UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 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 No.: 000-55242 Sun BioPharma, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 87-0543922 (State or other jurisdiction of (I.R.S. Employer 712 Vista Blvd #305, Waconia, Minnesota (Address of principal executive offices) (952) 479-1196 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None 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, 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 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ On Sun BioPharma, Inc. Financial Statements (Unaudited) 3 Management’s Discussion and Analysis of Financial Condition and Results of Quantitative and Qualitative Disclosure About Market Controls and PART II – OTHER INFORMATION Legal Risk Unregistered Sales of Equity Securities and Use of Defaults Upon Senior Mine Safety Other PART I – FINANCIAL INFORMATION Item 1. Financial Statements. Sun BioPharma, Inc. (In thousands, except share amounts) March 31, 2020 December 31, 2019 June 30, 2020 December 31, 2019 (Unaudited) (Unaudited) Current assets: Cash Prepaid expenses and other current assets Income tax receivable Total current assets Other noncurrent assets Total assets LIABILITITES AND STOCKHOLDERS' EQUITY LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses Term debt Payroll protection plan loan Unsecured promissory note payable Total current liabilities Stockholders' equity: Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued or outstanding as of March 31, 2020 and December 31 2019 Common stock, $0.001 par value; 100,000,000 authorized; 6,631,308 shares issued and outstanding as of both March 31, 2020 and December 31, 2019 Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued or outstanding as of June 30, 2020 and December 31 2019 Common stock, $0.001 par value; 100,000,000 authorized; 7,068,301 and 6,631,308 shares issued and outstanding as of June 30, 2020 and December 31, 2019 respectively Additional paid-in capital Accumulated deficit Accumulated comprehensive income Total stockholders' equity Total liabilities and stockholders' equity See accompanying notes to condensed consolidated financial statements. Sun BioPharma, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 2020 2019 Operating expenses: General and administrative Research and development Operating loss Other (expense) income: Interest expense Other(expense) income Total other expense Other (expense) income Total other income (expense) Loss before income tax benefit Income tax benefit Net loss Foreign currency translation adjustment Comprehensive loss Basic and diluted net loss per share Weighted average shares outstanding - basic and diluted See accompanying notes to condensed consolidated financial statements. Sun BioPharma, Inc. Condensed Consolidated Statements of (In thousands) (Unaudited) For the Three Months Ended March 31, 2019 Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Capital Deficit Gain (Loss) Equity (Deficit) Balances as of January 1, 2019 Beneficial conversion feature on convertible notes payable Warrants issued with sale of convertible notes payable Common stock converted into convertible notes payable Stock-based compensation Net loss Foreign currency translation adjustment Balances as of March 31, 2019 For the Six Months Ended June 30, 2020 Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Capital Deficit Gain (Loss) Equity Balances as of January 1, 2020 Warrants issued for future services Stock-based compensation Net loss Foreign currency translation adjustment Balances at March 31, 2020 Sale of Common stock and warrants Stock-based compensation Net loss Foreign currency translation adjustment Balances at June 30, 2020 For the Three Months Ended March 31, 2020 For the Six Months Ended June 30, 2019 Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders' Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Capital Deficit Gain Equity Shares Amount Capital Deficit Gain (Loss) Equity (Deficit) Balances as of January 1, 2020 Warrants issued for future services Balances as of January 1, 2019 Beneficial conversion feature on convertible notes payable Warrants issued with sale of convertible notes payable Common stock converted into convertible notes payable Stock-based compensation Net loss Foreign currency translation adjustment Balances at March 31, 2020 Balances as of March 31, 2019 Conversion of convertible notes payable and accrued interest Stock-based compensation Net loss Foreign currency translation adjustment Balances as of June 30, 2019 See accompanying notes to condensed consolidated financial statements. Sun BioPharma, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, Six Months Ended June 30 2020 2019 2020 2019 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation Amortization of debt discount Amortization of debt issuance costs Non-cash interest expense Changes in operating assets and liabilities: Income tax receivable Prepaid expenses and other current assets Accounts payable Accrued liabilities Net cash used in operating activities Cash flows from financing activities: Proceeds from sale of common stock and warrants net of offering costs of $2 Proceeds from the sale of convertible promissory notes, net of debt issuance costs of $7 Proceeds from payroll protection loan Repayment of demand note Repayments of term debt Net cash provided by financing activities Effect of exchange rate changes on cash Net change in cash Cash at beginning of period Cash at end of period Supplemental disclosure of cash flow information: Cash paid during period for interest Supplemental disclosure of non-cash transactions: Warrants issued for future services Beneficial conversion feature on convertible notes Warrants issued with convertible notes Common stock converted into convertible notes payable Conversion of convertible notes payable and accrued interest into common stock Issuance of unsecured promissory note in exchange of vendor accounts payable See accompanying notes to condensed consolidated financial statements. Sun BioPharma, Inc. 1. Sun BioPharma, Inc. and its wholly-owned subsidiary, Sun BioPharma Australia Pty Ltd. (collectively “we,” “us,” “our,” and the “Company”), exist for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for the treatment of patients with pancreatic cancer. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the University of Florida Research Foundation, Inc. (“UFRF”). 2. The Company operates in a highly regulated and competitive environment. The development, manufacturing and marketing of pharmaceutical products require approval from, and are subject to ongoing oversight by, the Food and Drug Administration (“FDA”) in the United States, the Therapeutic Goods Administration in Australia, the European Medicines Agency in the European Union, and comparable agencies in other countries. Obtaining approval for a new pharmaceutical product is never certain, may take many years, and is normally expected to involve substantial expenditures. We have incurred losses of The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties. Our current independent registered public accounting firm included a paragraph emphasizing this going concern uncertainty in their audit report regarding our 2019 financial statements dated March 24, 2020. Our ability to continue as a going concern, realize the carrying value of our assets and discharge our liabilities in the ordinary course of business is dependent upon a number of factors, including our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-101 product candidate in the United States, Australia, the European Union or other markets and ultimately our ability to market and sell our SBP-101 product candidate. These factors, among others, raise substantial doubt about our ability to continue operations as a going concern. See Note 4 titled “Liquidity and Business Plan.” 3. We have prepared the accompanying interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our consolidated financial position, consolidated results of operations and consolidated cash flows for the periods and as of the dates presented. Our fiscal year ends on December 31. The condensed consolidated balance sheet as of December 31, 2019 was derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in our most recent filed Annual Report on Form 10-K and our subsequent filings with the SEC. