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EX-32.2 - EX-32.2 - ACHIEVE LIFE SCIENCES, INC.achv-ex322_7.htm
EX-32.1 - EX-32.1 - ACHIEVE LIFE SCIENCES, INC.achv-ex321_6.htm
EX-31.2 - EX-31.2 - ACHIEVE LIFE SCIENCES, INC.achv-ex312_9.htm
EX-31.1 - EX-31.1 - ACHIEVE LIFE SCIENCES, INC.achv-ex311_8.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2020 

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 033-80623

Achieve Life Sciences, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

95-4343413

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

1040 West Georgia Street, Suite 1030, Vancouver, British Columbia, Canada V6E 4H1

(Address of Principal Executive Offices)

(604) 210-2217

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol

Name of exchange on which registered

 

Common Stock, par value $0.001 per share

ACHV

The 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     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     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

 

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  

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

As of May 14, 2020, there were 37,515,408 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

 


Achieve Life Sciences, Inc.

Index to Form 10-Q

 

 

Page
Number

 

 

Part I.   Financial Information

3

 

 

 

Item 1

Consolidated Financial Statements (unaudited)

3

 

 

 

 

Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

3

 

 

 

 

Consolidated Statements of Loss and Comprehensive Loss (unaudited) for the three months ended March 31, 2020 and March 31, 2019

4

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2020 and March 31, 2019

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended March 31, 2020 and March 31, 2019

6

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

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

19

 

 

 

 

 

 

Item 4.

Controls and Procedures

28

 

 

Part II.   Other Information

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 6.

Exhibits

54

 

 

Items 2, 3 and 4 are not applicable and therefore have been omitted.

 

 

 

Signatures

55

2


PART I. FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

Achieve Life Sciences, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share and share amounts) 

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents [note 5]

 

$

12,156

 

 

$

16,664

 

Amounts receivable

 

 

 

 

 

8

 

Prepaid expenses and other assets

 

 

746

 

 

 

662

 

Total current assets

 

 

12,902

 

 

 

17,334

 

Restricted cash [note 5]

 

 

50

 

 

 

50

 

Property and equipment, net

 

 

52

 

 

 

57

 

Right-of-use assets [note 7]

 

 

285

 

 

 

329

 

Other assets

 

 

293

 

 

 

187

 

License agreement [note 3 and 4]

 

 

2,031

 

 

 

2,087

 

Goodwill [note 4]

 

 

1,034

 

 

 

1,034

 

Total assets

 

$

16,647

 

 

$

21,078

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

184

 

 

$

859

 

Accrued liabilities other

 

 

174

 

 

 

304

 

Accrued clinical liabilities

 

 

571

 

 

 

387

 

Accrued compensation

 

 

419

 

 

 

1,116

 

Current portion of long-term obligations [note 7]

 

 

196

 

 

 

203

 

Total current liabilities

 

 

1,544

 

 

 

2,869

 

Long-term obligations [note 7]

 

 

118

 

 

 

159

 

Total liabilities

 

 

1,662

 

 

 

3,028

 

Commitments and contingencies [note 7]

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value, 9,158 shares designated, zero

issued and outstanding at March 31, 2020 and zero issued and outstanding at December 31, 2019.

 

 

 

 

 

 

Series B convertible preferred stock, $0.001 par value, 6,256 shares designated, zero

issued and outstanding at March 31, 2020 and 1,121 issued and outstanding at December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized, 31,352,764 issued and outstanding at March 31, 2020 and 29,485,178 issued and outstanding at December 31, 2019, respectively.

 

 

43

 

 

 

41

 

Additional paid-in capital

 

 

63,962

 

 

 

63,709

 

Accumulated deficit

 

 

(49,024

)

 

 

(45,704

)

Accumulated other comprehensive income

 

 

4

 

 

 

4

 

Total stockholders' equity

 

 

14,985

 

 

 

18,050

 

Total liabilities and stockholders' equity

 

$

16,647

 

 

$

21,078

 

Going concern [note 1]

 

 

 

 

 

 

 

 

Subsequent events [note 8]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

3


Achieve Life Sciences, Inc.

Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

(In thousands, except per share and share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

EXPENSES

 

 

 

 

 

 

 

 

Research and development

 

 

1,541

 

 

 

4,055

 

General and administrative

 

 

1,816

 

 

 

1,885

 

Total operating expenses

 

 

3,357

 

 

 

5,940

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest income

 

 

42

 

 

 

62

 

Other expenses

 

 

(5

)

 

 

(26

)

Total other income (expense)

 

 

37

 

 

 

36

 

Net loss

 

$

(3,320

)

 

$

(5,904

)

Comprehensive loss

 

$

(3,320

)

 

$

(5,904

)

Basic and diluted net loss per common share

 

$

(0.11

)

 

$

(0.88

)

Weighted average shares used in computation of basic and diluted net loss per common share

 

 

30,936,777

 

 

 

6,721,184

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


Achieve Life Sciences, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(3,320

)

 

$

(5,904

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization [note 3]

 

 

61

 

 

 

65

 

Stock-based compensation [note 6 [c] and note 6 [d]]

 

 

302

 

 

 

290

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Amounts receivable

 

