offering (the “Final
Closing Date”), file a registration statement with the SEC (the “Registration Statement”)
to register the resale of the Registrable Shares. We also agreed to use our commercially reasonable efforts to ensure that such
Registration Statement is declared effective within 135 calendar days of the Final Closing Date.
The
Registration Rights Agreement provides that if we are late in filing the Registration Statement or if the Registration Statement
is not declared effective within 135 days of the Final Closing Date, or if certain other Registration Events (as defined in the
Registration Rights Agreement) occur, we will be required to pay the holders of Registrable Shares liquidated damages at a rate
of 12% per annum of (i) the aggregate purchase price paid by such holder for the Registrable Shares pursuant to the Subscription
Agreement, or (ii) $0.05 per share of Registrable Shares issued and issuable to such holder upon exercise of the 2017 Placement
Agent Warrants, subject to certain limitations set forth in the Registration Rights Agreement; provided, however, that in no event
shall the aggregate of any such liquidated damages exceed five percent (5%) of the applicable foregoing amounts described above
with respect to such holder’s Registrable Shares that are affected by all Registration Events in the aggregate. No
liquidated damages will accrue and accumulate with respect to (a) any Registrable Shares removed from the Registration Statement
in response to a comment from the staff of the SEC limiting the number of shares of our common stock which may be included in
the Registration Statement. As of the date of this filing, we have not filed a Registration Statement, and we have accrued approximately
$17,000 for liquidated damages as of September 30, 2017.
Results
of Operations
Three
months ended September 30, 2017 as compared to three months ended September 30, 2016
|
|
Three Months Ended
September
30,
|
|
|
Increase
|
|
|
|
2017
|
|
|
2016
|
|
|
(Decrease)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Collaboration and license revenue
|
|
$
|
—
|
|
|
$
|
226,115
|
|
|
$
|
(226,115
|
)
|
Grant revenue
|
|
|
—
|
|
|
|
94,696
|
|
|
|
(94,696
|
)
|
Total revenue
|
|
|
—
|
|
|
|
320,811
|
|
|
|
(320,811
|
)
|
Cost of revenue and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
90,822
|
|
|
|
1,026,317
|
|
|
|
(935,495
|
)
|
General and administrative
|
|
|
457,911
|
|
|
|
812,974
|
|
|
|
(355,063
|
)
|
Wind down expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total cost of revenue and expenses
|
|
|
548,733
|
|
|
|
1,839,291
|
|
|
|
(1,290,558
|
)
|
Loss from operations
|
|
|
(548,733
|
)
|
|
|
(1,518,480
|
)
|
|
|
969,747
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(23,316
|
)
|
|
|
(152,261
|
)
|
|
|
128,945
|
|
Change in fair value of derivative liabilities
|
|
|
—
|
|
|
|
409,891
|
|
|
|
(409,891
|
)
|
Total other income (expense), net
|
|
|
(23,316
|
)
|
|
|
257,630
|
|
|
|
(280,946
|
)
|
Net loss
|
|
$
|
(572,049
|
)
|
|
$
|
(1,260,850
|
)
|
|
$
|
688,801
|
|
Collaboration
and license revenue.
Collaboration and license revenue decreased by $226,115, or 100%, to $0 for the three months ended September
30, 2017, as compared to $226,115 for the three months ended September 30, 2016. This decrease in collaboration and license revenue
is attributable to our collaboration agreement with Merck. As a result of our determination in June 2017 to terminate our research
and development function and sell our laboratory equipment, as well as to wind down our remaining operations, we do not expect
to conduct any further activities pursuant to our study agreement with Merck. Consequently, we do not expect to recognize any
additional revenue with respect to the Merck agreement.
Grant
revenue.
Grant revenue decreased by $94,696, or 100%, to $0 for the three months ended September 30, 2017, as compared to
$94,696 for the three months ended September 30, 2016. This decrease is attributable to our Phase II Small Business Innovation
Research agreement with the NCI, which expired per the terms of the agreement in March 2017.
Research
and development expenses.
Research and development expenses decreased by $935,495, or 91%, to $90,822 for the three months
ended September 30, 2017, as compared to $1,026,317 for the three months ended September 30, 2016. This decrease is primarily
attributable to a decrease in payroll and personnel expenses of $164,527 as a result of lower headcount, a decrease in lab supplies
expenses of $227,847, a decrease in facility expense of $301,443, and a decrease in depreciation expense of $126,301. As a result
of our determinations in June 2017 to terminate our research and development function and sell our laboratory equipment, as well
as to wind down our remaining operations and dispose of our remaining assets, we do not expect to incur research and development
expenses in the future.
