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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

   Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2020

   Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____.

Commission File Number: 001-37939

Graphic

MARKER THERAPEUTICS, INC.

(Name of registrant in its charter)

DELAWARE

45-4497941

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3200 Southwest Freeway, Suite 2500
Houston, Texas

77027

(Address of principal executive offices)

(Zip Code)

(713) 400-6400

(Issuer’s telephone number)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

MRKR

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of October 31, 2020, the Company had 48,025,102 shares of common stock issued and outstanding.

Table of Contents

Table of content

Page

PART I – FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

1

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

2

Condensed Consolidated Statement of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019

3

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

4

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

25

Item 4.

Controls and Procedures.

25

PART II – OTHER INFORMATION

26

Item 1.

Legal Proceedings.

26

Item 1A.

Risk Factors.

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

60

Item 3.

Defaults Upon Senior Securities.

60

Item 4.

Mine Safety Disclosure.

60

Item 5.

Other Information.

60

Item 6.

Exhibits.

61

Signatures

62

Table of Contents

PART I.      FINANCIAL INFORMATION

Item 1.        Financial Statements

MARKER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

    

September 30, 

    

December 31, 

 

2020

2019

(Unaudited)

(Audited)

ASSETS

Current assets:

Cash and cash equivalents

$

26,956,737

$

43,903,949

Prepaid expenses and deposits

 

2,367,145

 

1,526,442

Interest receivable

 

135

 

56,189

Other receivable

1,000,000

Total current assets

 

30,324,017

 

45,486,580

Non-current assets:

Property, plant and equipment, net

 

2,629,628

 

417,528

Construction in progress

4,557,581

Right-of-use assets, net

11,059,962

455,174

Total non-current assets

18,247,171

872,702

Total assets

$

48,571,188

$

46,359,282

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable and accrued liabilities

$

5,746,149

$

1,757,680

Lease liability

278,333

204,132

Warrant liability

 

 

31,000

Total current liabilities

 

6,024,482

 

1,992,812

Non-current liabilities:

Lease liability, net of current portion

11,948,781

280,247

Total non-current liabilities

11,948,781

280,247

Total liabilities

 

17,973,263

 

2,273,059

Commitments and contingencies (see Note 10)

 

 

Stockholders' equity:

 

 

  

Preferred stock - $0.001 par value, 5 million shares authorized and 0 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Common stock, $0.001 par value, 150 million shares authorized, 48.0 million and 45.7 million shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

48,025

45,728

Additional paid-in capital

 

378,282,157

 

371,573,909

Accumulated deficit

 

(347,732,257)

 

(327,533,414)

Total stockholders' equity

 

30,597,925

 

44,086,223

Total liabilities and stockholders' equity

$

48,571,188

$

46,359,282

See accompanying notes to these unaudited condensed consolidated financial statements.

1

Table of Contents

MARKER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

    

For the Three Months Ended

 

For the Nine Months Ended

 

September 30, 

 

September 30, 

 

    

2020

    

2019

    

2020

    

2019

 

Revenues:

Grant income

$

$

$

466,785

$

Total revenues

 

 

 

466,785

 

Operating expenses:

Research and development

 

4,803,605

 

3,118,530

 

12,897,275

 

9,103,670

General and administrative

 

2,572,562

 

2,536,204

 

7,946,846

 

8,063,099

Total operating expenses

 

7,376,167

 

5,654,734

 

20,844,121

 

17,166,769

Loss from operations

 

(7,376,167)

 

(5,654,734)

 

(20,377,336)

 

(17,166,769)

Other income (expense):

 

 

  

 

 

Change in fair value of warrant liabilities

 

 

(64,000)

 

31,000

 

(80,000)

Interest income

 

4,667

 

259,248

 

147,493

 

897,967

Net loss

$

(7,371,500)

$

(5,459,486)

$

(20,198,843)

$

(16,348,802)

Net loss per share, basic and diluted

$

(0.16)

$

(0.12)

$

(0.43)

$

(0.36)

Weighted average number of common shares outstanding

 

46,867,119

 

45,655,387

 

46,509,391

 

45,541,434

See accompanying notes to these unaudited condensed consolidated financial statements.

