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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

Form 10-Q

_____________________

(Mark One)

þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022

or

¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___________ to ___________

Commission File Number: 000-29959

_______________

Cassava Sciences, Inc.

(Exact name of registrant as specified in its charter)

Delaware

91-1911336

(State or other jurisdiction of

(I.R.S.  Employer

incorporation or organization)

Identification Number)

7801 N. Capital of Texas Highway, Suite 260, Austin, TX 78731

(512) 501-2444

(Address, including zip code, of registrant’s principal executive offices and

telephone number, including area code)

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

0

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

SAVA

 

Nasdaq Capital Market

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

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

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

Large Accelerated Filer þ

Accelerated Filer ¨

Non-accelerated Filer ¨

Smaller Reporting Company ¨

Emerging Growth Company ¨

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.001 par value

40,080,740

Shares Outstanding as of May 2, 2022

 

1


CASSAVA SCIENCES, INC.

TABLE OF CONTENTS

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets – March 31, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations – ThreeMonths Ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Changes in Stockholders’ Equity - Three Months Ended March 31, 2022 and 2021

5

Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2022 and 2021

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

34

Item 1A

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

36

Item 6.

Exhibits

37

Signatures

38

 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and par value data)

March 31,

December 31,

2022

2021

ASSETS

Current assets:

Cash and cash equivalents

$

209,693

$

233,437

Prepaid expenses and other current assets

12,507

11,045

Total current assets

222,200

244,482

Operating lease right-of-use assets

188

210

Property and equipment, net

20,863

20,616

Intangible assets, net

940

1,075

Other assets

399

Total assets

$

244,191

$

266,782

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

3,332

$

7,126

Accrued development expense

2,925

2,803

Accrued compensation and benefits

172

1,877

Operating lease liabilities, current

99

97

Other current liabilities

261

631

Total current liabilities

6,789

12,534

Operating lease liabilities, non-current

114

139

Other non-current liabilities

194

194

Total liabilities

7,097

12,867

Commitments and contingencies (Notes 9, 10 and 11)

 

 

Stockholders' equity:

Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding

Common stock, $0.001 par value; 120,000,000 shares authorized; 40,031,280 and 40,016,792 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

40

40

Additional paid-in capital

461,887

461,181

Accumulated deficit

(224,833)

(207,306)

Total stockholders' equity

237,094

253,915

Total liabilities and stockholders' equity

$

244,191

$

266,782

See accompanying notes to condensed consolidated financial statements.


3


 

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

Three months ended

March 31,

2022

2021

Operating expenses:

Research and development, net of grant reimbursement

$

14,906

$

2,529

General and administrative

2,915

1,004

Total operating expenses

17,821

3,533

Operating loss

(17,821)

(3,533)

Interest income

31

7

Other income, net

263

Net loss

$

(17,527)

$

(3,526)

Net loss per share, basic and diluted

$

(0.44)

$

(0.09)

Shares used in computing net loss per share, basic and diluted

39,962

37,721

See accompanying notes to condensed consolidated financial statements.


4


 

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share data)

Total

Common stock

Additional

Accumulated

stockholders'

Shares

Par value

paid-in capital

deficit

equity

Balance at December 31, 2020

35,237,987

$

35

$

267,086

$

(174,921)

$

92,200

Stock-based compensation for:

Stock options for employees

249

249

Stock options for non-employees

1

1

Issuance of common stock pursuant to exercise of stock options

554,019

1

691

692

Issuance of common stock pursuant to exercise of warrants

135,015

1,746

1,746

Common stock issued in conjunction with registered direct offering, net of issuance costs

4,081,633

4

189,821

189,825

Net loss

(3,526)

(3,526)

Balance at March 31, 2021

40,008,654

$

40

$

459,594

$

(178,447)

$

281,187

Balance at December 31, 2021

40,016,792

$

40

$

461,181

$

(207,306)

$

253,915

Stock-based compensation for:

Stock options for employees

471

471

Stock options for non-employees

24

24

Issuance of common stock pursuant to exercise of stock options

14,488

211

211

Net loss

(17,527)

(17,527)

