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The accompanying interim unaudited consolidated financial statements of Opexa Therapeutics, Inc. (“Opexa” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in Opexa’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements that would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year as reported in Form 10-K have been omitted.
The accompanying consolidated financial statements include the accounts of Opexa and its wholly owned subsidiary, Opexa Hong Kong Limited (“Opexa Hong Kong”). All intercompany balances and transactions have been eliminated in the consolidation.
Going Concern. The accompanying interim unaudited consolidated financial statements for the three months ended March 31, 2017 have been prepared assuming that the Company will continue as a going concern, meaning the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As of March 31, 2017, the Company had cash and cash equivalents of $2.8 million as well as accounts payable, short-term notes payable and accrued expenses aggregating $818,315. While the Company has historically recognized revenue related to certain upfront payments received from Ares Trading SA (“Merck Serono”), a wholly owned subsidiary of Merck Serono S.A., in connection with the Option and License Agreement and an amendment thereto between Merck Serono and the Company, the Company has never generated any commercial revenues, nor does it expect to generate any commercial revenues for the foreseeable future or other revenues in the near term that will result in cash receipts. Opexa continues to incur net losses, negative operating cash flows and has an accumulated deficit of approximately $162.2 million as of March 31, 2017. These factors raise substantial doubt as to the Company’s ability to continue as a going concern.
Following the October 28, 2016 announcement that the Abili-T trial did not meet its primary or secondary endpoints, and in order to conserve cash resources while it reevaluated its programs and explored various strategic alternatives, during the fourth quarter of 2016 and first quarter of 2017 the Company implemented several reductions in workforce totaling 90% of its then 20 full-time employees. As of March 31, 2017 Opexa has two full-time employees. After further analysis of the data from the Abili-T trial, the Company has determined that it will not move forward with further studies of Tcelna in SPMS at this time and is conducting a review of its other research and development programs, including the preclinical program for OPX-212 in NMO, to assess the viability of continuing to pursue one or more of these programs. The Company is also exploring its strategic alternatives. The Company cannot fully predict its future cash needs until it completes this analysis. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company continues to explore potential opportunities and alternatives to obtain the additional resources that will be necessary to support its ongoing operations through and beyond the next 12 months, including raising additional capital through either private or public equity or debt financing as well as using its at-the-market offering program and cutting expenses where possible. However, in light of the disappointing Abili-T study results, there can be no assurance that the Company will be able to secure additional funds or, if such funds are available, whether the terms or conditions would be acceptable to the Company.
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Cash and Cash Equivalents. Opexa considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Investments with maturities in excess of three months but less than one year are classified as short-term investments and are stated at fair market value.
Opexa primarily maintains cash balances on deposit in accounts at a U.S.-based financial institution. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. Opexa’s cash balances on deposit in these accounts may, at times, exceed the federally insured limits. Opexa has not experienced any losses in such accounts.
As of March 31, 2017, Opexa had approximately $1.8 million in a savings account. For the three months ended March 31, 2017, the savings account recognized an average market yield of 0.06%. Interest income of $336 was recognized for the three months ended March 31, 2017 in the consolidated statements of operations.
Recent Accounting Pronouncements. The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements. Management has also considered all recent accounting pronouncements issued since the last audit of the Company’s financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
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Other current assets consisted of the following at March 31, 2017 and December 31, 2016:
Description | March 31, 2017 | December 31, 2016 | ||||||
Deferred offering costs | $ | 49,918 | $ | 111,641 | ||||
Prepaid expense | 187,413 | 259,921 | ||||||
Total Other Current Assets | $ | 237,331 | $ | 371,562 |
Deferred offering costs at March 31, 2017 and December 31, 2016 were $49,918 and $111,641 respectively. The March 31, 2017 balance includes costs incurred from third parties in connection with the March 25, 2016 implementation of a new Sales Agreement (“ATM Agreement”) with IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.) as sales agent, pursuant to which Opexa can offer and sell shares of common stock from time to time depending upon market demand, in transactions deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933. These are included in other current assets in the consolidated balance sheets. Upon the sales of shares of common stock under the ATM Agreement, these capitalized costs will be offset against the proceeds of such sales of shares of common stock and recorded in additional paid in capital. As of March 31, 2017, $61,723 of deferred offering costs were recorded in additional paid in capital.
Prepaid expenses at March 31, 2017 and December 31, 2016 were $187,413 and $259,921 respectively. Included in the March 31, 2017 balance is $138,723 of prepaid insurance as well as the remaining balance of Opexa’s NASDAQ Capital Market All-Inclusive Annual Fee of $41,250. The remaining balances are attributable to various service contracts and deposits.
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Notes payable consists of a commercial insurance premium finance agreement - promissory note with AFCO of which $78,075 and $136,038 was outstanding as of March 31, 2017 and December 31, 2016, respectively. The loan has an interest rate of 3.5% per annum and matures July 1, 2017. The second note is also a commercial insurance premium finance agreement – promissory note with AFCO of which $13,796 and $20,604 was outstanding as of March 31, 2017 and December 31, 2016, respectively. The loan has an interest rate of 3.5% per annum and matures September 1, 2017. Payments on the above notes are due and payable monthly until maturity.
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For the three months ended March 31, 2017, equity related transactions were as follows:
During January 2017, Opexa sold an aggregate of 516,278 shares of common stock under its ATM facility with IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.) as sales agent, for gross proceeds of $490,098. Proceeds net of fees and deferred offering costs were $413,662.
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Stock Options
Opexa accounts for stock-based compensation, including options and nonvested shares, according to the provisions of FASB ASC 718, "Share Based Payment.” During the three months ended March 31, 2017, Opexa recognized stock-based compensation expense of $48,277. Unamortized stock-based compensation expense as of March 31, 2017 amounted to $235,340.
