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EX-31.1 - EX-31.1 - Xenon Pharmaceuticals Inc.xene-ex311_103.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

x

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

For the quarterly period ended June 30, 2015

OR

o

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: 001-36687

 

XENON PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

 

 

Canada

 

98-0661854

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

200-3650 Gilmore Way

Burnaby, British Columbia V5G 4W8

Canada

(Address of principal executive offices)

(604) 484-3300

(Registrant’s telephone number, including area code)

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

¨

 

Accelerated filer

¨

 

 

 

 

 

Non-accelerated filer

x

(Do not check if a smaller reporting company)

Smaller reporting company

¨

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

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

The number of registrant’s common shares outstanding as of August 7, 2015 was 14,286,858

 

 

 

 


 

XENON PHARMACEUTICALS INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2015

TABLE OF CONTENTS

 

 

Page

 

PART I. FINANCIAL INFORMATION

2

 

Item 1. Financial Statements

2

 

Balance Sheets as of June 30, 2015 and December 31, 2014

2

 

Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014

3

 

Statement of Shareholders’ Equity (Deficit) for the six months ended June 30, 2015

4

 

Statements of Cash Flows for the six months ended June 30, 2015 and 2014

5

 

Notes to Financial Statements

6

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations

11

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

22

 

Item 4. Controls and Procedures

22

 

PART II. OTHER INFORMATION

23

 

Item 1. Legal Proceedings

23

 

Item 1A. Risk Factors

23

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

58

 

Item 6. Exhibits

59

 

SIGNATURES

60

 

EXHIBIT INDEX

61

 

 

 

 

-i-


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

XENON PHARMACEUTICALS INC.

Balance Sheets

(Unaudited)

(Expressed in thousands of U.S. dollars except share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,346

 

 

$

72,026

 

Marketable securities

 

 

9,354

 

 

 

12,015

 

Accounts receivable

 

 

188

 

 

 

215

 

Prepaid expenses and other current assets

 

 

465

 

 

 

686

 

 

 

 

74,353

 

 

 

84,942

 

Property, plant and equipment, net

 

 

2,174

 

 

 

2,476

 

Total assets

 

$

76,527

 

 

$

87,418

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses (note 7)

 

 

2,278

 

 

 

2,664

 

Deferred revenue

 

 

5,635

 

 

 

11,622

 

Fair value of liability classified stock options (note 3 and 6)

 

 

4,103

 

 

 

 

 

 

 

12,016

 

 

 

14,286

 

Deferred revenue, less current portion

 

 

 

 

 

157

 

Deferred tenant inducements

 

 

164

 

 

 

196

 

 

 

$

12,180

 

 

$

14,639

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common shares, without par value; unlimited shares authorized; issued and

  outstanding: 14,267,174 (December 31, 2014 - 14,181,333)

 

 

147,824

 

 

 

147,157

 

Additional paid-in capital

 

 

29,314

 

 

 

30,346

 

Accumulated deficit

 

 

(111,801

)

 

 

(103,734

)

Accumulated other comprehensive loss

 

 

(990

)

 

 

(990

)

 

 

$

64,347

 

 

$

72,779

 

Total liabilities and shareholders’ equity

 

$

76,527

 

 

$

87,418

 

 

 

 

 

 

 

 

 

 

Collaboration agreements (note 9)

 

 

 

 

 

 

 

 

Commitments and contingencies (note 10)

 

 

 

 

 

 

 

 

Subsequent event (note 11)

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

-2-


 

XENON PHARMACEUTICALS INC.

Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(Expressed in thousands of U.S. dollars except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue (note 9)

 

$

4,044

 

 

$

5,296

 

 

$

8,054

 

 

$

10,297

 

Royalties

 

 

2

 

 

 

2

 

 

 

2

 

 

 

2

 

 

 

 

4,046

 

 

 

5,298

 

 

 

8,056

 

 

 

10,299

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,669

 

 

 

2,566

 

 

 

7,096

 

 

 

5,099

 

General and administrative

 

 

2,058

 

 

 

1,213

 

 

 

3,629

 

 

 

2,513

 

General and administrative - stock based compensation   (note 3 and 6)

 

 

(1,880

)

 

 

141

 

 

 

3,269

 

 

 

277

 

 

 

 

3,847

 

 

 

3,920

 

 

 

13,994

 

 

 

7,889

 

Income (loss) from operations

 

 

199

 

 

 

1,378

 

 

 

(5,938

)

 

 

2,410

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

163

 

 

 

137

 

 

 

315

 

 

 

278

 

Foreign exchange gain (loss)

 

 

806

 

 

 

(285

)