2

Table of Contents

MARKER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the Three Months Ended September 30, 2020

    

    

    

    

    

Total

Common Stock

Additional Paid-

Accumulated

Stockholders’

Shares

Par value

in Capital

Deficit

Equity

Balance at July 1, 2020

 

46,617,632

$

46,617

$

374,828,385

$

(340,360,757)

$

34,514,245

Issuance common stock for cash

1,407,470

1,408

2,184,601

2,186,009

Stock-based compensation

 

 

 

1,269,171

 

 

1,269,171

Net loss

 

 

 

 

(7,371,500)

 

(7,371,500)

Balance at September 30, 2020

 

48,025,102

$

48,025

$

378,282,157

$

(347,732,257)

$

30,597,925

For the Nine Months Ended September 30, 2020

    

Total

Common Stock

Additional Paid-

Accumulated

Stockholders’

    

Shares

    

Par value

    

in Capital

    

Deficit

    

Equity

Balance at January 1, 2020

 

45,728,831

$

45,728

$

371,573,909

$

(327,533,414)

$

44,086,223

Issuance common stock for cash

1,407,470

1,408

2,184,601

2,186,009

Warrants exercised for cash

458,334

 

459

 

549,541

 

 

550,000

Issuance of common stock as commitment fee for future financing

345,357

345

(345)

Stock-based compensation

85,110

 

85

 

3,974,451

 

 

3,974,536

Net loss

 

 

 

 

(20,198,843)

 

(20,198,843)

Balance at September 30, 2020

 

48,025,102

$

48,025

$

378,282,157

$

(347,732,257)

$

30,597,925

For the Three Months Ended September 30, 2019

Total

Common Stock

Additional Paid-

Accumulated

Stockholders’

    

Shares

    

Par value

    

in Capital

    

Deficit

    

Equity

Balance at July 1, 2019

45,513,523

$

45,513

$

368,353,041

$

(316,994,766)

$

51,403,788

Stock warrants exercised for cash

188,459

188

753,166

753,354

Stock warrants cashless exercised

4,032

4

(4)

Stock-based compensation

17,400

18

1,184,244

1,184,262

Net loss

(5,459,486)

(5,459,486)

Balance at September 30, 2019

45,723,414

$

45,723

$

370,290,447

$

(322,454,252)

$

47,881,918

For the Nine Months Ended September 30, 2019

Total

Common Stock

Additional Paid-

Accumulated

Stockholders’

    

Shares

    

Par value

    

in Capital

    

Deficit

    

Equity

Balance at January 1, 2019

45,440,704

$

45,440

$

365,400,748

$

(306,105,450)

$

59,340,738

Stock options exercised for cash

11,980

12

57,732

57,744

Warrants exercised for cash

190,258

190

758,543

758,733

Stock warrants cashless exercised

4,032

4

(4)

Stock-based compensation

76,440

77

4,073,428

4,073,505

Net loss

(16,348,802)

(16,348,802)

Balance at September 30, 2019

45,723,414

$

45,723

$

370,290,447

$

(322,454,252)

$

47,881,918

See accompanying notes to these unaudited condensed consolidated financial statements.

3

Table of Contents

MARKER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the Nine Months Ended

September 30, 

    

2020

    

2019

Cash Flows from Operating Activities:

Net loss

$

(20,198,843)

$

(16,348,802)

Reconciliation of net loss to net cash used in operating activities:

 

 

  

Depreciation and amortization

272,725

70,908

Changes in fair value of warrant liabilities

 

(31,000)

 

80,000

Stock-based compensation

 

3,974,536

 

4,073,505

Amortization on right-of-use assets

 

337,530

 

134,919

Changes in operating assets and liabilities:

 

  

 

  

Prepaid expenses and deposits

 

(840,703)

 

(1,764,345)