 

8

 

 

 

 

Prepaid expenses and other assets

 

 

(190

)

 

 

88

 

Accounts payable

 

 

(675

)

 

 

550

 

Accrued liabilities other

 

 

(130

)

 

 

(199

)

Accrued clinical liabilities

 

 

184

 

 

 

887

 

Accrued compensation

 

 

(697

)

 

 

(680

)

Lease obligation [note 7]

 

 

(4

)

 

 

14

 

Net cash used in operating activities

 

 

(4,461

)

 

 

(4,889

)

Financing Activities:

 

 

 

 

 

 

 

 

Costs relating to December 2019 registered direct offering

 

 

(34

)

 

 

 

Costs relating to purchase agreement with Lincoln Park Capital

 

 

(13

)

 

 

 

Net cash used in financing activities

 

 

(47

)

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2

)

 

 

(54

)

Purchase of investments

 

 

 

 

 

(20

)

Proceeds from maturities of investments

 

 

 

 

 

2,764

 

Net cash provided by (used in) investing activities

 

 

(2

)

 

 

2,690

 

Effect of exchange rate changes on cash

 

 

2

 

 

 

4

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(4,508

)

 

 

(2,195

)

Cash, cash equivalents and restricted cash at beginning of the period

 

 

16,714

 

 

 

9,565

 

Cash, cash equivalents and restricted cash at end of the period

 

$

12,206

 

 

$

7,370

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


Achieve Life Sciences, Inc.

 

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total,

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2019

 

 

29,485,178

 

 

$

41

 

 

 

1,121

 

 

$

 

 

$

63,709

 

 

$

4

 

 

$

(45,704

)

 

$

18,050

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

302

 

 

 

 

 

 

 

 

 

302

 

Costs relating to December 2019 financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

 

 

 

 

 

 

(34

)

Costs relating to purchase agreement with Lincoln Park Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

(13

)

Shares issued on conversion of Series B preferred shares

 

 

1,867,586

 

 

 

2

 

 

 

(1,121

)

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,320

)

 

 

(3,320

)

Balance, March 31, 2020

 

 

31,352,764

 

 

$

43

 

 

 

 

 

$

 

 

$

63,962

 

 

$

4

 

 

$

(49,024

)

 

$

14,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total,

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2018

 

 

6,721,117

 

 

$

18

 

 

 

579

 

 

$

 

 

$

41,161

 

 

$

4

 

 

$

(25,381

)

 

$

15,802

 

Restricted stock unit settlements

 

 

83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

290

 

 

 

 

 

 

 

 

 

290

 

Adjustments to final October 2018 financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Cumulative adjustment on adoption of lease standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,904

)

 

 

(5,904

)

Balance, March 31, 2019

 

 

6,721,200

 

 

$

18

 

 

 

579

 

 

$

 

 

$

41,455

 

 

$

4

 

 

$

(31,288

)

 

$

10,189

 

 

See accompanying notes.

 

6


Achieve Life Sciences, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY

Achieve Life Sciences, Inc. (referred to as “Achieve,” “we,” “us,” or “our”) is a clinical-stage pharmaceutical company committed to the global development and commercialization of cytisinicline for smoking cessation. We were incorporated in the state of Delaware, and operate out of Vancouver, British Columbia and Seattle, Washington.

The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying consolidated Balance Sheet at December 31, 2019 has been derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year then ended. The unaudited consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2019 and filed with the United States Securities and Exchange Commission, or the SEC, on March 13, 2020.

The consolidated financial statements include the accounts of Achieve and our wholly owned subsidiaries, Achieve Life Sciences Technologies Inc., Achieve Life Science, Inc., Extab Corporation, and Achieve Pharma UK Limited. All intercompany balances and transactions have been eliminated.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business.

We have historically experienced recurring losses from operations that have generated an accumulated deficit of $49.0 million through March 31, 2020. During the three months ended March 31, 2020, we incurred a net loss of $3.3 million. As of March 31, 2020, we had a cash and cash equivalents balance of $12.2 million and a positive working capital balance of $11.4 million. During the three months ended March 31, 2020, net cash used in operations was $4.5 million.

 

Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is uncertain and dependent on our ability to obtain additional financing. There is no assurance that we will obtain financing from other sources. We have, thus far, financed our operations through the closing of the arrangement between us and OncoGenex Pharmaceuticals, Inc. pursuant to a Merger Agreement dated January 5, 2017, or the Arrangement, and through debt and equity financings (Note 6—Common Stock). Without additional funds, we may be forced to delay, scale back or eliminate some of our research and development activities or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected.

Our current resources are insufficient to fund our planned operations for the next 12 months. We will continue to require substantial additional capital to continue our clinical development activities. Accordingly, we will need to raise substantial additional capital to continue to fund our operations from the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidate. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. Failure to raise capital as and when needed, on favorable terms or at all, will have a negative impact on our financial condition and our ability to develop our product candidate. The uncertainty with respect to our operations and the market generally due to the COVID-19 pandemic may also make it challenging to raise additional capital on favorable terms, if at all. We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our product candidate in clinical development.

The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern. Such adjustments could be material.