Balance at March 31, 2022

40,031,280

$

40

$

461,887

$

(224,833)

$

237,094

 


5


 

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Three months ended March 31,

2022

2021

Cash flows from operating activities:

Net loss

$

(17,527)

$

(3,526)

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

Stock-based compensation

495

250

Depreciation

178

1

Amortization of intangible assets

135

Changes in operating assets and liabilities:

Prepaid and other assets

(1,063)

185

Operating lease right-of-use assets and liabilities

(1)

25

Accounts payable

(3,794)

(47)

Accrued development expense

122

834

Accrued compensation and benefits

(1,705)

16

Other liabilities

(370)

(44)

Net cash used in operating activities

(23,530)

(2,306)

Cash flows from investing activities:

Purchase of property and equipment

(425)

Net cash used in investing activities

(425)

Cash flows from financing activities:

Proceeds from issuance of common stock upon exercise of stock options

211

475

Proceeds from issuance of common stock upon exercise of common stock warrants

692

Proceeds from common stock offering, net of issuance costs

189,825

Net cash provided by financing activities

211

190,992

Net (decrease) increase in cash and cash equivalents

(23,744)

188,686

Cash and cash equivalents at beginning of period

233,437

93,506

Cash and cash equivalents at end of period

$

209,693

$

282,192

See accompanying notes to condensed consolidated financial statements.


6


Cassava Sciences, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. General and Liquidity

Cassava Sciences, Inc. and its wholly-owned subsidiary (collectively referred to as the “Company”) discover and develop proprietary pharmaceutical product candidates that may offer significant improvements to patients and healthcare professionals. The Company generally focuses its discovery and product development efforts on disorders of the nervous system.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. All intercompany transactions and balances have been eliminated in consolidation. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for any other interim period or for the year 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Coronavirus Disease 2019 (COVID-19)

The widespread outbreak of a novel infectious disease called Coronavirus Disease 2019, or COVID-19, has not significantly impacted the Company’s operations or financial condition as of May 5, 2022. We believe certain investigational clinical study sites that are involved, or potentially would like to be involved, with our clinical programs may be experiencing lingering, pandemic-related after-effects, such as staffing shortages, operational gaps or other adverse circumstances. Also, this pandemic has created a dynamic and uncertain situation in the national economy. The Company continues to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of pandemic on its operations and financial condition. The scope of pandemic is unprecedented, and its long-term impact on the Company’s operations and financial condition cannot be reasonably estimated at this time.

Liquidity

The Company has incurred significant net losses and negative cash flows since inception, and as a result has an accumulated deficit of $224.8 million at March 31, 2022. The Company expects its cash requirements to be significant in the future. The amount and timing of the Company’s future cash requirements will depend on regulatory and market acceptance of its product candidates and the resources it devotes to researching and developing, formulating, manufacturing, commercializing and supporting its products. The Company may seek additional funding through public or private financing in the future, if such funding is available and on terms acceptable to the Company. There are no assurances that additional financing will be available on favorable terms, or at all. However, management believes that the current working capital position will be sufficient to meet the Company’s working capital needs for at least the next 12 months.

Note 2.  Significant Accounting Policies

Use of Estimates

The Company makes estimates and assumptions in preparing its condensed consolidated financial statements in conformity with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue earned and expenses incurred during the reporting period. The Company evaluates its estimates on an ongoing basis, including those estimates related to manufacturing agreements and research collaborations. Actual results could differ from these estimates and assumptions.

7


Cash and Cash Equivalents and Concentration of Credit Risk

The Company invests in cash and cash equivalents. The Company considers highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Highly liquid investments that are considered cash equivalents include money market accounts and funds, certificates of deposit, and U.S. Treasury securities. The Company maintains its cash and cash equivalents at one financial institution.

Fair Value Measurements

The Company recognizes financial instruments in accordance with the authoritative guidance on fair value measurements and disclosures for financial assets and liabilities. This guidance defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1 includes quoted prices in active markets.

Level 2 includes significant observable inputs, such as quoted prices for identical or similar securities, or other inputs that are observable and can be corroborated by observable market data for similar securities. The Company uses market pricing and other observable market inputs obtained from third-party providers. It uses the bid price to establish fair value where a bid price is available. The Company does not have any financial instruments where the fair value is based on Level 2 inputs.