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year. 4. We need to obtain additional funds to continue our operations and execute our current business plans. We may seek to raise additional funds through various sources, such as equity and debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually. In May and June 2020, the Company sold 437,000 shares of common stock and warrants to purchase an equal number of additional shares of common stock in private placements to certain accredited investors pursuant to securities purchase agreements. Net proceeds from these sales totaled approximately $1.7 million. The warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $6.00 per share of common stock. If we are unable to obtain additional financing, we believe that we will need to reduce our operations by taking actions that may include, among other things, reducing use of outside professional service providers, reducing staff or further reducing staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate, licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, or other applications that we would otherwise seek to pursue, or discontinuing operations entirely. Our future success is dependent upon our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-101 product candidate in the United States or other markets and ultimately our ability to market and sell our SBP-101 product candidate. If we are unable to obtain additional financing when needed, if our clinical trials are not successful or if we are unable to obtain marketing approval, we would not be able to continue as a going concern and would be forced to cease operations and liquidate our company. There can be no assurances that we will be able to obtain additional financing on commercially reasonable terms, or at all. The sale of additional convertible debt or equity securities would likely result in dilution to our current stockholders. 5. Principles of consolidation The accompanying condensed consolidated financial statements include the assets, liabilities, and expenses of the Company. All significant intercompany transactions and balances have been eliminated in consolidation. Use of estimates The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of expenses during the reporting period. Actual results could differ from those estimates. Research and development costs Research and development costs include expenses incurred in the conduct of our second Phase 1 human clinical trial, for third-party service providers performing various testing and accumulating data related to our preclinical studies; sponsored research agreements; developing and scaling the manufacturing process necessary to produce sufficient amounts of the SBP-101 compound for use in our pre-clinical studies and human clinical trials; consulting resources with specialized expertise related to execution of our development plan for our SBP-101 product candidate; personnel costs, including salaries, benefits and share-based compensation; and costs to license and maintain our licensed intellectual property. We charge research and development costs, including clinical trial costs, to expense when incurred. Our human clinical trials are, and will be, performed at clinical trial sites and are administered jointly by us with assistance from contract research organizations (“CROs”). Costs of setting up clinical trial sites are accrued upon execution of the study agreement. Expenses related to the performance of clinical trials generally are accrued based on contracted amounts and the achievement of agreed upon milestones, such as patient enrollment, patient follow-up, etc. We monitor levels of performance under each significant contract, including the extent of patient enrollment and other activities through communications with the clinical trial sites and CROs, and adjust the estimates, if required, on a quarterly basis so that clinical expenses reflect the actual effort expended at each clinical trial site and by each CRO. All material CRO contracts are terminable by us upon written notice and we are generally only liable for actual effort expended by the CROs and certain non-cancelable expenses incurred at any point of termination. We expense costs associated with obtaining licenses for patented technologies when it is determined there is no alternative future use of the intellectual property subject to the license. Stock-based compensation In accounting for stock-based incentive awards, we measure and recognize the cost of employee and non-employee services received in exchange for awards of equity instruments based on the fair value of those awards on the grant date. Calculating stock-based compensation expense requires the input of highly subjective assumptions, which represent our best estimates and involve inherent uncertainties and the application of management’s judgment. Compensation cost is recognized ratably using the straight-line attribution method over the vesting period, which is considered to be the requisite service period. Compensation expense for performance-based stock option awards is recognized when “performance” has occurred or is probable of occurring. The fair value of stock-based awards is estimated at the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based awards is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. Risk free interest rates are based upon U.S. Treasury rates appropriate for the expected term of each award. Expected volatility rates are based primarily on the volatility rates of a set of guideline companies, which consist of public and recently public biotechnology companies. The assumed dividend yield is zero, as we do not expect to declare any dividends in the foreseeable future. The expected term of options granted is determined using the “simplified” method. Under this approach, the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term. Foreign currency translation adjustments The functional currency of Sun BioPharma Australia Pty Ltd is the Australian Dollar. Accordingly, assets and liabilities, and equity transactions of Sun BioPharma Australia Pty Ltd are translated into U.S. dollars at period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect for the period. The resulting translation gains and losses are recorded as a component of accumulated comprehensive loss presented within the stockholders’ equity (deficit). During the Comprehensive loss Comprehensive loss consists of our net loss and the effects of foreign currency translation. Net loss per share Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted average of common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be anti-dilutive or reduce a net loss per share. The Company’s potential dilutive shares, which include convertible debt, outstanding common stock options, and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive. The following table sets forth the potential shares of common stock that were not included in the calculation of diluted net loss per share as their effects would have been anti-dilutive as of: March 31, June 30, 2020 2019 2020 2019 Employee and non-employee stock options Estimated common shares issuable upon conversion of notes payable and accrued interest Common stock issuable under common stock purchase warrants 6. Indebtedness Term debt The terms of our unsecured loan (the “Term Debt”) payable to the Institute for Commercialization of Public Research, Inc. (the “Institute”) which was amended in December of 2019 to extend the maturity date from December 31, 2019 to December 31, 2020, remain unchanged as of PPP Loan On May 1, 2020, the Company obtained a loan in the principal amount of approximately $103,000 from Bank of America pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act administered by the U.S. Small Business Administration (“SBA”). In accordance with the requirements of the CARES Act, the Company expects to use the proceeds of the loan exclusively for qualified expenses, including payroll costs, as further detailed in the CARES Act and applicable guidance issued by the SBA. The loan is evidenced by an unsecured promissory note and interest is scheduled to accrue on the outstanding balance at a rate of 1.0% per annum beginning on November 1, 2020. However, the Company expects to be eligible to apply for forgiveness of up to all of the principal and interest due under the loan, in an amount equal to the sum of qualified expenses under the PPP during the twenty-four weeks following disbursement. Notwithstanding the Company’s anticipated eligibility to apply for forgiveness, no assurance can be given that it will obtain forgiveness of all or any portion of the amount due under the loan. Subject to any such forgiveness granted under the PPP, the loan is scheduled to mature on May 1, 2022 and may require us to commence payments of principal and interest as soon as November 2020. The loan may be prepaid at any time prior to maturity with no prepayment penalties. The unsecured promissory note governing the loan provides for customary events of default, including, among others, those relating to failure to make payments, bankruptcy, breaches of representations, significant changes in ownership, and material adverse effects. The Company’s obligations under the note are not secured by any collateral. On May 17, 2019, the Company executed an unsecured promissory note with a vendor that relieved the Company’s immediate obligation to pay the outstanding vendor invoices. The outstanding vendor invoices totaling approximately $742,000 were removed from the Company’s accounts payable as consideration for the promissory note. The promissory note is unsecured, does not bear interest and the balance is payable in full on the earlier of (1) December 31, 2020 March 31, 2020 December 31, 2019 Term Debt Term Debt Loan principal Amount Deferred Financing Costs Accumulated Amortization Unamortized balance Discount on Debt Accumulated Amortization Unamortized balance Loan carrying amounts, net 7. Stockholders’ Equity (Deficit) During the quarter ended June 30, 2020, we issued an aggregate of 437,000 shares of our common stock and warrants to purchase an aggregate of up to the same number of additional shares of common stock pursuant to securities purchase agreements. The warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $6.00. Total proceeds from the sale of common stock and warrants was approximately $1.7 million. See Note 4, titled “Liquidity and Business Plan.” Warrants to purchase common stock issued for future services On February 21, 2020, the Company issued to a service provider a five-year warrant to purchase 75,000 shares of common stock at an exercise price of $6.49 per share. The fair market value of the warrants issued of approximately $228,000 was capitalized and will be charged against future proceeds. Shares of common stock reserved for future issuance were as follows as of Stock options outstanding Shares available for grant under equity incentive plan Common shares issuable under outstanding common stock purchase warrants 8. 