 

 

(2,365

)

 

 

(85

)

Net income (loss)

 

 

1,168

 

 

 

1,230

 

 

 

(7,988

)

 

 

2,603

 

Net income attributable to participating securities

 

 

 

 

 

1,230

 

 

 

 

 

 

2,603

 

Net income (loss) attributable to common shareholders

 

$

1,168

 

 

$

 

 

$

(7,988

)

 

$

 

Net income (loss) per common share (note 5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

$

 

 

$

(0.56

)

 

$

 

Diluted

 

$

(0.07

)

 

$

 

 

$

(0.56

)

 

$

 

Weighted-average shares outstanding (note 5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,241,827

 

 

 

1,347,237

 

 

 

14,227,203

 

 

 

1,346,274

 

Diluted

 

 

15,129,978

 

 

 

1,347,237

 

 

 

14,227,203

 

 

 

1,346,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

919

 

 

 

 

 

 

10

 

Comprehensive income (loss)

 

$

1,168

 

 

$

2,149

 

 

$

(7,988

)

 

$

2,613

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

-3-


 

XENON PHARMACEUTICALS INC.

Statement of Shareholders’ Equity (Deficit)

(Unaudited)

(Expressed in thousands of U.S. dollars except per share data)

 

 

Series A convertible

preferred shares

 

 

Series B convertible

preferred shares

 

 

Series E convertible

preferred shares

 

 

Common shares

 

 

Additional

paid-in

capital

 

 

Accumulated deficit

 

 

Accumulated other

comprehensive

income (loss)

 

 

Total shareholder's

equity (deficit)

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2013

 

 

1,151,468

 

 

$

2,939

 

 

 

994,885

 

 

$

8,683

 

 

 

4,322,126

 

 

$

90,866

 

 

 

1,344,627

 

 

$

6,147

 

 

$

29,722

 

 

$

(116,752

)

 

$

2,511

 

 

$

(78,372

)

Net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,018

 

 

 

 

 

 

 

13,018

 

Conversion of Series A,

   B and E convertible

   preferred shares

 

 

(1,151,468

)

 

 

(2,939

)

 

 

(994,885

)

 

 

(8,683

)

 

 

(4,322,126

)

 

 

(90,866

)

 

 

7,725,924

 

 

 

102,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102,488

 

Issuance of common

   shares, net of issuance

   costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,095,000

 

 

 

38,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,373

 

Cumulative translation

   adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,501

)

 

 

(3,501

)

Stock option

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

760

 

 

 

 

 

 

 

 

 

 

 

760

 

Issuance of common

   shares on conversion of

   subscription rights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,365

 

 

 

124

 

 

 

(124

)

 

 

 

 

 

 

 

 

 

 

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,417

 

 

 

25

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

13

 

Balance as of

   December 31, 2014

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

14,181,333

 

 

$

147,157

 

 

$

30,346

 

 

$

(103,734

)

 

$

(990

)

 

$

72,779

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,988

)

 

 

 

 

 

 

(7,988

)

Stock option compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

661

 

 

 

 

 

 

 

 

 

 

 

661

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85,841

 

 

 

667

 

 

 

(375

)

 

 

(79

)

 

 

 

 

 

 

213

 

Reclassification to fair value of liability classified

   stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,318

)

 

 

 

 

 

 

 

 

 

 

(1,318

)

Balance as of June 30,

   2015

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

14,267,174

 

 

$

147,824

 

 

$

29,314

 

 

$

(111,801

)

 

$

(990

)

(1)

$

64,347

 

(1)

At June 30, 2015, our accumulated other comprehensive loss is entirely related to historical cumulative translation adjustments from the application of U.S. dollar reporting when the functional currency of the Company was the Canadian dollar. See Note 3 – Changes in significant accounting policies.

 

The accompanying notes are an integral part of these financial statements.

 

 

-4-


 

 

 

XENON PHARMACEUTICALS INC.

Statements of Cash Flows

(Unaudited)

(Expressed in thousands of U.S. dollars)

 

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(7,988

)

 

$

2,603

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

492

 

 

 

350

 

Stock-based compensation

 

 

3,446

 

 

 

373

 

Deferred tenant inducements

 

 

(32

)

 

 

(33

)

Unrealized foreign exchange loss

 

 

2,353

 

 

 

8

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

31

 

 

 

73

 

Prepaid expenses, and other current assets

 

 

221

 

 

 

18

 

Accounts payable and accrued expenses

 

 

(350

)

 

 

(126

)

Deferred revenue

 

 

(6,144

)

 

 

(6,333

)

Net cash used in operating activities

 

 

(7,971

)