General
and administrative expenses.
General and administrative expenses decreased by $355,063, or 44%, to $457,911 for the three
months ended September 30, 2017, as compared to $812,974 for the three months ended September 30, 2016. This decrease is primarily
attributable to a decrease in payroll and personnel expenses of $81,133 as a result of lower headcount, a decrease in consultant
costs of $33,839, and a decrease in stock-based compensation expense of $234,228. As a result of our determination in June 2017
to wind down our remaining operations, we expect that our general and administrative expenses will continue to decrease in the
future.
Interest
expense, net.
Interest expense, net decreased by $128,945, or 85%, to $23,316 for the three months ended September 30, 2017,
as compared to $152,261 for the three months ended September 30, 2016. This decrease is largely attributable to lower non-cash
interest expense of $23,046 associated with our 2017 Notes for the three month period ended September 30, 2017 versus $152,261
in interest expense associated with certain promissory notes that we issued in July 2016 for the three month period ended September
30, 2016.
Change
in fair value of derivative liabilities
. Change in fair value of derivative liabilities decreased by $409,891, or 100%, as
no derivative liabilities were outstanding during the three months ended September 30, 2017. We recognized a change in fair value
of derivative liabilities of $409,891 for the three months ended September 30, 2016. Our derivative liabilities were extinguished
in conjunction with our offer to amend and exercise certain outstanding warrants, which we consummated in December 2016 (the “Warrant
Tender Offer”).
Net
loss
. Net loss decreased $688,801, or 55%, to $572,049 for the three months ended September 30, 2017, as compared to $1,260,850
for the three months ended September 30, 2016. This decrease was primarily due to a decrease in revenue of $320,811, a decrease
in interest expense, net of $128,945, and a decrease in the change in the fair value of derivative liabilities of $409,891, offset
by a decrease in other operating expenses of $1,290,558.
Nine
months ended September 30, 2017 as compared to nine months ended September 30, 2016
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Increase
|
|
|
|
2017
|
|
|
2016
|
|
|
(Decrease)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Collaboration and license revenue
|
|
$
|
100,000
|
|
|
$
|
1,878,599
|
|
|
$
|
(1,778,599
|
)
|
Grant revenue
|
|
|
104,246
|
|
|
|
375,641
|
|
|
|
(271,395
|
)
|
Total revenue
|
|
|
204,246
|
|
|
|
2,254,240
|
|
|
|
(2,049,994
|
)
|
Cost of revenue and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,120,275
|
|
|
|
3,737,161
|
|
|
|
(1,616,886
|
)
|
General and administrative
|
|
|
1,937,087
|
|
|
|
3,752,512
|
|
|
|
(1,815,425
|
)
|
Wind down expenses
|
|
|
1,055,246
|
|
|
|
—
|
|
|
|
1,055,246
|
|
Total cost of revenue and expenses
|
|
|
5,112,608
|
|
|
|
7,489,673
|
|
|
|
(2,377,065
|
)
|
Loss from operations
|
|
|
(4,908,362
|
)
|
|
|
(5,235,433
|
)
|
|
|
327,071
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(805,583
|
)
|
|
|
(160,451
|
)
|
|
|
(645,132
|
)
|
Warrant expense
|
|
|
(8,276
|
)
|
|
|
—
|
|
|
|
(8,276
|
)
|
Change in fair value of derivative liabilities
|
|
|
—
|
|
|
|
1,232,425
|
|
|
|
(1,232,425
|
)
|
Total other income (expense), net
|
|
|
(813,859
|
)
|
|
|
1,071,974
|
|
|
|
(1,885,833
|
)
|
Net loss
|
|
$
|
(5,722,221
|
)
|
|
$
|
(4,163,459
|
)
|
|
$
|
(1,558,762
|
)
|
Collaboration
and license revenue.
Collaboration and license revenue decreased by $1,778,599, or 95%, to $100,000 for the nine months ended
September 30, 2017, as compared to $1,878,599 for the nine months ended September 30, 2016. This decrease in collaboration and
license revenue is attributable to our license agreement with Pieris Pharmaceuticals and our collaboration agreement with Merck.