2016 Omnibus Incentive Plan The Sun BioPharma, Inc. 2016 Omnibus Incentive Plan, as last amended effective April 9, 2020 (the “2016 Plan”) 2011 Stock Option Plan Our Board of Directors ceased making awards under the Sun BioPharma, Inc. 2011 Stock Option Plan (the “2011 Plan”) upon the receipt of stockholder approval for the 2016 Plan. Awards outstanding under the 2011 Plan remain outstanding in accordance with and pursuant to the terms thereof. Options granted under the 2011 Plan have a maximum term of ten years and generally vest over zero to two years for employees. As of Stock-based Compensation Expense General and administrative (“G&A”) and research and development (“R&D”) expenses include non-cash stock-based compensation expense as a result of our issuance of stock options. The terms and vesting schedules for stock-based awards vary by type of grant and the employment status of the grantee. The awards granted through Stock-based compensation expense for each of the periods presented is as follows (in thousands): Three Months Ended March 31, 2020 2019 2020 2019 General and Administrative Research and Development Details of options granted, exercised, cancelled or forfeited during the Shares Available for Grant Shares Underlying Options Shares Available for Grant Shares Underlying Options Weighted Average Exercise Price Per Share Aggregate Intrinsic Value Balance at January 1, 2020 Additional shares available to grant Granted Exercised Cancelled Forfeitures Balance at March 31, 2020 Balance at June 30, 2020 Information about stock options outstanding, vested and expected to vest as of Outstanding, Vested and Expected to Vest Options Vested and Excercisable Outstanding, Vested and Expected to Vest Per Share Exercise Price Per Share Exercise Price Shares Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Options Excercisable Weighted Average Remaining Contractual Life (Years) Per Share Exercise Price Shares Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Options Excercisable Weighted Average Remaining Contractual Life (Years) - - - - Totals Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This Quarterly Report and other publicly available documents, including any documents incorporated herein and therein by reference contain, and our officers and representatives may from time to time make, “forward-looking statements,” including within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. When used in the following discussion, the words “anticipates,” “continue,” “intends,” “believes,” “expects,” “intends,” “plans,” ”seeks,” “estimates,” “likely,” “may,” “would,” “will,” and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding (i) our plans to complete Phase 1b; and (ii) our estimates of additional funds that may be required to complete Phase 1b and obtain necessary approvals. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially and adversely from the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: (i) our ability to obtain additional funding to complete Phase 1 clinical trial; (ii) progress and success of our Phase 1 clinical trial; (iii) the impact of the Any forward-looking statement made by us in this Quarterly Report is based on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement or reasons why actual results would differ from those anticipated in any such forward-looking statement, whether written or oral, whether as a result of new information, future developments or otherwise. Overview The Company exists for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for In August 2015, the Food and Drug Administration of the United States (“FDA”) granted an Investigational New Drug (“IND”) approval for our SBP-101 product candidate. From January 2016 through September 2017, we enrolled twenty-nine patients into six cohorts, or groups, in the dose-escalation phase of a Phase 1 safety trial and published results in the Spring of 2018. The Company’s second trial, a Phase 1a/1b combination of SBP-101 with gemcitabine and nab-paclitaxel in patients previously untreated for metastatic pancreatic ductal adenocarcinoma (“PDA”), began dosing patients in June of 2018. The Phase 1a portion of this study has a total of 4 dosing levels, cohorts, and determined a recommended dose (and schedule) of SBP-101 to be given in combination with standard treatment. The Company completed enrollment of the fourth cohort in the quarter ended March 31, 2020, this cohort is evaluating an alternative dosing schedule for the administration of In June of 2020, the FDA designated a Fast Track development program to the investigation of SBP-101 for the treatment of first-line patients with metastatic PDA when administered in combination with gemcitabine and nab-paclitaxel. We are currently evaluating the appropriate timing Subsequent to the end of the second quarter, effective July 15, 2020, Jennifer K. Simpson was appointed to succeed Michael T. Cullen as President and Chief Executive Officer and elected to serve as an additional member of our board of directors. Dr. Simpson has more than 25 years of experience across a variety of executive, business operations, marketing and clinical development roles in the biopharmaceutical industry. Dr. Cullen continues to serve as Executive Chairman and remains actively engaged with the Company. Financial Overview We have incurred losses of Our cash was approximately A decrease of Other than the temporary pause in enrollment in our current clinical trial, the Company has not experienced any significant disruptions to our operations as the result of the COVID-19 pandemic. We will need to obtain additional funds to continue our operations and execute our current business plans, including completing our current Phase 1 clinical trial, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets, and laboratory studies to explore potential indications in other cancer types. We historically have financed our operations principally from the sale of convertible debt and equity securities. While we have been successful in the past in obtaining the necessary capital to support our operations, and have similar future plans to obtain additional financing, there is no assurance that we will be able to obtain additional financing under commercially reasonable terms and conditions, or at all. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually. If we are unable to obtain additional financing when needed, we will likely need to reduce our operations by taking actions that may include, among other things, reducing use of outside professional service providers, reducing staff or further reducing staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate, licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, or other applications that we would otherwise seek to pursue, or discontinue operations entirely. Results of Operations Comparison of the results of operations (in thousands): Three Months Ended March 31, Three months Ended June 30, Six Months Ended June 30, 2020 2019 Percent Change 2020 2019 Percent Change 2020 2019 Percent Change Operating Expenses General and administrative Research and development Total operating expenses Other expenses, net Other income (expense) net Income tax benefit Net Loss Research and development (“R&D”) and general and administrative (“G&A”) expenses include non-cash share-based compensation expense because of our The following table summarizes the stock-based compensation expense in our statements of comprehensive loss for the Three Months Ended March 31, 2020 2019 2020 2019 General and administative Research and Development Total Stock based compensation General and administrative expense Our G&A expenses increased Research and development expense Our R&D expenses Other expense, net Other expense, net, was Income tax benefit Income tax benefit Liquidity and Capital Resources The following table summarizes our liquidity and capital resources as of Liquidity and Capital Resources March 31, 2020 December 31, 2019 June 30, 2020 December 31, 2019 Cash Working