Interest receivable

 

56,054

 

30,032

Accounts payable and accrued expenses

 

3,955,609

 

137,161

Lease liability

(166,723)

(136,812)

Net cash used in operating activities

 

(12,640,815)

 

(13,723,434)

Cash Flows from Investing Activities:

 

 

  

Purchase of property and equipment

 

(2,484,825)

 

(362,121)

Purchase of construction in progress

(4,557,581)

Net cash used in investing activities

 

(7,042,406)

 

(362,121)

Cash Flows from Financing Activities:

 

 

  

Proceeds from issuance of common stock

 

2,186,009

 

Proceeds from exercise of stock options

 

 

57,744

Proceeds from exercise of warrants

 

550,000

 

758,733

Net cash provided by financing activities

 

2,736,009

 

816,477

Net decrease in cash

 

(16,947,212)

 

(13,269,078)

Cash and cash equivalents at beginning of the period

 

43,903,949

 

61,746,748

Cash and cash equivalents at end of the period

$

26,956,737

$

48,477,670

    

For the Nine Months Ended

September 30, 

    

2020

    

2019

Supplemental schedule of non-cash financing activities:

Issuance of common stock as commitment fee for future financing

$

345

$

Recognition of right-of-use assets and lease liability from new operating lease agreements

$

11,077,636

$

Stock warrants cashless exercised

$

$

4

See accompanying notes to these unaudited condensed consolidated financial statements.

4

Table of Contents

MARKER THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

NOTE 1: NATURE OF OPERATIONS

Marker Therapeutics, Inc., a Delaware corporation (the “Company” or “we”), is a clinical-stage immuno-oncology company specializing in the development and commercialization of novel T cell-based immunotherapies and innovative peptide-based vaccines for the treatment of hematological malignancies and solid tumor indications. The Company’s MultiTAA T cell technology is based on the selective expansion of non-engineered, tumor-specific T cells that recognize tumor associated antigens, which are tumor targets, and kill tumor cells expressing those targets. These T cells are designed to recognize multiple tumor targets to produce broad spectrum anti-tumor activity. 

NOTE 2: BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.

The results for the condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2020 or for any future interim period. The condensed consolidated balance sheet at September 30, 2020 has been derived from unaudited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2019 and notes thereto included in the Company’s annual report on Form 10-K filed on March 12, 2020.

NOTE 3: LIQUIDITY, FINANCIAL CONDITION AND GOING CONCERN

As of September 30, 2020, the Company had cash and cash equivalents of approximately $27.0 million. The Company’s activities since inception have consisted principally of acquiring product and technology rights, raising capital, and performing research and development. Successful completion of the Company’s development programs and, ultimately, the attainment of profitable operations are dependent on future events, including, among other things, its ability to access potential markets; secure financing; successfully progress its product candidates through preclinical and clinical development; obtain regulatory approval of one or more of its product candidates; maintain and enforce intellectual property rights; develop a customer base; attract, retain and motivate qualified personnel; and develop strategic alliances and collaborations. From inception, the Company has been funded by a combination of equity and debt financings.

The Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute its business plan, the Company will need to complete certain research and development activities and clinical trials. Further, the Company’s product candidates will require regulatory approval prior to commercialization. These activities will span many years and require substantial expenditures to complete and may ultimately be unsuccessful. Any delays in completing these activities could adversely impact the Company. The Company plans to meet its capital requirements primarily through issuances of debt and equity securities and, in the longer term, revenue from sales of its product candidates, if approved.