As a result of our determinations in June 2017 to terminate our research and development function and sell our laboratory equipment,
as well as to wind down our remaining operations, we do not expect to conduct any further activities pursuant to our study agreement
with Merck. Consequently, we do not expect to recognize any additional revenue with respect to the Merck agreement.
Grant
revenue.
Grant revenue decreased by $271,395, or 72%, to $104,246 for the nine months ended September 30, 2017, as compared
to $375,641 for the nine months ended September 30, 2016. This decrease is attributable to our Phase II Small Business Innovation
Research agreement with the NCI, which expired per the terms of the agreement in March 2017.
Research
and development expenses.
Research and development expenses decreased by $1,616,886, or 43%, to $2,120,275 for the nine months
ended September 30, 2017, as compared to $3,737,161 for the nine months ended September 30, 2016. This decrease is primarily attributable
to a decrease in payroll and personnel expenses of $596,443, a decrease in lab supplies of $127,838, a decrease in facilities
costs of $294,361, a decrease in depreciation expense of $260,912, and a decrease in stock-based compensation expense of $170,792.
As a result of our determinations in June 2017 to terminate our research and development function and sell our laboratory equipment,
as well as to wind down our remaining operations and dispose of our remaining assets, we do not expect to incur research and development
expenses in the future.
General
and administrative expenses.
General and administrative expenses decreased by $1,815,425, or 48%, to $1,937,087 for the nine
months ended September 30, 2017, as compared to $3,752,512 for the nine months ended September 30, 2016. This decrease is primarily
attributable to a decrease in payroll and personnel expenses of $821,514 as a result of lower headcount, a decrease in travel
and entertainment expanses of $104,203, a decrease in professional fees of $286,852, and a decrease in stock-based compensation
expense of $525,376. As a result of our determination in June 2017 to wind down our remaining operations, we expect that our general
and administrative expenses will continue to decrease in the future.
Interest
expense, net.
Interest expense, net increased by $645,132, or 402%, to $805,583 for the nine months ended September 30, 2017,
as compared to $160,451 for the nine months ended September 30, 2016. This change is largely attributable to non-cash interest
expense of $768,200 resulting from the accretion of the discount and other expenses associated with our 2017 Notes during the
nine months ended September 30, 2017.
Warrant
expense.
Warrant expense was $8,276 for the nine months ended September 30, 2017. There was no warrant expense recorded during
the nine months ended September 30, 2016. Warrant expense for the nine months ended September 30, 2017 is the result of a March
2017 modification of the exercise price from $0.125 to $0.0625 for certain warrants that had previously been issued in December
2016 in connection with the closing of the Warrant Tender Offer.
Change
in fair value of derivative liabilities
. Change in fair value of derivative liabilities decreased by $1,232,425, or 100%,
as no derivative liabilities were outstanding during the nine months ended September 30, 2017. We recognized a change in fair
value of derivative liabilities of $1,232,425 for the nine months ended September 30, 2016. Our derivative liabilities were extinguished
in December 2016 as part of the Warrant Tender Offer.
Wind
down expenses.
Wind down expenses were $1,055,246 for the nine months ended September 30, 2017. We recognized no wind down
expenses for the nine months ended September 30, 2016. In connection with our decision to wind down our remaining operations,
we extinguished prepaid rent of $99,115 and restricted cash of $529,699, offset by the extinguishment of deferred rent of $67,109,
all of which were associated with our operating lease, during the nine months ended September 30, 2017. In addition, we incurred
a loss of $493,541, resulting primarily from the auction sale of our laboratory equipment and the buyout of our equipment lease
during the nine months ended September 30, 2017.
Net
loss
. Net loss increased $1,558,762, or 137%, to $5,722,221 for the nine months ended September 30, 2017, as compared to $4,163,459
for the nine months ended September 30, 2016. This increase was primarily due to a decrease in revenue of $2,049,994, an increase
in wind down expenses of $1,055,246, a decrease in the change in the fair value of derivative liabilities of $1,232,425, and an
increase in interest expense, net of $645,132, offset by a decrease in other operating expenses of $3,432,311.
As
of September 30, 2017, we had accumulated losses of $31,987,428 since inception and, therefore, have not paid any federal income
taxes. Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain.
Accordingly, valuation allowances in amounts equal to the deferred tax assets have been established to reflect these uncertainties.
Utilization of the deferred tax asset, consisting of net operating loss and research and development credit carryforwards, may
be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, due to ownership
change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount
of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable
income and tax, respectively.