Stock Option Activity
A summary of stock option activity for the three months ended March 31, 2017 is presented below:
Number of Shares | Weighted Avg. Exercise Price | Weighted Average Remaining Contract Term (# years) | Intrinsic Value | |||||||||||||
Outstanding at December 31, 2016 | 481,947 | $ | 12.14 | 7.60 | — | |||||||||||
Exercised | — | — | ||||||||||||||
Forfeited and canceled | (187,351 | ) | 11.93 | |||||||||||||
Outstanding at March 31, 2017 | 294,596 | $ | 12.28 | 7.19 | $ | — | ||||||||||
Exercisable at March 31, 2017 | 244,868 | $ | 13.69 | 6.92 | $ | — |
Employee Options and Non-Employee Options
Option awards are granted with an exercise price equal to the market price of Opexa’s stock at the date of issuance, generally have a ten-year life, and have various vesting dates that range from no vesting or partial vesting upon date of grant to full vesting on a specified date. Opexa estimates the fair value of stock options using the Black-Scholes option-pricing model and records the compensation expense ratably over the service period.
Opexa recognized stock based compensation expense of $48,277 and $153,853 during the three months ended March 31, 2017 and 2016, respectively, for grants made to employees.
In addition, during the three months ended March 31, 2017 there were 187,351 shares underlying options that were forfeited and cancelled.
There were no stock options or restricted stock awards granted during the three months ended March 31, 2017.
Warrant Activity
A summary of warrant activity for the three months ended March 31, 2017 is presented below:
Number of Shares | Weighted Avg. Exercise Price | Weighted Average Remaining Contract Term (# years) | Intrinsic Value | |||||||||||||
Outstanding at December 31, 2016 | 3,596,625 | $ | 12.39 | 1.21 | — | |||||||||||
Forfeited and canceled | (127,894 | ) | 12.72 | |||||||||||||
Outstanding at March 31, 2017 | 3,468,731 | 12.38 | 1.00 | $ | — | |||||||||||
Exercisable at March 31, 2017 | 3,468,731 | 12.38 | 1.00 | $ | — |
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On February 1, 2017, Opexa entered into an Assignment and Assumption of Lease with KBI Biopharma, Inc. (KBI), pursuant to which Opexa assigned to KBI, and KBI assumed from Opexa, all of Opexa’s remaining rights and obligations under the lease for Opexa’s 10,200 square foot corporate headquarters facility located in The Woodlands, Texas. The facility was originally leased by Opexa from Dirk D. Laukien, as landlord, pursuant to a lease dated August 19, 2005 as amended by that certain First Amendment to Lease Agreement dated May 11, 2015. In light of Opexa’s continuing evaluation of its strategic alternatives following the release of the data from the Abili-T clinical study, management deemed it advisable to reduce the office, R&D and manufacturing space and corresponding rent obligations. The lease had a remaining term through September 2020 and current monthly base rental payments of $16,666.67 with payment escalations to $17,500 over the remaining term. In connection with the lease assignment, Opexa also sold certain furniture, fixtures and equipment (including laboratory and manufacturing equipment) as well as its laboratory supplies located at its corporate headquarters to KBI for cash consideration in the amount of $50,000.
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Cash and Cash Equivalents. Opexa considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Investments with maturities in excess of three months but less than one year are classified as short-term investments and are stated at fair market value.
Opexa primarily maintains cash balances on deposit in accounts at a U.S.-based financial institution. The aggregate cash balance on deposit in these accounts is insured by the Federal Deposit Insurance Corporation up to $250,000. Opexa’s cash balances on deposit in these accounts may, at times, exceed the federally insured limits. Opexa has not experienced any losses in such accounts.
As of March 31, 2017, Opexa had approximately $1.8 million in a savings account. For the three months ended March 31, 2017, the savings account recognized an average market yield of 0.06%. Interest income of $336 was recognized for the three months ended March 31, 2017 in the consolidated statements of operations.
Recent Accounting Pronouncements. The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements. Management has also considered all recent accounting pronouncements issued since the last audit of the Company’s financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
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Description | March 31, 2017 | December 31, 2016 | ||||||
Deferred offering costs | $ | 49,918 | $ | 111,641 | ||||
Prepaid expense | 187,413 | 259,921 | ||||||
Total Other Current Assets | $ | 237,331 | $ | 371,562 |
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Number of Shares | Weighted Avg. Exercise Price | Weighted Average Remaining Contract Term (# years) | Intrinsic Value | |||||||||||||
Outstanding at December 31, 2016 | 481,947 | $ | 12.14 | 7.60 | — | |||||||||||
Exercised | — | — | ||||||||||||||
Forfeited and canceled | (187,351 | ) | 11.93 | |||||||||||||
Outstanding at March 31, 2017 | 294,596 | $ | 12.28 | 7.19 | $ | — | ||||||||||
Exercisable at March 31, 2017 | 244,868 | $ | 13.69 | 6.92 | $ | — |
Number of Shares | Weighted Avg. Exercise Price | Weighted Average Remaining Contract Term (# years) | Intrinsic Value | |||||||||||||
Outstanding at December 31, 2016 | 3,596,625 | $ | 12.39 | 1.21 | — | |||||||||||
Forfeited and canceled | (127,894 | ) | 12.72 | |||||||||||||
Outstanding at March 31, 2017 | 3,468,731 | 12.38 | 1.00 | $ | — | |||||||||||
Exercisable at March 31, 2017 | 3,468,731 | 12.38 | 1.00 | $ | — |
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