 

 

7


2. ACCOUNTING POLICIES

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our audited financial statements for the year ended December 31, 2019 in our Annual Report on Form 10-K filed with the SEC, on March 13, 2020. Since December 31, 2019, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them. 

 

 

3. INTANGIBLES

All of our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated useful life.

We acquired license and supply agreements in relation to cytisinicline upon the acquisition of Extab Corporation, or Extab, on May 18, 2015. The agreements were determined to have a fair value of $3.1 million with an estimated useful life of 14 years.

The components of intangible assets were as follows:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Value

 

 

Amortization

 

 

Value

 

 

Value

 

 

Amortization

 

 

Value

 

License Agreements

 

$

3,117

 

 

$

(1,086

)

 

$

2,031

 

 

$

3,117

 

 

$

(1,030

)

 

$

2,087

 

 

For the three months ended March 31, 2020, we recorded license agreement amortization expense of $0.1 million. For the three months ended March 31, 2019, we recorded license agreement amortization expense of $0.1 million. The following table outlines the estimated future amortization expense related to intangible assets held as of March 31, 2020:

 

Year Ending December 31,

 

 

 

 

2020

 

$

167

 

2021

 

 

223

 

2022

 

 

223

 

2023

 

 

223

 

Thereafter

 

 

1,195

 

Total

 

$

2,031

 

 

We evaluate the carrying amount of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful life or that indicate the asset may be impaired. We conducted an analysis of potential impairment indicators for long lived assets, including the license and supply agreements for the active pharmaceutical ingredient cytisinicline, and concluded no impairment had occurred as of March 31, 2020.

 

 

4. LICENSE AGREEMENTS

Sopharma License and Supply Agreements

In 2009 and 2010, we entered into a license agreement, or the Sopharma License Agreement, and a supply agreement, or the Sopharma Supply Agreement, with Sopharma, AD, or Sopharma. Pursuant to the Sopharma License Agreement, we were granted access to all available manufacturing, efficacy and safety data related to cytisinicline, as well as a granted patent in several European countries including Germany, France and Italy related to new oral dosage forms of cytisinicline providing enhanced stability. Additional rights granted under the Sopharma License Agreement include the exclusive use of, and the right to sublicense, the trademark Tabex in all territories—other than certain countries in Central and Eastern Europe, Scandinavia, North Africa, the Middle East and Central Asia, as well as Vietnam, where Sopharma or its affiliates and agents already market Tabex—in connection with the marketing, distribution and sale of products. Under the Sopharma License Agreement, we agreed to pay a nonrefundable license fee. In addition, we agreed to make certain royalty payments equal to a mid-teens percentage of all net sales of Tabex branded products in our territory during the term of the Sopharma License Agreement, including those sold by a third party pursuant to any sublicense which may be granted by us. We have agreed to cooperate with Sopharma in the defense against any actual or threatened infringement claims with respect to Tabex. Sopharma has the right to terminate the Sopharma License Agreement upon the termination or expiration of the Sopharma Supply Agreement. The Sopharma License Agreement will also terminate under customary termination provisions including bankruptcy or insolvency and material breach. To date, any amounts paid to Sopharma pursuant to the Sopharma License Agreement have been immaterial.

8


A cross-license exists between us and Sopharma whereby we grant to Sopharma rights to any patents or patent applications or other intellectual property rights filed by us in Sopharma territories.

On May 14, 2015, we and Sopharma entered into an amendment to the Sopharma License Agreement. Among other things, the amendment to the Sopharma License Agreement reduced the royalty payments payable by us to Sopharma from a percentage in the mid-teens to a percentage in the mid-single digits and extended the term of the Sopharma License Agreement until May 26, 2029.

On July 28, 2017, we and Sopharma entered into the amended and restated Sopharma Supply Agreement. Pursuant to the amended and restated Sopharma Supply Agreement, for territories as detailed in the licensing agreement, we will exclusively purchase all of our cytisinicline from Sopharma, and Sopharma agrees to exclusively supply all such cytisinicline requested by us, and we extended the term to 2037. In addition, we will have full access to the cytisinicline supply chain and Sopharma will manufacture sufficient cytisinicline to meet a forecast for a specified demand of cytisinicline for the five years commencing shortly after the commencement of the agreement, with the forecast to be updated regularly thereafter. Each of us and Sopharma may terminate the Sopharma Supply Agreement in the event of the other party’s material breach or bankruptcy or insolvency.

University of Bristol License Agreement

In July 2016, we entered into a license agreement with the University of Bristol, or the University of Bristol License Agreement. Under the University of Bristol License Agreement, we received exclusive and nonexclusive licenses from the University of Bristol to certain patent and technology rights resulting from research activities into cytisinicline and its derivatives for use in smoking cessation, including a number of patent applications related to novel approaches to cytisinicline binding at the nicotinic receptor level. Any patents issued in connection with these applications would be scheduled to expire on February 5, 2036 at the earliest.

In consideration of rights granted by the University of Bristol, we agreed to pay amounts of up to $3.2 million, in the aggregate, tied to a financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the University of Bristol License Agreement. Additionally, if we successfully commercialize product candidates subject to the University of Bristol License Agreement, we are responsible for royalty payments in the low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products.