Level 3 includes unobservable inputs that are supported by little or no market activity. The Company does not have any financial instruments where the fair value is based on Level 3 inputs.

If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The fair value of cash and cash equivalents was based on Level 1 inputs at March 31, 2022 and December 31, 2021.



Business Segments

The Company reports segment information based on how it internally evaluates the operating performance of its business units, or segments. The Company’s operations are confined to one business segment: the development of novel drugs and diagnostics.

Proceeds from Grants



During the three months ended March 31, 2022 and 2021, the Company received reimbursements totaling $0.1 million and $0.6 million pursuant to National Institutes of Health (“NIH”) research grants, respectively. The Company records the proceeds from these grants as reductions to its research and development expenses.

 

Stock-based Compensation 



The Company recognizes non-cash expense for the fair value of all stock options and other share-based awards. The Company uses the Black-Scholes option valuation model (“Black-Scholes”) to calculate the fair value of stock options, using the single-option award approach and straight-line attribution method. This model requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore, are subject to management's judgment. For all options granted, it recognizes the resulting fair value as expense on a straight-line basis over the vesting period of each respective stock option, generally four years.



The Company has granted share-based awards that vest upon achievement of certain performance criteria (“Performance Awards”). The Company multiplies the number of Performance Awards by the fair value of its common stock on the date of grant to calculate the fair value of each award. It estimates an implicit service period for achieving performance criteria for each award. The Company recognizes the resulting fair value as expense over the implicit service period when it concludes that achieving the performance criteria is probable. It periodically reviews and

8


updates as appropriate its estimates of implicit service periods and conclusions on achieving the performance criteria. Performance Awards vest and common stock is issued upon achievement of the performance criteria.



Net Loss per Share



The Company computes basic net loss per share on the basis of the weighted-average number of common shares outstanding for the reporting period. Diluted net loss per share is computed on the basis of the weighted-average number of common shares outstanding plus potential dilutive common shares outstanding using the treasury-stock method. Potential dilutive common shares consist of outstanding common stock options and warrants.  There is no difference between the Company’s net loss and comprehensive loss. The numerators and denominators in the calculation of basic and diluted net loss per share were as follows (in thousands, except net loss per share data):

Three months ended

March 31,

2022

2021

Numerator:

Net loss

$

(17,527)

$

(3,526)

Denominator:

Shares used in computing net loss per share, basic and diluted

39,962 

37,721 

Net loss per share, basic and diluted

$

(0.44)

$

(0.09)

Dilutive common stock options excluded from net loss per share, diluted

2,086 

2,121 

The Company excluded common stock options and warrants outstanding from the calculation of net loss per share, diluted, because the effect of including outstanding options and warrants would have been anti-dilutive.

Fair Value of Financial Instruments   

Financial instruments include accounts payable and accrued liabilities. The estimated fair value of certain financial instruments may be determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. The carrying amounts of accounts payable and accrued liabilities are at cost, which approximates fair value due to the short maturity of those instruments.

Research Contract Costs and Accruals

The Company has entered into various research and development contracts with research institutions and other third-party vendors. These agreements are generally cancelable. Related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from actual costs.

Incentive Bonus Plan

In 2020, the Company established the 2020 Cash Incentive Bonus Plan (the “Plan”) to incentivize Plan participants. Awards under the Plan are accounted for as liability awards under Accounting Standards Codification (ASC) 718 “Stock-based Compensation”. The fair value of each potential Plan award will be determined once a grant date occurs and will be remeasured each reporting period. Compensation expense associated with the Plan will be recognized over the expected achievement period for each Plan award, when a Performance Condition (as defined below) is considered probable of being met. See Note 10 for further discussion of the Plan.

Leases

9


The Company recognizes assets and liabilities that arise from leases. For operating leases, the Company is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments during the lease term, in the condensed consolidated balance sheets. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company does not recognize right-of-use assets or lease liabilities. As the Company`s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Property and equipment

Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Buildings, and site improvements have estimated useful lives of 39 years and 9 years, respectively. Tenant improvements are amortized using the straight-line method over the useful lives of the improvements or the remaining term of the corresponding leases, whichever is shorter. The remaining term of the corresponding leases is approximately 2.1 years.