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Based on the Company’s revised clinical and research and development plans and its revised timing expectations related to the progress of its programs, and buildout of manufacturing and research facilities, and expansion of the Company’s corporate headquarters, discussed in Footnotes #7 and #10 below, the Company expects that its cash and cash equivalents as of September 30, 2020 will enable the Company to fund its operating expenses and capital expenditure requirements into the second quarter of 2021, as such these factors raise substantial doubt regarding the Company's ability to continue as a going concern. The Company has based this estimate on assumptions that may prove to be wrong, and the Company could utilize its available capital resources sooner than it currently expects. Furthermore, the Company's operating plan may change, and it may need additional funds sooner than planned in order to meet operational needs and capital requirements for product development and commercialization. Because of the numerous risks and uncertainties associated with the development and commercialization of the Company's product candidates and the extent to which the Company may enter into additional collaborations with third parties to participate in their development and commercialization, the Company is unable to estimate the amounts of increased capital outlays and operating expenditures associated with its current and anticipated clinical trials. The Company's future funding requirements will depend on many factors, as it:

initiates or continues clinical trials of its product candidates;
continues the research and development of its product candidates and seeks to discover additional product candidates;
seeks regulatory approvals for any product candidates that successfully complete clinical trials;
maintains and enforces intellectual property rights;
establishes sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any product candidates that may receive regulatory approval;
evaluates strategic transactions the Company may undertake; and
enhances operational, financial and information management systems and hires additional personnel, including personnel to support development of product candidates and, if a product candidate is approved, commercialization efforts.

These factors raise substantial doubt regarding the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

In addition to the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its long-term liquidity due to the COVID-19 pandemic. However, the Company will continue to assess the effect of the pandemic on its operations, including its clinical programs. The extent to which the COVID-19 pandemic will impact the Company’s business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the Company’s business and the value of its common stock.

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NOTE 4: SIGNIFICANT ACCOUNTING POLICIES

Other Receivable

Pursuant to the Company's lease agreement for its manufacturing facility, the Company incurs and pays for the construction invoices directly for both the structural improvements of the facility and the building of the manufacturing modular cleanroom (i.e. leasehold improvements and manufacturing equipment.) At the time the construction invoices are received by the Company, a fixed asset is recorded in construction-in-progress. In accordance with the agreement, upon completion of the facility's construction, the Company is owed up to $1.0 million as reimbursement, and as such a landlord receivable is recorded, which provides for a legal right to receive construction reimbursements from the landlord for tenant improvement allowances. During the third quarter of 2020, the Company recorded a $1.0 million receivable in its condensed consolidated financial statements.

Property and equipment - Construction in Progress

On June 26, 2020, the Company entered into a lease for a manufacturing facility in Houston, Texas. In connection with the manufacturing facility, the Company has incurred costs pursuant to an agreement with a vendor to design, engineer, build and eventually install modular cleanrooms in a manufacturing facility. $4.6 million is recorded in fixed assets - construction in progress on the balance sheet as of September 30, 2020. Upon completion of the facility's construction, all costs associated with the buildout will be recorded as either manufacturing equipment and/or leasehold improvements and amortized over the estimated useful life of the leasehold lease.

New Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on its financial position or results of operations upon adoption.

Recent Accounting Standards Not Yet Adopted

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes  (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.

NOTE 5: NET LOSS PER SHARE

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per common share is computed similarly to basic loss per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

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The following table sets forth the computation of net loss per share for the three and nine months ended September 30, 2020 and 2019, respectively:

    

For the Three Months Ended

 

For the Nine Months Ended

 

September 30, 

 

September 30, 

 

    

2020

    

2019

     

2020

    

2019

 

Numerator:

Net loss

$

(7,371,500)

$

(5,459,486)

$

(20,198,843)

$

(16,348,802)

Denominator:

 

 

 

 

  

Weighted average common shares outstanding

 

46,867,119

 

45,655,387

 

46,509,391

 

45,541,434

Net loss per share data:

 

 

 

 

  

Basic and Diluted

$

(0.16)

$

(0.12)

$

(0.43)

$

(0.36)

The following securities, rounded to the nearest thousand, were not included in the diluted net loss per share calculation because their effect was anti-dilutive for the periods presented:

For the Nine Months Ended

September 30, 

    

2020

    

2019

    

Common stock options

 

5,882,000

 

4,655,000

 

Common stock purchase warrants

 

20,964,000

 

22,618,000

 

Common stock warrants - liability treatment

 