On January 22, 2018, we and the University of Bristol entered into an amendment to the University of Bristol License Agreement. Pursuant to the amended University of Bristol License Agreement, we received exclusive rights for all human medicinal uses of cytisinicline across all therapeutic categories from the University of Bristol from research activities into cytisinicline and its derivatives. In consideration of rights granted by the amended University of Bristol License Agreement, we agreed to pay an initial amount of $37,500 upon the execution of the amended University of Bristol License Agreement, and additional amounts of up to $1.7 million, in the aggregate, tied to a financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the amended University of Bristol License Agreement, in addition to amounts under the original University of Bristol License Agreement of up to $3.2 million in the aggregate, tied to specific financing, development and commercialization milestones. Additionally, if we successfully commercialize any product candidate subject to the amended University of Bristol License Agreement or to the original University of Bristol License Agreement, we will be responsible, as provided in the original University of Bristol License Agreement, for royalty payments in the low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products. Up to March 31, 2020, we had paid the University of Bristol $125,000 pursuant to the University of Bristol License Agreement.

Unless otherwise terminated, the University of Bristol License Agreement will continue until the earlier of July 2036 or the expiration of the last patent claim subject to the University of Bristol License Agreement. We may terminate the University of Bristol License Agreement for convenience upon a specified number of days’ prior notice to the University of Bristol. The University of Bristol License Agreement will terminate under customary termination provisions including bankruptcy or insolvency or its material breach of the agreement. Under the terms of the University of Bristol License Agreement, we provided 100 grams of cytisinicline to the University of Bristol as an initial contribution.

 

 

5. FAIR VALUE MEASUREMENTS

Assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. For certain of our financial instruments including amounts receivable and accounts payable the carrying values approximate fair value due to their short-term nature.

9


ASC 820 “Fair Value Measurements and Disclosures” specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:

 

Level 1 – Quoted prices in active markets for identical securities.

 

Level 2 – Other significant inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities).

 

Level 3 – Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability.

As quoted prices in active markets are not readily available for certain financial instruments, we obtain estimates for the fair value of financial instruments through third-party pricing service providers.

In determining the appropriate levels, we performed a detailed analysis of the assets and liabilities that are subject to ASC 820.

We invest our excess cash in accordance with investment guidelines that limit the credit exposure to any one financial institution other than securities issued by the U.S. Government. These securities are not collateralized and mature within one year.

A description of the valuation techniques applied to our financial instruments measured at fair value on a recurring basis follows.

Financial Instruments

Cash

Significant amounts of cash are held on deposit with large well-established U.S. and Canadian financial institutions.

Money Market Securities

Money market securities are classified within Level I of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.

The following table presents information about our assets that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

 

March 31, 2020

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

550

 

 

$

 

 

$

 

 

$

550

 

Money market securities (cash equivalents)

 

 

11,606

 

 

 

 

 

 

 

 

 

11,606

 

Restricted cash

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Total assets

 

$

12,206

 

 

$

 

 

$

 

 

$

12,206

 

 

Cash and cash equivalents consist of the following (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

March 31, 2020

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Cash

 

$

550

 

 

$

 

 

$

 

 

$

550

 

Money market securities

 

 

11,606

 

 

 

 

 

 

 

 

 

11,606

 

Total cash and cash equivalents

 

$

12,156

 

 

$

 

 

$

 

 

$

12,156

 

Money market securities (restricted cash)

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Total restricted cash

 

$

50

 

 

$

 

 

$

 

 

$

50

 

 

We only invest in A (or equivalent) rated securities. All securities included in cash and cash equivalents had maturities of 90 days or less at the time of purchase.

 

 

10


6. COMMON STOCK

[a]

Authorized

150,000,000 authorized common shares, par value of $0.001, and 5,000,000 preferred shares, par value of $0.001. 

[b]

Issued and outstanding shares

 

Purchase Agreement and Financing with Lincoln Park Capital

On September 14, 2017 we and Lincoln Park Capital Fund, LLC, or LPC, entered into a share and unit purchase agreement, or Purchase Agreement, pursuant to which we have the right to sell to LPC up to $11.0 million in shares of our common stock, par value $0.001 per share, subject to certain limitations and conditions set forth in the Purchase Agreement. On May 22, 2018 we obtained the requisite stockholder authorization to sell shares of our common stock to LPC in excess of 20% of our outstanding shares of common stock (as of the date we entered into the purchase agreement) in order to be able to sell to LPC the full amount remaining under the purchase agreement. 

Pursuant to the Purchase Agreement, LPC initially purchased 32,895 of our units, or the Units, at a purchase price of $30.40 per unit, with each Unit consisting of (a) one share of our Common Stock and (b) one warrant to purchase one-quarter of a share of Common Stock at an exercise price of $34.96 per share, or Warrant.  Each Warrant is exercisable six months following the issuance date until the date that is five years and six months after the issuance date and is subject to customary adjustments.  The Warrants were issued only as part of the Units in the initial purchase of $1.0 million and no warrants shall be issued in connection with any other purchases of common stock under the Purchase Agreement.