Property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If property and equipment are considered to be impaired, an impairment loss is recognized.

Intangible assets

Acquired intangible assets are recorded at fair value at the date of acquisition and primarily consist of lease-in-place agreements and leasing commissions. Intangible assets are amortized over the estimated life of the lease-in-place agreements, which is approximately 2.0 years.

Intangible assets are reviewed for impairment on an annual basis, and when there is reason to believe that their values have been diminished or impaired. If intangible assets are considered to be impaired, an impairment loss is recognized.

Income Taxes 

The Company accounts for income taxes under the asset and liability method.  Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The Company has accumulated significant deferred tax assets that reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of certain deferred tax assets is dependent upon future earnings. The Company is uncertain about the timing and amount of any future earnings. Accordingly, the Company offsets these deferred tax assets with a valuation allowance.

The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes”, which clarifies the accounting for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in the Company’s condensed consolidated financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense.

 

Note 3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31,

December 31,

2022

2021

Prepaid insurance

$

333 

$

662 

10


Contract research organization and other deposits

12,105 

10,330 

Other

69 

53 

Total prepaid expenses and other current assets

$

12,507 

$

11,045 

Note 4. Real Property Acquisition

On August 4, 2021, the Company completed the all-cash purchase of a two-building office complex in Austin, Texas, which will serve as its future corporate headquarters. This property is intended to accommodate the Company’s anticipated growth and expansion of its operations in the coming years. Maintenance, physical facilities, leasing, property management and other key responsibilities related to property ownership are being outsourced to professional real-estate managers. The purchase price of the property was $22.0 million, including transaction costs. The office complex measures approximately 90,000 rentable square feet. At March 31, 2022, the property was over 60% leased. The Company is planning to occupy approximately 25% of the property in the second half of 2022. The seller was a third party not affiliated with the Company.

The purchase was accounted for as an asset acquisition under ASC 805, Business Combinations. As substantially all of the fair value of the gross assets acquired were concentrated into a single identifiable asset, the Company concluded that the screen was met, and the transaction is considered an asset acquisition rather than an acquisition of a business. Pursuant to the cost accumulation method as prescribed in ASC 805, the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. The value of acquired in-place leases was measured as the sum of lost revenues that would be incurred during a prospective lease-up period that would be necessary to achieve occupancy similar to that at the time of acquisition. The value was calculated as the average number of months of lease-up multiplied by the gross monthly market rental rate (base rent plus reimbursements) for each particular suite.

The assets acquired are summarized as follows (in thousands):

Land

$

3,734 

Buildings

15,980 

Site improvements

453 

Tenant improvements

567 

Total tangible assets

$

20,734 

Lease-in-place agreements

$

1,053 

Leasing commissions and other

246 

Total intangible assets

$

1,299 

Consideration paid

$

22,033 

The Company records the net income from building operations and leases as other income, net, as leasing is not core to the Company’s operations. Building depreciation and amortization is included in general and administrative expense. Components of other income, net, for the three months ended March 31, 2022 and 2021 were as follows (in thousands):

Three months ended

March 31,

2022

2021

Lease revenue

$

573 

$

Property operating expenses

(310)

Other income, net

$

263 

$

11


Note 5. Property and equipment

The components of property and equipment, net, as of March 31, 2022 and December 31, 2021 were as follows (in thousands):

March 31,
2022

December 31,
2021

Land

$

3,734 

$

3,734 

Buildings

15,980 

15,980 

Site improvements

470 

470 

Tenant improvements

567 

567 

Furniture and equipment

178 

178 

Construction in progress

508 

83 

Gross property and equipment

$

21,437 

$

21,012 

Accumulated depreciation

(574)

(396)

Property and equipment, net

$

20,863 

$

20,616 

Depreciation expense for property and equipment was $178,000 and $1,000 for the three months ended March 31, 2022 and 2021, respectively.