capital Cash Flow Data Three Months Ended March 31, 2020 2019 2020 2019 Cash Provided by (Used in): Operating Activities Investment Activities Financing Activities Effect of exchange rate changes on cash Net (decrease) increase in cash Net (decrease) in cash Our total cash was Cash Flows Net Cash Used in Operating Activities Net cash used in operating activities was Net Cash Provided by Financing Activities Net cash Capital Requirements As we continue to pursue our operations and execute our business plan, including the completion of our current Phase 1 clinical trial for our initial product candidate, SBP-101, in pancreatic cancer, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets, we expect to continue to incur substantial and increasing losses, which will continue to generate negative net cash flows from operating activities. Our future capital uses, and requirements depend on numerous current and future factors. These factors include, but are not limited to, the following: ● the progress of clinical trials required to support our applications for regulatory approvals, including our Phase 1a /1b clinical trial, a human clinical trial in Australia and the United States; ● the impact of the ● our ability to demonstrate the safety and effectiveness of our SBP-101 product candidate; ● our ability to obtain regulatory approval of our SBP-101 product candidate in the United States, the European Union or other international markets; ● the cost and delays in product development that may result from changes in regulatory oversight applicable to our SBP-101 product candidate; ● the cost and delays in product development that may result from the uncertain impact of the current global pandemic; ● the market acceptance and level of future sales of our SBP-101 product candidate; ● the rate of progress in establishing reimbursement arrangements with third-party payors; ● the effect of competing technological and market developments; and ● the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims. To date, we have used primarily convertible debt and equity financings to fund our ongoing business operations and short-term liquidity needs, and we expect to continue this practice for the foreseeable future. As of We expect that we will increase our projected expenditures once we have additional capital on hand in order to continue our efforts to grow our business and complete our Phase 1a clinical trial for our SBP-101 product candidate. Accordingly, we expect to make additional expenditures in performing our Phase 1a /1b clinical trial and related support activities. With sufficient capital, we also expect to invest in additional R&D efforts on mechanism of action, biomarkers and If we are unable to obtain additional financing when needed, we will likely need to reduce our operations by taking actions which may include, among other things, reducing use of outside professional service providers, reducing staff or further reduce staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate, licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for patients with pancreatic cancer, or other applications that we would otherwise seek to pursue, or discontinuing operations entirely. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the interests of our current stockholders would be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our current stockholders. If we issue preferred stock, it could affect the rights of our stockholders or reduce the value of our common stock. Specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any of these events could adversely affect our ability to achieve our regulatory approvals and commercialization goals and harm our business. Our future success is dependent upon our ability to obtain additional financing, the success of our current Phase 1 clinical trial and required future trials, our ability to obtain marketing approval for our SBP-101 product candidate in the United States, the European Union and other international markets. If we are unable to obtain additional financing when needed, if our Phase 1 clinical trial is not successful, if we do not receive regulatory approval required for future trials or if once these studies are concluded, we do not receive marketing approval for our SBP-101 product candidate, we would not be able to continue as a going concern and would be forced to cease operations. The interim financial statements included in this report have been prepared assuming that we will continue as a going concern and do not include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties. Indebtedness As of On May 1, 2020, the Company obtained a loan in the principal amount of approximately $103,000 from Bank of America pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act administered by the U.S. Small Business Administration (“SBA”). In accordance with the Critical Accounting Policies and Estimates Our significant accounting policies are set forth in the notes accompanying the condensed consolidated financial statements included in this document. The accounting policies used in preparing our interim fiscal 2019 condensed consolidated financial statements are the same as those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Item 3. Quantitative and Qualitative Disclosure About Market Risk. As a smaller reporting company, we are not required to provide disclosure pursuant to this item. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. As of the date of this filing, management has not identified any material weaknesses, but believes that it does have a significant deficiency in that it has insufficient personnel resources within the accounting function to fully segregate the duties over financial transaction processing and reporting. Management has mitigated this deficiency primarily through greater involvement in the review and monitoring of financial transaction processing and reporting by executive and senior management. We believe that our internal control system provides reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Therefore, even effective internal controls over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time. As of the end of the period covered by this quarterly report, the Company’s management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Changes to Internal Control Over Financial Reporting We have not identified any change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II – OTHER INFORMATION Item 1. Legal Proceedings. None Item 1A. Risk Factors. In our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 the following Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness. The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe, and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemic poses the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain and the manufacture or shipment of both drug substance and finished drug product for our product candidates for preclinical testing and clinical trials and adversely impact our business, financial condition or results of operations. We often attend and present clinical updates at various medical and investor conferences throughout the year. The COVID-19 outbreak has caused, and is likely to continue to cause, cancellations or reduced attendance of these conferences and we may need to seek alternate methods to present clinical updates and to engage with the medical and investment communities. The spread of COVID-19 may also slow potential enrollment of clinical trials and reduce the number of eligible patients for our clinical trials. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition and our potential to conduct financings on terms acceptable to us, if at all. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. Other than noted above, there have been no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. On Item 3.Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. None. Item 6. Exhibits. Unless otherwise indicated, all documents incorporated into this quarterly report on Form 10-Q by reference to a document filed with the SEC pursuant to the Exchange Act are located under SEC file number 000-55242. Exhibit No. Description Manner of Filing 3.1 Incorporated by Reference 3.2 Incorporated by Reference 10.1 Incorporated by Reference 10.2 Incorporated by Reference 10.3* Incorporated by Reference 31.1 Filed Electronically 31.2 Filed Electronically 32.1 Filed Electronically 32.2 Filed Electronically 101 Financial statements from the quarterly report on Form 10-Q of Sun BioPharma, Inc. for the quarter ended Filed Electronically ________________ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUN BIOPHARMA, INC. Date: /s/ President and Chief Executive Officer (Duly Authorized Officer) Date: /s/ Susan Horvath Susan Horvath Vice President of Finance, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) For the quarterly period ended March 31or
incorporation or organization)
Identification No.) Act☐Act ☐Securities registered pursuant to Section 12(b) of the Act: NoneMay 8, 2020,August 7, there were 6,631,3087,068,308 shares of the registrant’s common stock, par value $0.001, outstanding.