After the initial purchase, if our stock price is above $1.00, as often as every other business day over the 30-month term of the Purchase Agreement, and up to an aggregate amount of an additional $10.0 million (subject to certain limitations) of shares of common stock, we have the right, from time to time, in our sole discretion and subject to certain conditions to direct LPC to purchase up to 8,000 shares of common stock with such amounts increasing as the closing sale price of our common stock as reported on The Nasdaq Capital Market increases. The purchase price of shares of common stock pursuant to the Purchase Agreement will be based on prevailing market prices of common stock at the time of sales without any fixed discount, and we will control the timing and amount of any sales of common stock to LPC. In addition, we may direct LPC to purchase additional amounts as accelerated purchases if on the date of a regular purchase the closing sale price of the common stock is not below $20.00 per share. As consideration for entering into the Purchase Agreement, we issued to LPC 12,352 shares of common stock; no cash proceeds were received from the issuance of these shares. The consideration of 12,352 shares of our common stock were fair valued based on the closing price of our common stock as at the transaction date and recognized as part of offering expenses.

 

During the three months ended March 31, 2020, we offered and sold zero shares of our common stock pursuant to the Purchase Agreement with LPC. Since entry into the Purchase Agreement, from September 14, 2017 through March 31, 2020, we offered and sold an aggregate of 557,378 shares of our common stock, including the 32,895 shares that were part of the initial purchase of Units. These aggregate sales resulted in gross proceeds to us of approximately $4.4 million and offering expenses of $0.5 million.

 

On March 12, 2020, we and LPC entered into Amendment No. 1 to the Purchase Agreement, or the Amendment, pursuant to which the term of the Purchase Agreement was extended from 30 months to 54 months and the number of shares of common stock that we may direct LPC to purchase from time to time pursuant to a Regular Purchase (as defined in the Purchase Agreement) was increased from 80,000 shares of common stock to 150,000 shares of common stock. Minimum closing stock price requirements were also removed for Regular Purchases and Accelerated Purchases (each as defined in the Purchase Agreement). In connection with the Amendment, we agreed to pay to LPC $0.1 million as an expense reimbursement.

 

 

At The Market Offering Agreement with H.C. Wainwright & Co., LLC

On June 7, 2019, we entered into an At The Market Offering Agreement, or the Offering Agreement, with H.C. Wainwright & Co., LLC, as agent, or H.C. Wainwright, pursuant to which we may offer and sell, from time to time and at our election, through H.C. Wainwright shares of our common stock, par value $0.001 per share, having an aggregate offering price of up to $6.0 million.

Pursuant to the Offering Agreement, H.C. Wainwright may sell the shares our common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act, including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Capital Market, at market prices or as otherwise agreed with H.C. Wainwright. H.C. Wainwright will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares of common stock from time to time, based upon instructions from us, including any price or size limits or other customary parameters or conditions we may impose.

11


We are not obligated to make any sales of the shares of common stock under the Offering Agreement. The offering of shares of common stock pursuant to the Offering Agreement will terminate upon the earliest of (a) the sale of all of the shares of common stock subject to the Offering Agreement, (b) the termination of the Offering Agreement by H.C. Wainwright or us, as permitted therein, or (c) June 7, 2022.

We will pay H.C. Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of shares of common stock and have agreed to provide H.C. Wainwright with customary indemnification and contribution rights. We will also reimburse H.C. Wainwright for certain specified expenses in connection with entering into the Offering Agreement. The Offering Agreement contains customary representations and warranties and conditions to the placements of the shares of common stock pursuant thereto.

From June 7, 2019 to March 31, 2020 we did not offer any shares of our common stock for sale pursuant to the Offering Agreement. As of March 31, 2019, shares of our common stock having an aggregate value of approximately $6.0 million remained available for sale under the Offering Agreement.

The offering expenses and fees have been deferred and will be charged against gross proceeds.

 

December 2019 Public Offering

On December 17, 2019, we completed an underwritten registered public offering, pursuant to which we sold, 9,577,504 Class A Units at a price per unit of $0.60 and 6,256 Class B Units at a price per unit of $999.60.

 

Each Class A Unit consisted of one share of our common stock and a warrant to purchase one share of common stock.

 

Each Class B Unit consisted of one share of Series B Convertible Preferred Stock, par value $0.001 per share, convertible at any time at the holder’s option into 1,666 shares of common stock, and warrants to purchase 1,666 shares of common stock.

 

Each warrant was immediately exercisable, expires on the five year anniversary of the date of issuance and is exercisable at a price per share of common stock of $0.60, subject to adjustment in the event of subsequent equity sales of common stock or securities convertible into common stock for an exercise price per share less than the exercise price per share of the warrants then in effect, provided, however, that the exercise price of the warrants cannot be reduced to an amount less than $0.06 per share of common stock. Additionally, subject to certain exceptions, if, after December 17, 2019, (i) the volume weighted average price of the common stock for each of 30 consecutive trading days, or the 2019 Measurement Period, which 2019 Measurement Period commences on the closing date, exceeds 300% of the exercise price (subject to adjustments for stock splits, recapitalizations, stock dividends and similar transactions), (ii) the average daily trading volume for such 2019 Measurement Period exceeds $500,000 per trading day and (iii) certain other equity conditions are met, and subject to a beneficial ownership limitation, then the Company may call for cancellation of all or any portion of the warrants then outstanding.