Note 6. Intangible assets

The components of intangible assets, net, as of March 31, 2022 and December 31, 2021 were as follows (in thousands):

March 31,
2022

December 31,
2021

Lease-in-place agreements

$

1,053 

$

1,053 

Leasing commissions and other

246 

246 

Gross intangible assets

$

1,299 

$

1,299 

Accumulated amortization

(359)

(224)

Intangible assets, net

$

940 

$

1,075 

Amortization expense for intangible assets was $135,000 for the three months ended March 31, 2022. There was no amortization expense for the three months ended March 31, 2021.

Amortization expense for finite-lived intangible assets as of March 31, 2022 is expected to be as follows (in thousands):

For the year ending December 31,

2022

355 

2023

431 

2024

154 

Total amortization

$

940 

12


Note 7. Stockholders’ Equity and Stock-Based Compensation Expense

2021 Registered Direct Offering

On February 12, 2021, the Company completed a common stock offering pursuant to which certain investors purchased 4,081,633 shares of common stock at a price of $49.00 per share. Net proceeds of the offering were approximately $189.8 million after deducting offering expenses.

At-the-Market Common Stock Offering

In March 2020, the Company established an at-the-market offering program (“ATM”) to sell, from time to time, shares of Company common stock having an aggregate offering price of up to $100 million in transactions pursuant to a shelf registration statement that was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on May 5, 2020. The Company is obligated to pay a commission of 3.0% of the gross proceeds from the sale of shares of common stock in the offering. The Company is not obligated to sell any shares in the offering.

There were no common stock sales under the ATM during the three months ended March 31, 2022 and 2021.

Common Stock Warrants

In August 2018, the Company issued warrants to purchase up to an aggregate of 9.1 million shares of its common stock in conjunction with an offering of its common stock. 

The Company did not receive any proceeds from exercise of common stock warrants during the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company received proceeds of $0.7 million from the exercise of 0.6 million shares pursuant to warrants.

There were no common stock warrants outstanding as of March 31, 2022.

Stock Option and Performance Award Activity in 2022

During the three months ended March 31, 2022, stock options and unvested Performance Awards outstanding under the Company’s stock option plans changed as follows:

Stock Options

Performance Awards

Outstanding as of December 31, 2021

2,663,727 

138,055 

Options granted

1,000 

Options exercised

(19,609)

Options forfeited/canceled

Outstanding as of March 31, 2022

2,645,118 

138,055 

The weighted average exercise price of options outstanding at March 31, 2022 was $11.49. As outstanding options vest over the current remaining vesting period of 2.0 years, the Company expects to recognize stock-based compensation expense of $5.7 million. If and when outstanding Performance Awards vest, the Company will recognize stock-based compensation expense of $2.3 million over the implicit service period.

During the three months ended March 31, 2022, there were 19,609 stock options exercised. Of the stock options exercised, 5,121 stock options were net settled in satisfaction of the exercise price, with no cash proceeds received. Cash proceeds to the Company for options not net settled totaled $211,000 during the three months ended March 31, 2022.

13


Stock-based Compensation Expense in 2022

During the three months ended March 31, 2022 and 2021, the Company’s stock-based compensation expense was as follows (in thousands):

Three months ended

March 31,

2022

2021

Research and development

$

422 

$

120 

General and administrative

73 

130 

Total stock-based compensation expense

$

495 

$

250 

 

2018 Equity Incentive Plan

In January 2018, the Company’s Board of Directors (the “Board”) approved the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”). The Board or a designated committee of the Board is responsible for administration of the 2018 Plan and determines the terms and conditions of each option granted, consistent with the terms of the 2018 Plan. The Company’s employees, directors, and consultants are eligible to receive awards under the 2018 Plan, including grants of stock options and Performance Awards. Share-based awards generally expire 10 years from the date of grant. The 2018 Plan provides for issuance of up to 1,000,000 shares of common stock, par value $0.001 per share, subject to adjustment as provided in the 2018 Plan.



When stock options or Performance Awards are exercised net of the exercise price and taxes, the number of shares of stock issued is reduced by the number of shares equal to the amount of taxes owed by the award recipient and that number of shares are cancelled. The Company then uses its cash to pay tax authorities the amount of statutory taxes owed by and on behalf of the award recipient.