Index to Quarterly Report on Form 10-QPagePART I – FINANCIAL INFORMATION Page PART I – FINANCIAL INFORMATION Item 1. .Item 2. Operations.13Item 3. Risk.17Item 4. Procedures.17 Item 1. Proceedings.18Item 1A. Factors.18Item 2. Proceeds.18Item 3. Securities.18Item 4. Disclosures.18Item 5. Information.18Item 6. Exhibits.19
Condensed Consolidated Balance Sheets ASSETS $ 1,296 $ 2,449 $ 2,265 $ 2,449 389 283 495 283 406 361 512 361 2,091 3,093 3,272 3,093 45 51 50 51 $ 2,136 $ 3,144 $ 3,322 $ 3,144 $ 271 $ 597 $ 493 $ 597 308 304 320 304 91 116 64 116 103 - 742 742 742 742 1,412 1,759 1,721 1,759 - - 7 7 - - 7 7 42,671 42,331 44,681 42,331 (43,056 ) (41,258 ) (43,475 ) (41,258 ) 1,102 305 387 305 724 1,385 1,600 1,385 $ 2,136 $ 3,144 $ 3,322 $ 3,144
(In thousands, except share and per share amounts) Three Months Ended March 31, $ 468 $ 303 $ 670 $ 580 $ 1,125 $ 883 598 350 434 508 1,032 858 (1,066 ) (653 ) (1,104 ) (1,088 ) (2,157 ) (1,741 ) (4 ) (1,033 ) (4 ) (1,152 ) (9 ) (2,184 ) (820 ) 34 (824 ) (999 ) 649 (101 ) (184 ) (68 ) 645 (1,253 ) (193 ) (2,252 ) (1,890 ) (1,652 ) (459 ) (2,341 ) (2,350 ) (3,993 ) 92 71 40 70 133 141 (1,798 ) (1,581 ) (419 ) (2,271 ) (2,217 ) (3,852 ) 797 (32 ) (715 ) 49 82 17 $ (1,001 ) $ (1,613 ) $ (1,134 ) $ (2,222 ) $ (2,135 ) $ (3,835 ) $ (0.27 ) $ (0.31 ) $ (0.06 ) $ (0.45 ) $ (0.33 ) $ (0.76 ) 6,631,308 5,072,397 6,732,470 5,070,341 6,681,889 5,071,378 Stockholders’ Stockholders’ Equity (Deficit)(Deficit) 5,077 $ 5 $ 35,038 $ (35,058 ) $ 283 $ 268 - - 353 - - 353 - - 419 - - 419 (7 ) - (25 ) - - (25 ) - - 10 - 10 - - - (1,581 ) - (1,581 ) - - - - (32 ) (32 ) 5,070 $ 5 $ 35,795 $ (36,639 ) $ 251 $ (588 ) 6,631 $ 7 $ 42,331 $ (41,258 ) $ 305 $ 1,385 - - 228 - - 228 - - 112 - - 112 - - - (1,798 ) - (1,798 ) - - - - 797 797 6,631 $ 7 $ 42,671 $ (43,056 ) $ 1,102 $ 724 437 - 1,746 - - 1,746 - - 264 - - 264 - - - (419 ) - (419 ) - - - - (715 ) (715 ) 7,068 $ 7 $ 44,681 $ (43,475 ) $ 387 $ 1,600 6,631 $ 7 $ 42,331 $ (41,258 ) $ 305 $ 1,385 - - 228 - - 228 5,077 $ 5 $ 35,038 $ (35,058 ) $ 283 $ 268 - - 353 - - 353 - - 419 - - 419 (7 ) - (25 ) - - (25 ) - - 112 - - 112 - - 10 - 10 - - - (1,798 ) - (1,798 ) - - - (1,581 ) - (1,581 ) - - - - 797 797 - - - - (32 ) (32 ) 6,631 $ 7 $ 42,671 $ (43,056 ) $ 1,102 $ 724 5,070 $ 5 $ 35,795 $ (36,639 ) $ 251 $ (588 ) 652 1 2,280 - - 2,281 - - 412 - - 412 - - - (2,271 ) - (2,271 ) - - - - 49 49 5,722 $ 6 $ 38,487 $ (38,910 ) $ 300 $ (117 )
(In thousands) $ (1,798 ) $ (1,581 ) $ (2,217 ) $ (3,852 ) 112 10 376 422 - 974 - 2,061 - 6 - 12 - 48 - 102 (97 ) (74 ) (151 ) (144 ) 97 38 7 17 546 (193 ) (14 ) (12 ) 20 (11 ) 23 (20 ) (1,120 ) (783 ) (1,976 ) (1,414 ) 1,746 - - 810 - 810 103 - - (25 ) - (25 ) (26 ) (27 ) (53 ) (55 ) (26 ) 758 1,796 730 (7 ) (1 ) (4 ) - (1,153 ) (26 ) (184 ) (684 ) 2,449 1,405 2,449 1,405 $ 1,296 $ 1,379 $ 2,265 $ 721 $ 2 $ 5 $ 4 $ 8 $ 228 $ 228 $ - $ - $ 353 $ - $ 353 $ - $ 419 $ - $ 419 $ - $ 25 $ - $ 25 $ - $ 2,281 $ - $ 742
Notes to Condensed Consolidated Financial Statements1. Business2. Risks and Uncertainties$42.6$43.5 million since our inception in 2011. For the threesix months ended March 31,June 30, 2020, we incurred a net loss of $1.8 million, which includes a foreign currency loss of $0.8$2.2 million. We also incurred negative cash flows from operating activities of $1.2$2.0 million for this period. As we continue to pursue development activities and seek commercialization of our initial product candidate, SBP-101, we expect to incur substantial losses, which are likely to generate negative net cash flows from operating activities. As of March 31,June 30, 2020, we had cash of $1.3$2.3 million, working capital of $0.7$1.6 million, (current assets less current liabilities) and stockholders’ equity of $0.7$1.6 million. The Company’s principal sources of cash have historically included the issuance of convertible debt and equity securities.OnIn March 11, 2020, the World Health Organization declared the spread of a novel strain of coronavirus (“COVID-19”) a global pandemic and continued widespread infection in the United States is a possibility.pandemic. Actions have been taken by federal, state and local governmental authorities to combat the spread of COVID-19, including through issuances of “stay-at-home” directives and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. These measures, while intended to protect human life, have led to significantly reduced economic activity. TheWhile many state and local authorities have started to reopen businesses, others have adopted additional measures to mitigate COVID-19 and the rapid development and uncertainty of the situation precludescontinues to preclude any prediction as to the ultimate impact COVID-19 will have on the Company's business, financial condition, results of operation and cash flows, which will depend largely on future developments directly or indirectly relating to the duration and scope of the COVID-19 outbreak in the United States and Australia. On April 3, 2020, we initiated a temporary pause in the enrollment of new patients in our ongoing clinical trial. We anticipate resumptionOn May 20, 2020, we reauthorized our clinical sites to resume recruitment and enrollment of new patient enrollmentpatients in Q2 2020 onceour clinical trial, which we expect to continue as conditions allow. We continuecontinued to treat patients already enrolled.enrolled throughout the temporary pause in enrollment. 3. Basis of Presentation74. Liquidity and Business Plan5. Summary of Significant Accounting Policies8three-monthsix-month periods ended March 31,June 30, 2020 and 2019, any reclassification adjustments from accumulated other comprehensive loss to operations were inconsequential. 