 

The Class A Units and Class B Units were not certificated and the shares of common stock, Series B Convertible Preferred Stock and warrants comprising such Units were immediately separable and were issued separately in the public offering. The Class A and B Units were offered by us pursuant to the registration statement on Form S-1 (File No. 333-234530), and each amendment thereto, which was initially filed with the SEC on November 6, 2019 and declared effective by the SEC on December 17, 2019.

 

In addition, pursuant to the Underwriting Agreement we entered into with Ladenburg Thalmann & Co. Inc., or Ladenburg, on December 17, 2019, we granted Ladenburg a 45 day option, or the 2019 Overallotment Option, to purchase up to 3,000,000 additional shares of common stock and/or warrants to purchase up to 3,000,000 shares of common stock solely to cover over-allotments. The 2019 Overallotment Option was exercised in full on December 17, 2019.

 

The public offering raised total gross proceeds of $13.8 million and after deducting $1.5 million in underwriting discounts and commissions and offering expenses, we received net proceeds of $12.3 million.

 

The underwriting discounts and commissions and offering expenses have been charged against the gross proceeds.

 

As of March 31, 2020, all 6,256 shares of the Series B Convertible Preferred Stock had been converted into 10,422,496 shares of common stock, and no shares of the Series B Convertible Preferred Stock remained outstanding.

Equity Award Issuances and Settlements

During the three months ended March 31, 2020, we issued no shares of common stock to satisfy stock options exercises and no shares of common stock to satisfy restricted stock unit settlements, compared with no shares of common stock issued to satisfy stock options

12


exercises and 133 shares of common stock to satisfy restricted stock unit settlements, during the three month period ended March 31, 2019.

[c]

Stock options

 

2018 Equity Incentive Plan

As of March 31, 2020, we had reserved, pursuant to the 2018 Equity Incentive Plan, or the 2018 Plan, 2,810,314 common shares for issuance upon exercise of stock options by employees, directors, officers and consultants of ours, of which 2,216,105 were reserved for options currently outstanding and 594,209 were available for future equity grants.

Under the 2018 Plan, we may grant options to purchase common shares or restricted stock units to our employees, directors, officers and consultants. The exercise price of the options is determined by our board of directors but will be at least equal to the fair value of the common shares at the grant date. The options vest in accordance with terms as determined by our board of directors, typically over three to four years for options issued to employees and consultants, and over one to three years for members of our board of directors. The expiry date for each option is set by our board of directors with a maximum expiry date of ten years from the date of grant. In addition, the 2018 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

 

2017 Equity Incentive Plan

As of March 31, 2020, we had reserved, pursuant to the 2017 Equity Incentive Plan, or the 2017 Plan, 267,398 common shares for issuance upon exercise of stock options, currently outstanding, by employees, directors and officers of ours. Upon the effectiveness of our 2018 Plan, we ceased granting equity awards under our 2017 Plan.

Under the 2017 Plan, we granted options to purchase common shares or restricted stock units to our employees, directors, officers and consultants. The exercise price of the options was determined by our board of directors but was at least equal to the fair value of the common shares at the grant date. The options vest in accordance with terms as determined by our board of directors, typically over three to four years for options issued to employees and consultants, and over one to three years for members of our board of directors. The expiry date for each option was set by our board of directors with a maximum expiry date of ten years from the date of grant. In addition, the 2017 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

2010 Performance Incentive Plan

As of March 31, 2020, we had reserved, pursuant to the 2010 Performance Incentive Plan, or the 2010 Plan, 15,271 common shares for issuance upon exercise of stock options and settlement of restricted stock units by employees, directors, officers and consultants of ours, of which 5,923 were reserved for options currently outstanding and 9,348 were reserved for restricted stock units currently outstanding.

Under the 2010 Plan we granted options to purchase common shares and restricted stock units to our employees, directors, officers and consultants. The exercise price of the options was determined by our board of directors and was at least equal to the fair value of the common shares at the grant date. The options vest in accordance with terms as determined by our board of directors, typically over three to four years for options issued to employees and consultants, and over one to three years for members of our board of directors. The expiry date for each option is set by our board of directors with a maximum expiry date of ten years from the date of grant. In addition, the 2010 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

13


Stock Option Summary

We grant stock options that vest over time in accordance with terms as determined by our Board of Directors, or the Board, which terms are typically four years for employee and consultant grants and one to three years for Board option grants. We also grant stock option awards that vest in conjunction with certain performance conditions to executive officers, employees and consultants. At each reporting date, we are required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance condition. The expiry date for each option is set by the Board, which is typically seven to ten years. The exercise price of the options is determined by the Board.