 

56,000

 

Potentially dilutive securities

 

26,846,000

 

27,329,000

 

NOTE 6: PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of September 30, 2020 and December 31, 2019, respectively:

September 30, 

December 31, 

    

Estimated Useful Lives

    

2020

    

2019

Lab equipment

5 Years

$

1,388,000

$

111,000

Computers, equipment and software

 

3-5 Years

685,000

211,000

Office furniture

 

5 Years

 

646,000

 

178,000

Leasehold improvements

Lesser of lease term or estimated useful life

288,000

23,000

Total  

 

  

3,007,000

523,000

Less: accumulated depreciation

 

  

 

(378,000)

 

(105,000)

Construction in progress

4,558,000

Total fixed assets, net

 

  

$

7,187,000

$

418,000

Depreciation expense for the three months ended September 30, 2020 and 2019 was approximately $0.1 million and $0.03 million, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 was approximately $0.3 million and $0.07 million, respectively.

On June 26, 2020, the Company entered into a lease for a manufacturing facility in Houston, Texas. In connection with the manufacturing facility, the Company has incurred costs pursuant to an agreement with a vendor to design, engineer, build and eventually install modular cleanrooms in a manufacturing facility. $4.6 million is recorded in fixed assets - construction in progress on the balance sheet as of September 30, 2020. Upon completion of the facility's construction, all costs associated with the buildout will be recorded as either manufacturing equipment and/or leasehold improvements and amortized over the estimated useful life of the leasehold lease.

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In connection with the research facility that the Company opened during the second quarter of 2020, the Company incurred approximately $1.3 million of costs acquiring necessary lab equipment to carry out its experiments. The $1.3 million is included in Lab equipment within fixed assets and is being depreciated over five years.

NOTE 7: LEASES

On March 23, 2020, the Company entered into an agreement to expand its corporate headquarters in Houston, Texas, which commenced in the third quarter of 2020.   The initial lease term is ten years with two five-year renewal options. Fixed rent payments under the initial term are approximately $5.6 million.  Additionally, the Company is also responsible for its share of operating expenses. In the third quarter of 2020, the Company recorded right-of use assets and related operating lease liabilities of approximately $4.1 million as result of entering into the lease for its new corporate facility.

On April 30, 2020, the Company entered into a lease for a research facility in Houston, Texas. The lease term is 71 months. Fixed rent payments under the initial term are approximately $1.1 million.

On June 26, 2020, the Company entered into a lease for a manufacturing facility in Houston, Texas. The initial lease term is ten years from the expected rent commencement date in the fourth quarter of 2020 with two five-year renewal options. Fixed rent payments under the initial term are approximately $9.8 million. Additionally, the Company is also responsible for its share of operating expenses. In connection with the lease for the manufacturing facility, the Company is to receive $1.0 million as reimbursement for out of pocket buildout costs.  Accordingly, during the third quarter of 2020, the Company recorded a $1.0 million receivable, and a reduction in right-of use assets, in its condensed consolidated financial statements.

The Company also leases office space under agreements classified as operating leases that expire in 2022. The Company has a remaining lease liability of $0.2 million and $0.2 million of the related right-of-use asset resulting from the lease of its Jacksonville, Florida office space, which expires in 2022.  

Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees.  Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right-of-use assets as the Company is not reasonably certain to exercise the options.  Variable expenses generally represent the Company’s share of the landlord’s operating expenses.  The Company does not act as a lessor or have any leases classified as financing leases.  