 

 

(3,067

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(190

)

 

 

(497

)

Purchase of marketable securities

 

 

 

 

 

(2,946

)

Proceeds from marketable securities

 

 

1,818

 

 

 

4,568

 

Net cash provided by investing activities

 

 

1,628

 

 

 

1,125

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Deferred financing fees

 

 

 

 

 

(730

)

Proceeds from issuance of common shares

 

 

213

 

 

 

4

 

Net cash provided by (used in) financing activities

 

 

213

 

 

 

(726

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,550

)

 

 

(195

)

Decrease in cash and cash equivalents

 

 

(7,680

)

 

 

(2,863

)

Cash and cash equivalents, beginning of period

 

 

72,026

 

 

 

37,950

 

Cash and cash equivalents, end of period

 

$

64,346

 

 

$

35,087

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Interest received

 

$

268

 

 

$

238

 

Supplemental disclosures of non-cash transactions:

 

 

 

 

 

 

 

 

Issuance of common shares on conversion of subscription rights

 

 

 

 

 

27

 

Fair value of options exercised on a cashless basis

 

 

189

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

-5-

 

 


 

 

 

XENON PHARMACEUTICALS INC.

Notes to Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except numbers of shares and per share amounts)

1.

Nature of the business:

Xenon Pharmaceuticals Inc. (the “Company”), incorporated in 1996 under the British Columbia Business Corporations Act and continued federally in 2000 under the Canada Business Corporation Act, is a clinical-stage biopharmaceutical company discovering and developing a pipeline of differentiated therapeutics for orphan indications that it intends to commercialize on its own, and for larger market indications that it intends to partner with global pharmaceutical companies.

2.

Basis of presentation:

These financial statements are presented in U.S. dollars.

The accompanying unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required for complete financial statements and should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2014 and included in the Company’s 2014 Annual Report on Form 10-K filed with the SEC on March 12, 2015.

These unaudited interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three and six month periods ended June 30, 2015 and 2014 are not necessarily indicative of results that can be expected for a full year. These unaudited interim financial statements follow the same significant accounting policies as those described in the notes to the audited financial statements of the Company included in the Company’s 2014 Annual Report on Form 10-K for the year ended December 31, 2014, with the exception of the policies described in note 3(a).

Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current interim period.

3.

Changes in significant accounting policies:

(a)

Functional currency:

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company changed to U.S. dollars from Canadian dollars on January 1, 2015 based on management’s analysis of the changes in the primary economic environment in which the Company operates. The change in functional currency is accounted for prospectively from January 1, 2015 and prior year financial statements have not been restated for the change in functional currency. Past translation gains and losses from the application of the U.S. dollar as the reporting currency while the Canadian dollar was the functional currency are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.

For periods commencing January 1, 2015, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and nonmonetary assets and nonmonetary liabilities incurred after January 1, 2015 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction. Foreign exchange gains and losses are included in the statement of operations and comprehensive income (loss) as foreign exchange gain (loss).

(b)

Liability classified stock options:

The Company granted stock options with exercise prices denominated in Canadian dollars under its Amended and Restated Stock Option Plan to members of its board of directors and certain consultants prior to the Company’s initial public offering (“IPO”) in November 2014. Following the change in functional currency on January 1, 2015, described in note

 

-6-

 

 


 

 

 

3(a), the options denominated in Canadian dollars that were granted to members of the Company’s board of directors and certain consultants were subject to liability accounting with fair value calculated using the Black-Scholes option-pricing model. The liability classified stock options are measured at fair value at each reporting period with changes in fair value recognized in the statement of operations and comprehensive income (loss) as general and administrative stock based compensation expense.

4.

Future changes in accounting policies:

In May 2014, the FASB issued amendments to clarify the principles of recognizing revenue and to develop a common revenue standard that would remove inconsistencies in revenue requirements, leading to improved comparability of revenue recognition practices across entities and industries. The amendments stipulate that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosure will also be required about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In April 2015, the FASB voted to propose a deferral of the effective date of the new revenue standard by one year. The new guidance would be effective for public entities for fiscal years beginning after December 15, 2017 instead of the originally contemplated effective date of December 15, 2016. Entities are permitted to adopt in accordance with the original effective date if they choose. The Company is currently evaluating the new guidance to determine the impact it will have on the Company’s financial position, results of operations and cash flows.

In August 2014, the FASB issued amendments requiring management to assess an entity’s ability to continue as a going concern. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. These amendments will be effective for public entities for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of these amendments in fiscal 2017 is not expected to have a material impact on the Company’s financial statements.

5.