Stock option transactions and the number of stock options outstanding are summarized below:

 

 

 

Number of

 

 

Weighted

 

 

 

Optioned

 

 

Average

 

 

 

Common

 

 

Exercise

 

 

 

Shares

 

 

Price

 

Balance,  December 31, 2019

 

 

1,010,583

 

 

$

10.05

 

Granted

 

 

1,497,600

 

 

 

0.56

 

Forfeited

 

 

(18,757

)

 

 

4.33

 

Balance, March 31, 2020

 

 

2,489,426

 

 

$

4.38

 

 

The fair value of each stock award for employees and directors is estimated on the grant date and for consultants at each reporting period, using the Black-Scholes option-pricing model based on the weighted-average assumptions noted in the following table:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Risk-free interest rates

 

 

1.51

%

 

 

2.56

%

Expected dividend yield

 

 

0

%

 

 

0

%

Expected life

 

 

6.02

 

 

 

6.02

 

Expected volatility

 

 

104.06

%

 

 

93.72

%

 

 

The expected life was calculated based on the simplified method as permitted by the SEC’s Staff Accounting Bulletin 110, Share-Based Payment. We consider the use of the simplified method appropriate because of the lack of sufficient historical exercise data following the Arrangement. The computation of expected volatility was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization. The risk-free interest rate is based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In addition to the assumptions above, as required under ASC 718, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. Forfeiture rates are estimated using historical actual forfeiture rates. These rates are adjusted on a quarterly basis and any change in compensation expense is recognized in the period of the change. We have never paid or declared cash dividends on our common stock and do not expect to pay cash dividends in the foreseeable future.

The results for the periods set forth below included share-based compensation expense for stock options and restricted stock units in the following expense categories of the consolidated statements of loss (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

86

 

 

$

90

 

General and administrative

 

$

216

 

 

 

200

 

Total stock-based compensation

 

$

302

 

 

$

290

 

 

As of March 31,2020, the total unrecognized compensation expense related to stock options granted was $2.2 million, which is expected to be recognized as expense over a period of approximately 2.5 years from March 31, 2020.

For the three months ended March 31, 2020, a total of 29,615,486 shares, consisting of 27,116,712 warrants, 2,489,426 options and 9,348 restricted stock units, have not been included in the loss per share computation, as their effect on diluted per share amounts would have been anti-dilutive. For the same periods in 2019, a total of 5,038,584 shares underlying options, restricted stock units and warrants have not been included in the loss per share computation.

14


[d]

Restricted Stock Unit Awards

We grant restricted stock unit awards that generally vest and are expensed over a four-year period. We also grant restricted stock unit awards that vest in conjunction with certain performance conditions to certain executive officers, key employees and consultants. At each reporting date, we are required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance condition. For the three months ended March 31, 2020, we recorded a compensation expense of $30,000, related to these awards, compared to $37,000 for the three months ended March 31, 2019.

The following table summarizes our restricted stock unit award activity during the three months ended March 31, 2020:

 

 

 

 

 

 

 

Weighted

 

 

 

Number

 

 

Average

 

 

 

of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Balance,  December 31, 2019

 

 

10,008

 

 

$

28.99

 

Forfeited or expired

 

 

(660

)

 

 

28.90

 

Balance,  March 31, 2020

 

 

9,348

 

 

$

29.00

 

 

As of March 31, 2020, we had approximately $0.2 million in total unrecognized compensation expense related to our restricted stock unit awards that is to be recognized over a weighted-average period of approximately 1.34 years.

[e]

Non-employee options and restricted stock units

We recognize non-employee stock-based compensation expense over the period of expected service by the non-employee. As the service is performed, we are required to update our valuation assumptions, re-measure unvested options and restricted stock units and record the stock-based compensation using the valuation as of the vesting date. This differs from the accounting for employee awards where the fair value is determined at the grant date and is not subsequently adjusted. This re-measurement may result in higher or lower stock-based compensation expense in the Consolidated Statements of Loss and Comprehensive Loss. As such, changes in the market price of our stock could materially change the value of an option or restricted stock unit and the resulting stock-based compensation expense.

[f]

Common Stock Warrants

On May 30, 2019, we entered into a Warrant Exercise Agreement, or the Exercise Agreement, with Armistice Capital Master Fund, Ltd., or Armistice. Pursuant to the Exercise Agreement, Armistice exercised (i) outstanding warrants to purchase 270,313 shares of our common stock, par value $0.001 per share, with an exercise price of $3.1445 per share issued as part of the October 2018 financing and (ii) outstanding warrants to purchase 837,500 shares of our common stock with an exercise price of $4.00 per share issued as part of the June 2018 financing, for aggregate exercise proceeds to us of approximately $4.2 million, or, collectively, the Warrant Exercise.

As an inducement for the Warrant Exercise, we agreed to issue to Armistice a new warrant, exercisable for six years, to purchase up to 1,200,000 shares of our common stock at an exercise price of $4.50 per share. We also agreed to file a registration statement covering the resale of the New Warrant Shares. The New Warrant and New Warrant Shares were offered to Armistice in reliance upon the exemption provided by Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act of 1933.

Under ASC 260, the fair value of the new warrants of $3.9 million was recognized into accumulated deficit on our consolidated balance sheet. We determined the fair value of the new warrants using the Black-Scholes pricing model with the following assumptions: stock price of $4.23, volatility of 97.16%, risk-free interest rate of 2.06% and expected term of six years.