At September 30, 2020, the Company had operating lease liabilities of approximately $12.2 million and right-of-use assets of approximately $11.1 million, which were included in the condensed consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases for the three and nine months ended September 30, 2020 and 2019, respectively:

    

For the Three Months Ended

 

For the Nine Months Ended

 

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

 

Operating lease expense summary:

 

  

  

  

  

Operating lease expense

$

375,000

$

55,000

$

533,000

$

165,000

Short-term lease expense

 

 

27,000

 

22,000

 

73,000

Variable lease expense

 

69,000

 

27,000

 

85,000

 

65,000

Total

$

444,000

$

109,000

$

640,000

$

303,000

Other information:

 

  

 

  

 

  

 

  

Operating cash flows - operating leases

$

362,000

Weighted-average remaining lease term as of September 30, 2020 – operating leases

 

9.6

Weighted-average discount rate as of adoption date – operating leases

 

5.7

%

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Maturities of our operating leases, excluding short-term leases, are as follows:

Three months ended December 31, 2020

    

$

205,000

Year ended December 31, 2021

 

1,077,000

Year ended December 31, 2022

 

1,278,000

Year ended December 31, 2023

 

1,542,000

Year ended December 31, 2024

1,826,000

Thereafter

10,540,000

Total

16,468,000

Less present value discount

 

(4,241,000)

Operating lease liabilities included in the Condensed Consolidated Balance Sheet at September 30, 2020

$

12,227,000

NOTE 8: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following as of September 30, 2020 and December 31, 2019, respectively:

    

September 30, 

    

December 31, 

2020

2019

Accounts payable

$

3,696,000

$

993,000

Compensation and benefits

 

1,392,000

 

323,000

Professional fees

 

248,000

 

94,000

Technology license fees

 

 

105,000

Other

 

410,000

 

243,000

Total accounts payable and accrued liabilities

$

5,746,000

$

1,758,000

NOTE 9: WARRANT LIABILITY AND FAIR VALUE MEASUREMENTS

During the nine months ended September 30, 2020, all of the Company's common stock purchase warrants previously treated as a liability expired.

A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s common stock purchase warrants that are categorized within Level 3 of the fair value hierarchy for the nine months ended September 30, 2020 and 2019 is as follows:

Weighted Average Inputs

For the Nine Months Ended

September 30, 

    

2020

    

2019

Exercise price

$

$

6.92

Contractual term (years)

 

 

0.30

Volatility (annual)

 

 

92

%

Risk-free rate

 

 

2

%

Dividend yield (per share)

 

 

0

%

Financial Liabilities Measured at Fair Value on a Recurring Basis

Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Warrant liability:

    

Fair value measured at September 30, 2020

Quoted prices in active

Significant other

Significant

markets

observable inputs

unobservable inputs

Fair value at

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

September 30, 2020

Warrant liability

$

$

$

$

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Fair value measured at December 31, 2019

Quoted prices in active

Significant other

Significant

markets

observable inputs

unobservable inputs

Fair value at

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

December 31, 2019

Warrant liability

$

$

$

31,000

$

31,000

The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:

Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and
Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

There were no transfers between Level 1, 2 or 3 during the nine months ended September 30, 2020.

The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2020:

    

Warrant

Liability

Balance - January 1, 2020

$

31,000

Change in fair value of warrant liability

 

(31,000)

Balance – September 30, 2020

$

NOTE 10: COMMITMENTS AND CONTINGENCIES

An arbitration proceeding was brought against the Company before the Financial Industry Regulatory Authority, Inc. by a broker seeking to be paid approximately $1 million as compensation for two financing transactions that occurred in 2018, a warrant conversion and a private placement brokered by another broker. The broker’s claims are based on a placement agent agreement for a private placement it brokered in 2017, under which it alleges it is entitled to compensation for the 2018 transactions. The Company believes it has defenses to all of the allegations and intends to vigorously defend itself in this matter.

As discussed in Footnotes #6 and #7, on March 26, 2020 the Company entered into an agreement with a vendor to design, engineer, build and eventually install modular cleanrooms in a manufacturing facility in Houston, Texas, which the Company expects to lease with a commencement date in the fourth quarter of 2020.  The total fees for this project to be substantially completed by December 31, 2020 are estimated to be $6.5 million. As of September 30, 2020, the Company has recorded $4.6 million of construction in progress costs associated with the building of the cleanrooms and the manufacturing facility.