1,745,811 1,032,211 1,958,411 1,552,211 - 636,234 3,497,099 2,509,477 3,934,099 2,509,477 5,242,910 4,177,922 5,892,510 4,061,688 6. IndebtednessMarch 31,June 30, 2020. The fair market value of the warrants issued in 2019 in exchange for modification of the terms is being amortized to interest expense over the remaining term of the loan. The amendment requires the continuation of monthly payments of principal and interest totaling $10,000. The unpaid principal balance at MarchJune 30, 2020 was $68,000.was $90,000.Deferred financing costsThe following table summarizesor (2) the deferred financing costs which are presented asdate the Company’s stock is listed on a direct reduction of the carrying amount of their related debt liabilities (in thousands):national securities exchange. $ 97 $ 126 51 51 (44 ) (41 ) 7 10 - - - - - - $ 90 $ 116 7Private Placements of Common Stock and Warrants. Stockholders’ DeficitMarch 31,June 30, 2020: 1,745,8111,958,411 18,5491,105,949 3,497,0993,934,099 5,261,4596,998,459 8.Stock-based Compensation was adopted, has been approved by our Board of Directors in March 2016 and approvedratified by our stockholders in May 2016.stockholders. The 2016 Plan permits the granting of incentive and non-statutory stock options, restricted stock, stock appreciation rights, performance units, performance shares and other stock awards to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the 2016 Plan at nowith an exercise price not less than the fair market value of the underlying common stock as of the date of grant. Options granted under the 2016 Plan have a maximum term of ten years. Under the 2016 Plan, a total of 1,500,0002,800,000 shares of common stock were initiallyhave been reserved for issuance. As of March 31,June 30, 2020, options to purchase 1,481,451shares1,694,051 shares of common stock were outstanding under the 2016 Plan and 18,5491,105,949 shares remained available for future awards.March 31,June 30, 2020, options to purchase 264,360 shares of common stock remained outstanding under the 2011 Plan.March 31,June 30, 2020 vest based upon time-based and performance conditions. There was approximately $229,000$0.7 million unamortized stock-based compensation expense related to options granted to employees as of March 31,June 30, 2020. Six Months Ended June 30, 99 10 $ 294 $ 260 13 - 82 162 112 10 $ 376 $ 422 threesix months ended March 31,June 30, 2020 follows: 19,549 1,744,811 19,549 1,744,811 $ 6.53 $ 1,047,197 1,300,000 - - (1,000 ) 1,000 (213,600 ) 213,600 4.98 - - - - - - - - - - - - - - - 18,549 1,745,811 1,105,949 1,958,411 $ 6.36 $ 1,706,156 March 31,June 30, 2020, is as follows: Options Vested and Excercisable $0.875 - $1.10 26,360 2.75 $ 1.029 26,360 2.75 $1.10 26,360 2.50 $ 1.03 26,360 2.50 $2.275 - $2.50 38,000 3.87 $ 2.464 38,000 3.87 $2.50 38,000 3.62 $ 2.46 38,000 3.62 $2.95 - $3.70 774,100 8.07 $ 3.040 411,525 7.11 - $3.70 774,100 7.82 $ 3.04 605,950 7.52 $4.95 - $8.10 539,300 7.73 $ 6.739 506,500 7.67 $8.10 751,900 8.19 $ 6.24 563,500 7.65 $10.00 - $10.10 54,000 7.30 $ 10.007 54,000 7.30 $10.10 54,000 7.05 $ 10.01 54,000 7.05 $15.10 314,051 6.16 $ 15.100 310,551 6.21 314,051 5.91 $ 15.10 310,551 5.91 1,745,811 7.43 $ 6.525 1,346,936 6.94 1,958,411 7.48 $ 6.36 1,598,361 7.07 9. Subsequent EventOn May 1, 2020, the Company the Company executed an unsecured promissory note with a lender as a part of the Payroll Protection Program (“PPP”) in the Coronavirus Aid, Relief, and Economic Security Act. Funds totaling approximately $102,000 will be used to support Company payroll. The note may be forgiven in part and bears an interest rate of 1% per annum after a six-month deferment period.12current COVID-19 pandemic on our ability to complete enrollment in our currentand administer clinical trial;trials; (iv) our ability to demonstrate the safety and effectiveness of our SBP-101 product candidate (v) our ability to obtain regulatory approvals for our SBP-101 product candidate in the United States, the European Union or other international markets; (vi) the market acceptance and level of future sales of our SBP-101 product candidate; (vii) the cost and delays in product development that may result from changes in regulatory oversight applicable to our SBP-101 product candidate; (viii) the rate of progress in establishing reimbursement arrangements with third-party payors; (ix) the effect of competing technological and market developments; (x) the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims; and (xi) such other factors as discussed in Part I, Item 1A under the caption “Risk Factors” in our most recent Annual Report on Form 10-K, any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.a potential additional indicationindications in certain other solid tumor cancers. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the UFRF.SBP 101.SBP-101. Enrollment in the expansion (1b) phase of the trial began immediately after enrollment in the fourth cohort,cohort. Due to the COVID 19COVID-19 pandemic, the Company made a decisiondecided in early April to temporarily pause enrollment in the expansion phase of the study until conditions allowallowed for us to resume enrollment. All subjects enrolled at the time of the pause continued to be treated. In late May 2020, the Company reauthorized all clinical sites to resume recruiting and enrollment of subjects. Promising interim results were presented in a poster presentation at ASCO-GI; the poster contained data as of January 4, 2020 in the response-evaluable subjects in cohorts 2 and 3 (N=13). The conclusions at that time reflected (i) an objective response rate of 62%; 4 PRs were observed after 2 cycles of therapy and 4 PRs were observed after 4 cycles of therapy and (ii) a disease control rate (DCR) of 85% by Response Evaluation Criteria in Solid Tumors (“RECIST”) criteria (at least SD for ≥ 16 weeks); 4 subjects had not reached week 16 scans. and form of the next clinical trial to be initiated at the completion of the Phase 1b expansion of the current study. It is expected to be a randomized phase 2 trial for patients with first-line metastatic PDA. Additional funds will be required to complete the current study. Additional clinical trials will likely be required for FDA or other similar approvals if the results of the current clinical trial of our SBP-101 product candidate remain positive. The cost and timing of additional clinical trials are highly dependent on the nature and size of the trials. However, it is estimated that the next steps in the approval process could cost between $20 and $40 million.