The following is a summary of outstanding warrants to purchase common stock at March 31, 2020:

 

 

 

Total

 

 

 

 

 

 

 

 

 

Outstanding

 

 

Exercise

 

 

 

 

 

and

 

 

price per

 

 

 

 

 

Exercisable

 

 

Share

 

 

Expiration Date

(1) Series A-1 Warrants issued in April 2015 financing

 

 

2,175

 

 

 

264.0000

 

 

October 2020

(2) Warrants issued in September 2017 financing

 

 

8,224

 

 

 

34.9600

 

 

March 2023

(3) Warrants issued in June 2018 financing

 

 

2,282,000

 

 

 

4.0000

 

 

June 2023

(4) Warrants issued in October 2018 financing

 

 

624,313

 

 

 

3.1445

 

 

October 2023

(5) Warrants issued in May 2019 financing

 

 

1,200,000

 

 

 

4.5000

 

 

May 2025

(6) Warrants issued in December 2019 financing

 

 

23,000,000

 

 

 

0.6000

 

 

Dec 2024

15


 

No warrants were exercised during the three months ended March 31, 2020 and 2019. As at March 31, 2020, all of our outstanding

warrants are classified as equity.

 

 

7. COMMITMENTS AND CONTINGENCIES

The following table summarizes our contractual obligations as of March 31, 2020 (in thousands):

 

 

 

Total

 

 

Less than 1 year

 

 

1-3 years

 

 

3-5 years

 

 

More than 5 years

 

Vancouver office operating lease

 

$

171

 

 

$

44

 

 

$

122

 

 

$

5

 

 

$

 

Seattle office operating lease

 

$

137

 

 

$

112

 

 

$

25

 

 

$

 

 

$

 

Total

 

$

308

 

 

$

156

 

 

$

147

 

 

$

5

 

 

$

 

 

Leases

 

We have operating leases for our corporate offices.

 

Operating leases with a term of 12 months or longer are included in ROU assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on our consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use the incremental borrowing rate of comparable companies from a representative peer group selected based on industry and market capitalization. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

Vancouver lease arrangements

We had a lease agreement for office space in Vancouver, British Columbia, which expired in January 2019. Pursuant to the lease agreement, we had the option to terminate the lease early without penalty at any time after January 1, 2017 so long as we provide three months prior written notice to the landlord. This lease was not renewed. This lease was classified as an operating lease.

On November 19, 2018, we entered into a lease agreement, or the Vancouver Lease, for new office space in Vancouver, British Columbia, which commenced on February 1, 2019. Pursuant to the terms of the lease agreement, we leased approximately 2,367 square feet located at Suite 1030, The Grosvenor Building, 1040 West Georgia Street, Vancouver, B.C. The initial term of the Vancouver Lease will expire on January 31, 2023, with an option to extend the term for one further four-year period, at a base rent as agreed upon between the parties with a minimum value equal to the base rent payable in the last year of the initial term. The monthly base rent for the premises was approximately $5,200 commencing on February 1, 2019, and on February 1, 2021, will increase up to approximately $5,400. The landlord provided us with a construction allowance of approximately $14,200. In addition, we paid a security deposit of approximately $18,600 upon entering into the lease agreement. The security deposit was reduced by the first month’s rent and operating expenses upon commencement of the Vancouver Lease. The Vancouver Lease was classified as an operating lease.

Future minimum lease payments under the Vancouver lease are as follows (in thousands):

 

2020

 

 

44

 

2021

 

 

61

 

2022

 

 

61

 

2023

 

 

5

 

Total

 

$

171

 

16


 

Seattle lease arrangement

 

On December 11, 2017, we entered into a lease, or the Seattle Lease, with 520 Pike Street, Inc., or Pike, pursuant to which we leased approximately 3,187 square feet located at Suite 2250 at 520 Pike Tower, Seattle, Washington, 98101, which commenced on March 1, 2018. The initial term of the Seattle Lease will expire at the end of the month on the third anniversary of the Seattle Lease.

 

Our monthly base rent for the premises started at approximately $11,685 which commenced on March 1, 2018 and will increase on an annual basis up to approximately $12,397. In addition, we paid a security deposit to Pike in the amount of $37,192, subject to periodic reductions in the amount of $12,397 after each of the first and second anniversaries of the Seattle Lease, which Pike may retain for base rent or other damages, in the event of our default under the Seattle Lease.

 

We may not assign or sublet all or any portion of the premises without the consent of Pike, and Pike shall be entitled to 50% of any profit which we may receive above and beyond the rental price of the Seattle Lease. Upon receipt of notice of our intent to assign or sublease any portion of the leased premises, Pike may terminate that portion of the premises within 30 days, and provided, that if such portion constitutes 50% or more of the total square footage of the premises, Pike may terminate the Seattle Lease in its entirety. The Seattle Lease was classified as an operating lease.

 

The future minimum annual lease payments under the Seattle Lease are as follows (in thousands):

 

2020

 

 

112

 

2021

 

 

25

 

Total

 

$

137

 

 

 

Consolidated lease and operating expense relating to the Vancouver, British Columbia, and Seattle, Washington offices for the three months ended March 31, 2020 was $0.1 million. Consolidated rent expense for the three months ended March 31, 2019 was $0.1 million.  

 

Other information related to leases was as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Supplemental Cash Flows Information