Note 8. Income Taxes

The Company did not provide for income taxes during the three months ended March 31, 2022, because it has projected a net loss for the full year 2022 for which any benefit will be offset by an increase in the valuation allowance. There was also no provision for income taxes for the three months ended March 31, 2021.

 

Note 9. Commitments

Right-of-use Asset and Liability

The Company has a non-cancelable operating lease for approximately 6,000 square feet of office space in Austin, Texas that expires on April 30, 2024. The Company also has a short-term lease agreement for an additional 3,600 square feet of office space in Austin, Texas that, as amended in April 2022, expires on October 31, 2022. Future lease payments as of March 31, 2022 are as follows (in thousands):

2022

2023

2024

Total future lease payments

Less: imputed interest

Total

Operating leases

$

77 

107 

36 

220 

(7)

$

213 

Short-term operating lease

$

37 

37 

$

37 

Rent expense for the three months ended March 31, 2022 and 2021 totaled $41,000 and $23,000, respectively.

Cash paid for operating lease liabilities during the three months ended March 31, 2022 totaled $41,000. There was no cash paid for operating lease liabilities during the three months ended March 31, 2021.

Other Commitments

14


 The Company conducts its product research and development programs through a combination of internal and collaborative programs that include, among others, arrangements with universities, contract research organizations and clinical research sites. The Company has contractual arrangements with these organizations that are cancelable. The Company’s obligations under these contracts are largely based on services performed.

 

Note 10.  2020 Cash Incentive Bonus Plan

In August 2020, the Board approved the Plan. The Plan was established to promote the long-term success of the Company by creating an “at-risk” cash bonus program that rewards Plan participants with additional cash compensation in lockstep with significant increases in the Company’s market capitalization. The Plan is considered “at-risk” because Plan participants will not receive a cash bonus unless the Company’s market capitalization increases significantly and certain other conditions specified in the Plan are met. Specifically, Plan participants will not be paid any cash bonuses unless (1) the Company completes a merger or acquisition transaction that constitutes a sale of ownership of the Company or its assets (a Merger Transaction) or (2) the Compensation Committee of the Board (the Compensation Committee) determines the Company has sufficient cash on hand, as defined in the Plan. Because of the inherent discretion and uncertainty regarding these requirements, the Company has concluded that a Plan grant date has not occurred as of March 31, 2022.

Plan participants will be paid all earned cash bonuses in the event of a Merger Transaction.

The Company’s market capitalization for purposes of the Plan is determined based on either (1) the closing price of one share of the Company’s common stock on the Nasdaq Capital Market multiplied by the total issued and outstanding shares and options to purchase shares of the Company, or (2) the aggregate consideration payable to security holders of the Company in a Merger Transaction. This constitutes a market condition under applicable accounting guidance.   

The Plan triggers a potential cash bonus each time the Company’s market capitalization increases significantly, up to a maximum $5 billion in market capitalization. The Plan specifies 14 incremental amounts between $200 million and $5 billion (each increment, a “Valuation Milestone”). Each Valuation Milestone triggers a potential cash bonus award in a pre-set amount defined in the Plan. Each Valuation Milestone must be achieved and maintained for no less than 20 consecutive trading days for Plan participants to be eligible for a potential cash bonus award. Approximately 58% of each cash bonus award associated with a Valuation Milestone is subject to adjustment and approval by the Compensation Committee. Any amounts not awarded by the Compensation Committee are no longer available for distribution.

If the Company were to exceed a $5 billion market capitalization for no less than 20 consecutive trading days, all Valuation Milestones would be deemed achieved, in which case cash bonus awards would range from a minimum of $139.1 million up to a hypothetical maximum of $322.3 million. Payment of cash bonuses is deferred until such time as (1) the Company completes a Merger Transaction, or (2) the Compensation Committee determines the Company has sufficient cash on hand to render payment (each, a “Performance Condition”), neither of which may ever occur. Accordingly, there can be no assurance that Plan participants will ever be paid a cash bonus that is awarded under the Plan, even if the Company’s market capitalization increases significantly.