$42.6$43.5 million since inception.the inception of our business in 2011. For the threesix months ended March 31,June 30, 2020, we incurred a net loss of $1.8$2.2 million. We also incurred negative cash flows from operating activities of $1.1$2.0 million for this period. We expect to continue to incur substantial losses, which will generate negative net cash flows from operating activities, as we continue to pursue research and development activities and commercialize our SBP-101 product candidate.$1.3$2.3 million and $2.4 million as of March 31,June 30, 2020 and December 31, 2019, respectively.$1.1 million$184,000 in cash for the threesix months ended March 31,June 30, 2020 was primarily due to negative cash flow from operations.operations offset in part by $1.7 million net proceeds from the sale of common stock and warrants in May and June.We anticipate resumingRecruitment and enrollment as soonwere resumed during the quarter ended June 30, 2020 and we expect they will continue as conditions allow. The Company was not required to change management practices as it was decentralized prior to the currentCOVID-19 pandemic.13 $ 468 $ 303 54.5 % $ 670 $ 580 15.5 % $ 1,125 $ 883 27.4 % 598 350 70.9 % 434 508 -14.6 % 1,032 858 20.3 % 1,066 653 63.2 % 1,104 1,088 1.5 % 2,157 1,741 23.9 % (824 ) (999 ) -17.5 % 645 (1,253 ) -151.5 % (193 ) (2,252 ) -91.4 % 92 71 29.6 % 40 70 -42.9 % 133 141 -5.7 % $ (1,798 ) $ (1,581 ) 13.7 % $ (419 ) $ (2,271 ) -81.5 % $ (2,217 ) $ (3,852 ) -42.4 % issuanceissuances of stock options. We expense the fair value of equity awards over their vesting periods. The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee. The awards granted through March 31,June 30, 2020 vest upon performance and time-based conditions. We expect to record additional non-cash share-based compensation expense in the future, which may be significant.threesix months ended March 31,June 30, 2020 and March 31,June 30, 2019 (in thousands): Six Months Ended June 30 $ 99 $ 10 $ 294 $ 260 13 - 82 162 $ 112 $ 10 $ 376 $ 422 54.5%15.5% to $468,000$670,000 in the firstsecond quarter of 2020 up from $303,000$580,000 in the firstsecond quarter of 2019. G&A expenses increased 27.4% to $1.1 million in the six months ended June 30, 2020, up from $0.9 million in the six months ended June 30, 2019. The increase in the quarter ended June 30, 2020 is due to higher consulting and legal expenses offset in part by lower stock compensation expense. For the six months ended June 30, 2020 the increase is due in part to increasedhigher salary, costs as employees had taken a voluntary reduction of salaries for a part of the first quarter of 2019; increased stock compensation expense,consulting and legal expenses made upversus the remaining increase.prior year period.increased 70.9%decreased 14.6% to $598,000$434,000 in the firstsecond quarter of 2020 down from $508,000 in the second quarter of 2019. R&D expenses increased 20.3% to $1.0 million in the six months ended June 30, 2020, up from $350,000$0.9 million in the firstsix months ended June 30, 2019. The decrease in the quarter of 2019ended June 30, 2020 was due to lower preclinical studies, travel and stock compensation expense offset in part by higher spending on the current clinical trial. The increase isin the six-months ended June 30, 2020 was primarily due primarily to increasedhigher spending in our current clinical trial costs inversus the first quarter of 2020. same period last year.14$824,000$0.2 million and $999,000$2.3 million for the threesix months ended March 31,June 30, 2020 and 2019, respectively. The net expense in the quartersix-months ended March 31,June 30, 2020 is composed primarily of a foreign currency exchange loss on the intercompany receivable balance,balance. The net expense in the quartersix-months ended March 31,June 30, 2019 is primarily the amortization of debt discount on convertible notes sold in December 2018 and January 2019, all of which converted into equity securities in 2019.increaseddecreased slightly to $92,000$133,000 for the threesix-months ended June 30, 2020 down from $141,000 during the six months ended March 31, 2020 up from $71,000 during the three months ended March 31,June 30, 2019. Our income tax benefit is derived primarily from refundable tax credits associated with our R&D activities conducted in Australia and was increased due to increased eligible R&D activities in the first three months of 2020 versus the first three months of 2019.Australia.March 31,June 30, 2020 and December 31, 2019 and our cash flow data for the threesix months ended March 31,June 30, 2020 and 2019 and is intended to supplement the more detailed discussion that follows (in thousands): $ 1,296 $ 2,449 $ 2,265 $ 2,449 $ 679 $ 2,076 $ 1,551 $ 1,334 Six Months Ended June 30, $ (1,120 ) $ (783 ) $ (1,976 ) $ (1,414 ) - - - - (26 ) 758 1,796 730 (7 ) (1 ) (4 ) - $ (1,153 ) $ (26 ) $ (184 ) $ (684 ) WorkingWorking Capital$1.3$2.3 million and $2.4 million as of March 31,June 30, 2020 and December 31, 2019, respectively. We had $1.4$1.7 million in current liabilities and working capital of $0.7$1.6 million as of March 31,June 30, 2020, compared to $1.8 million in current liabilities and a working capital of $1.3 as of December 31, 2019.