NOTE 11: STOCKHOLDERS’ EQUITY

Common Stock Transactions

Exercise of Stock Warrants

During the nine months ended September 30, 2020, certain outstanding warrants were exercised for 458,334 shares of common stock providing aggregate proceeds to the Company of approximately $0.6 million.

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Board Compensation

During the nine months ended September 30, 2020, the Company issued an aggregate of 85,110 shares of common stock to its non-employee directors. The fair value of the common stock of approximately $0.2 million was recognized as a component of stock-based compensation expense in general and administrative expenses.

Aspire Capital

On February 28, 2020, the Company entered into a common stock purchase agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of shares of the Company’s common stock over the 30-month term of the purchase agreement. In consideration for entering into the purchase agreement, the Company issued to Aspire Capital 345,357 shares of the Company’s common stock as a commitment fee.  The Company recorded the commitment fee to additional paid in capital.  As of September 30, 2020, Aspire Capital had purchased 1,407,470 shares under the Purchase Agreement , providing aggregate proceeds to the Company of approximately $2.2 million.

The Company may request daily up to 0.1 million shares to be purchased with a maximum purchase commitment of 9.2 million shares over the term of the arrangement.  The purchase price will generally be 97% of the stock price on the date of purchase.

Share Purchase Warrants

A summary of the Company’s share purchase warrants as of September 30, 2020 and changes during the period is presented below:

Number of

Weighted Average

Remaining Contractual

Intrinsic

    

Warrants

    

Exercise Price

    

Life (in years)

    

Value

Balance - January 1, 2020

 

22,664,000

$

4.71

3.33

$

954,000

Exercised for cash

(458,000)

1.20

 

Expired or cancelled

(1,242,000)

9.75

 

Balance - September 30, 2020

20,964,000

$

4.49

2.84

$

NOTE 12: STOCK-BASED COMPENSATION

Stock Options

Award of 2019 Performance Bonuses and 2020 Equity Incentive Awards

On March 10, 2020, upon the recommendation of the compensation committee and pursuant to the Company’s 2014 Omnibus Stock Ownership Plan, the Company’s board of directors approved a total of 1,170,000 options to purchase the Company’s common stock as (i) performance bonuses for 2019 performance and (ii) equity-based incentive awards to the Company’s executive officers. Each option award was granted with an exercise price of $2.12 per share, the closing price of the Company’s common stock on the Nasdaq Global Market on March 10, 2020, with the option award vesting in 48 equal monthly installments over a four-year period, subject to such executive officer’s continued service on the applicable vesting date.  Additionally, on March 10, 2020, the Company issued 111,000 options to purchase the Company’s common stock to other employees of the Company as equity-based incentive awards.  Each option award was granted with an exercise price of $2.12 per share, the closing price of the Company’s common stock on the Nasdaq Global Market on March 10, 2020, with the option award vesting in 48 equal monthly installments over a four-year period, subject to such executive officer’s continued service on the applicable vesting date.

The above awards were in addition to stock option awards issued during the nine months ended September 30, 2020 to new employees upon their commencement of employment with the Company.

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A summary of the Company’s stock option activity is as follows:

    

    

    

Weighted Average

    

    

Remaining

Weighted Average 

Contractual Life (in 

Number of Shares

Exercise Price

years)

Intrinsic Value

Outstanding as of January 1, 2020

 

4,983,314

$

7.79

8.9

$

18,000

 

Granted

 

1,411,000

2.13

9.4

Canceled

 

(512,500)

9.13

Outstanding as of September 30, 2020

 

5,881,814

$

6.31

8.5

$

Options vested and exercisable

 

2,196,946

$

7.41

8.1

$

 

The Black-Scholes option pricing model is used to estimate the fair value of stock options granted under the Company’s share-based compensation plans. The weighted average assumptions used in calculating the fair values of stock options that were granted during the nine months ended September 30, 2020 was as follows:  

For the Nine Months Ended

    

September 30, 2020

    

Exercise price

$

2.13

Expected term (years)

 

6.0

Expected stock price volatility