Net income (loss) per common share:

Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share is computed by adjusting net income (loss) attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Prior to the Company’s IPO, net income (loss) per share was calculated under the two-class method as the Company had outstanding shares that met the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. All of the outstanding redeemable convertible preferred shares converted to common shares upon the consummation of the Company’s IPO.

As the Company reported a net loss attributable to common shareholders for the six months ended June 30, 2015 and no net income was attributable to common shareholders for the three and six months ended June 30, 2014, all stock options were anti-dilutive and were excluded from the diluted weighted average shares outstanding for those periods. For the three months ended June 30, 2015, common shares of 389,283 were excluded from the calculation of income per common share because their inclusion would be anti-dilutive.

The following is a reconciliation of the numerators and denominators of basic and diluted net income (loss) per common share:

 

-7-

 

 


 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common shareholders used to compute net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1,168

 

 

$

 

 

$

(7,988

)

 

$

 

Adjustment for change in fair value of liability classified stock options

 

 

(2,244

)

 

 

 

 

 

 

 

 

 

Diluted

 

$

(1,076

)

 

$

 

 

$

(7,988

)

 

$

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,241,827

 

 

 

1,347,237

 

 

 

14,227,203

 

 

 

1,346,274

 

Adjustment for dilutive effect of stock options

 

 

888,151

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

15,129,978

 

 

 

1,347,237

 

 

 

14,227,203

 

 

 

1,346,274

 

Net income (loss) per common share - basic

 

$

0.08

 

 

$

 

 

$

(0.56

)

 

$

 

Net loss per common share - diluted

 

$

(0.07

)

 

$

 

 

$

(0.56

)

 

$

 

 

6.

Fair value of financial instruments:

U.S. GAAP establishes a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).

·

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date.

·

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

·

Level 3 - Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

The Company’s Level 1 assets include cash and cash equivalents and marketable securities with quoted prices in active markets. The carrying amount of accounts receivables, accounts payable and accrued expenses approximates fair value due to the nature and short-term of those instruments. As quoted prices for the liability classified stock options are not readily available, the Company has used a Black-Scholes pricing model to estimate fair value using Level 3 inputs as defined above.

The weighted average Black-Scholes option-pricing assumptions for liability classified stock options outstanding at June 30, 2015 are as follows:

 

 

 

June 30, 2015

 

Average risk-free interest rate

 

 

1.71

%

Average expected term (in years)

 

 

4.42

 

Expected volatility

 

 

75

%

Expected dividend yield

 

 

0.00

%

Expected forfeiture rate

 

 

0.00

%

Number of liability classified stock options outstanding

 

 

492,842

 

 

 

 

 

-8-

 

 


 

 

 

7.

Accounts payable and accrued expenses:

Accounts payable and accrued expenses consisted of the following:

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Trade payables

 

$

872

 

 

$

553

 

Employee compensation, benefits, and related accruals

 

 

731

 

 

 

1,077

 

Consulting and contracted research

 

 

432

 

 

 

774

 

Professional fees

 

 

216

 

 

 

180

 

Other

 

 

27

 

 

 

80

 

Total

 

$

2,278

 

 

$

2,664

 

 

8.

Stock option plan:

The following table presents stock option activity for the period:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended     June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Outstanding, beginning of period

 

 

1,785,436

 

 

 

1,445,320

 

 

 

1,484,218

 

 

 

1,333,099

 

Granted

 

 

33,474

 

 

 

 

 

 

380,438

 

 

 

157,231

 

Exercised(1)

 

 

(55,155

)

 

 

 

 

 

(99,811

)

 

 

(772

)

Forfeited and expired

 

 

(18,737

)

 

 

(2,579

)

 

 

(19,827

)

 

 

(46,817

)

Outstanding, end of period

 

 

1,745,018

 

 

 

1,442,741

 

 

 

1,745,018

 

 

 

1,442,741

 

Exercisable, end of period

 

 

1,126,629

 

 

 

1,034,518

 

 

 

1,126,629

 

 

 

1,034,518

 

 

(1)

During the six months ended June 30, 2015, 53,442 stock options were exercised for the same number of common shares for cash. In the same period, the Company issued 32,399 common shares for the cashless exercise of 46,369 stock options.

The fair value of each option issued to employees and non-employees is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended   June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Average risk-free interest rate

 

 

1.71

%

 

 

1.97

%

 

 

1.71

%

 

 

1.97

%

Average expected term (in years)

 

 

6.04

 

 

 

6.20

 

 

 

6.23

 

 

 

6.20

 

Expected volatility

 

 

75

%

 

 

74

%

 

 

75

%

 

 

74

%

Expected dividend yield

 

 

0.00

%