$1.1$2.0 million in the threesix months ended March 31,June 30, 2020 compared to $0.8$1.4 million in the threesix months ended March 31,June 30, 2019. The net cash used in each of these periods primarily reflects the net loss for these periods and is partially offset by the effects of changes in operating assets and liabilities.15used by financing activities was $26,000 for the three months ended March 31, 2020 and net cash provided by financing activities was $0.8$1.8 million and $0.7 million for the threesix months ended March 31, 2019.June 30, 2020 and June 30, 2019, respectively. The cash provided for the threesix months ended March 31,June 30, 2020 represents the sales of common stock and warrants for net proceeds of $1.7 million. The cash provided for the six months ended June 30, 2019 represents the gross proceeds from the salesales of the Notes sold during the quarter.convertible notes. current COVID-19 pandemic on our ability to monitor and complete enrollment in our current clinical trial; March 31,June 30, 2020, we did not have any existing credit facilities under which we could borrow funds.secondaryadditional indications in other cancer types. The exact amounts and timing of any expenditure may vary significantly from our current intentions. We will need to obtain additional funds to continue our operations and execute our business plans, including completing our current Phase 1 clinical trial, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets. We historically have financed our operations principally from the sale of convertible debt and equity securities. While we have been successful in the past in obtaining the necessary capital to support our operations, and have similar future plans to obtain additional financing, there is no assurance that we will be able to obtain additional financing under commercially reasonable terms and conditions, or at all. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.16March 31,June 30, 2020, we had $90,0000 outstanding inindebtedness totaling $0.9 million. This includes a balance of $0.7 million due under an unsecured, non-interest-bearing promissory note. The note matures on the earlier of December 31, 2020 or when the Company is listed on a national exchange. We also had a balance of $0.1 million due under an unsecured loan that accrues an annual interest of 4.125% per year and is scheduled to mature on December 31, 2020. We commenced monthly payments of principal and interest on that loan totaling $10,000 per month on May 1, 2018.termsrequirements of thisthe CARES Act, the Company expects to use the proceeds of the loan we commenced with monthly paymentsexclusively for qualified expenses, including payroll costs, as further detailed in the CARES Act and applicable guidance issued by the SBA. The loan is evidenced by an unsecured promissory note and interest is scheduled to accrue on the outstanding balance at a rate of $10,0001.0% per annum beginning on November 1, 2020. However, the Company expects to be eligible to apply for forgiveness of up to all of the principal and interest due under the loan, in an amount equal to the sum of qualified expenses under the PPP during the twenty-four weeks following disbursement. Notwithstanding the Company’s anticipated eligibility to apply for forgiveness, no assurance can be given that it will obtain forgiveness of all or any portion of the amount due under the loan. Subject to any such forgiveness granted under the PPP, the loan is scheduled to mature on May 1, 2018.2022 and may require us to commence payments of principal and interest as soon as November 2020. The loan may be prepaid at any time prior to maturity with no prepayment penalties. The unsecured promissory note governing the loan provides for customary events of default, including, among others, those relating to failure to make payments, bankruptcy, breaches of representations, significant changes in ownership, and material adverse effects. The Company’s obligations under the note are not secured by any collateral.17Act.Act of 1934 (the “Exchange Act”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31,June 30, 2020, our disclosure controls and procedures were effective in ensuring that information relating to the Company required to be disclosed in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.riskrisk was identified:Subsequent to the filing of our Form 10-K for the year ended December 31, 2019, onOn April 3, 2020, as a result of the COVID-19 pandemic, the Company announced a temporary pause in enrollment in our current clinical study. ThisThe Company will evaluate resumingreauthorized recruitment and enrollment inon May of 2019, but at20, 2020 and intends to continue as long conditions allow. At this time continued uncertainty remains regarding possible risk to our clinical monitoring access, supply chain and limitation on the resources of our investigational sites.February 21,June 22, 2020, the company issued to7,000 shares of common stock and a service provider a five-year warrant to purchase 75,000an equal number of shares of common stock to an accredited investor for total gross proceeds of approximately $28,000 pursuant to 2020 Securities Purchase Agreement. The warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $6.49$6.00 per share. We reliedThe exercise price of the warrant and the number of the shares issuable upon exercise of the warrant are subject to customary adjustments prior to exercise upon the occurrence of certain events affecting all outstanding shares of common stock. The shares and warrant were issued in reliance on exemptionsan exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), to an “accredited investor,” as defined in Rule 501 of Regulation D of the SEC, without the use of any general solicitations or advertising to market or otherwise offer the securities for sale. None of the shares, warrant or shares of common stock issued upon exercise of the warrant have been registered under the Securities Act or applicable state securities laws and none may be offered or sold in the United States absent registration under the Securities Act, or an exemption from such registration requirements.Item 3.1819 10.4* Form of Employee Confidentiality and Intellectual Property Assignment Agreement with Company Officers Filed Electronically March 31,June 30, 2020, formatted in XBRL: (i) the Balance Sheets, (ii) the Statements of Operations and Comprehensive Loss, (iii) the Statements of Stockholders’ Equity (Deficit), (iv) the Statements of Cash Flows, and (v) the Notes to Financial Statements.
* Management compensatory arrangement required to be filed herewith.1920 May 12,August 11, 2020Michael T. Cullen, MDJennifer K. Simpson Michael T. CullenJennifer K. Simpson May 12,August 11, 2020 2021