UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended 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 Number: 001-37758

MOLECULIN BIOTECH, INC.
(Exact name of registrant as specified in its charter)
Delaware	2834	47-4671997
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(IRS Employer Identification Number)
5300 Memorial Drive,	Suite 950
Houston	TX	77007
(Address of principal executive offices)		(Zip Code)

 713-300-5160

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Registration S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See 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 ☐	Smaller reporting company ☒
Non-accelerated filer ☒	Emerging growth company ☒
Accelerated filer ☐

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 ☒

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	MBRX	The NASDAQ Stock Market LLC

The registrant had 61,704,290 shares of common stock outstanding at August 7, 2020.

Moleculin Biotech, Inc.

Table of Contents

		Page
	PART I – FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2020 and 2019	5
	Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
	PART II – OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered sales of Equity Securities and Uses of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	Signatures	33

2

PART 1 FINANCIAL INFORMATION

Item 1. Financial Statements

Moleculin Biotech, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share and per share data)

(unaudited)

	June 30,		December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	16,734	$	10,735
Prepaid expenses and other current assets	3,015		2,749
Total current assets	19,749		13,484
Furniture and equipment, net	238		316
Intangible assets	11,148		11,148
Operating lease right-of-use asset	245		287
Total assets	$	31,380	$	25,235
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,918	$	2,153
Accrued expenses and other current liabilities	1,821		1,417
Total current liabilities	3,739		3,570
Operating lease liability - long-term, net of current portion	220		276
Warrant liability - long-term	11,792		5,818
Total liabilities	15,751		9,664
Commitments and contingencies (Note 7)
Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.001 par value; 100,000,000 shares authorized as of June 30, 2020 and December 31, 2019, 60,403,164 and 45,727,700 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	60		46
Additional paid-in capital	66,428		55,055
Accumulated other comprehensive income	23		31
Accumulated deficit	(50,882)		(39,561)
Total stockholders’ equity	15,629		15,571
Total liabilities and stockholders’ equity	$	31,380	$	25,235

See accompanying notes to unaudited condensed consolidated financial statements.

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Moleculin Biotech, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenues	$	—	$	—	$	—	$	—
Operating expenses:
Research and development	3,329		2,099		6,535		5,031
General and administrative	1,653		1,484		3,463		3,075
Depreciation and amortization	52		49		98		97
Total operating expenses	5,034		3,632		10,096		8,203
Loss from operations	(5,034)		(3,632)		(10,096)		(8,203)
Other income (loss):
Gain (loss) from change in fair value of warrant liability	(5,099)		2,407		(1,254)		2,936
Other income, net	17		—		22		—
Interest income, net	4		4		7		5
Net loss	$	(10,112)	$	(1,221)	$	(11,321)	$	(5,262)
Net loss per common share - basic and diluted	$	(0.17)	$	(0.03)	$	(0.21)	$	(0.15)
Weighted average common shares outstanding, basic and diluted	59,483,267		42,393,031		54,707,132		35,765,790
Net Loss	$	(10,112)	$	(1,221)	$	(11,321)	$	(5,262)
Other comprehensive income (loss):
Foreign currency translation	25		(2)		(8)		(13)
Comprehensive loss	$	(10,087)	$	(1,223)	$	(11,329)	$	(5,275)

See accompanying notes to unaudited condensed consolidated financial statements.

4

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(11,321)	$	(5,262)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	98		97
Stock-based compensation	805		666
Change in fair value of warrant liability	1,254		(2,936)
Operating lease, net of sublease receipts	95		(6)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(266)		(667)
Accounts payable	(235)		11
Accrued expenses and other current liabilities	295		(1,097)
Net cash used in operating activities	(9,275)		(9,194)
Cash flows from investing activities:
Purchase of fixed assets	(20)		(34)
Net cash used in investing activities	(20)		(34)
Cash flows from financing activities:
Proceeds from exercise of stock options	—		5
Proceeds from exercise of warrants	5		1,557
Proceeds from sale of common stock, net of issuance costs	15,298		19,240
Net cash provided by financing activities	15,303		20,802
Effect of exchange rate changes on cash and cash equivalents	(9)		$	(13)
Net change in cash and cash equivalents	5,999		11,561
Cash and cash equivalents, at beginning of period	10,735		7,134
Cash and cash equivalents, at end of period	$	16,734	$	18,695
Supplemental disclosures of cash flow information:
Cash paid for interest	$	—	$	1
Cash paid for taxes	$	15	$	11
Non-cash investing and financing activities:
Purchases of property and equipment in accounts payable and accrued liabilities	$	21	$	21

See accompanying notes to unaudited condensed consolidated financial statements.

5

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except for shares)

(unaudited)

	Six Months Ended June 30, 2020
	Common Stock							Accumulated Other Comprehensive Income (Loss)
	Shares	Par Value Amount		Additional Paid-In Capital		Accumulated Deficit				Stockholders' Equity
Balance, December 31, 2019	45,727,700	$	46	$	55,055	$	(39,561)	$	31	$	15,571
Issued for cash - sale of common stock, net of issuance costs of $709	7,500,000	7		559		—		—		566
Stock-based compensation	—	—		397		—		—		397
Consolidated net loss	—	—		—		(1,209)		—		(1,209)
Cumulative translation adjustment	—	—		—		—		(33)		(33)
Balance, March 31, 2020	53,227,700	$	53	$	56,011	$	(40,770)	$	(2)	$	15,292
Issued for cash - sale of common stock, net of issuance costs of $336	7,170,964	7		10,000		—		—		10,007
Warrants exercised	4,500	—		9		—		—		9
Stock-based compensation	—	—		408		—		—		408
Consolidated net loss	—	—		—		(10,112)		—		(10,112)
Cumulative translation adjustment	—	—		—		—		25		25
Balance, June 30, 2020	60,403,164	$	60	$	66,428	$	(50,882)	$	23	$	15,629
	Six Months Ended June 30, 2019
	Common Stock							Accumulated Other Comprehensive Income (Loss)
	Shares	Par Value Amount		Additional Paid-In Capital		Accumulated Deficit				Stockholders' Equity
Balance, December 31, 2018	28,528,663	$	29	$	40,564	$	(26,356)	$	35	$	14,272
Issued for cash - sale of common stock, net of issuance costs of $617	5,250,000	5		3,221		—		—		3,226
Issued to Lincoln Park - sale of common stock	605,367	—		883		—		—		883
Stock options exercised	25,000	—		5		—		—		5
Stock-based compensation	—	—		348		—		—		348
Consolidated net loss	—	—		—		(4,041)		—		(4,041)
Cumulative translation adjustment	—	—		—		—		(11)		(11)
Balance, March 31, 2019	34,409,030	$	34	$	45,021	$	(30,397)	$	24	$	14,682
Issued for cash - sale of common stock, net of issuance costs of $302	9,375,000	9		3,575		—		—		3,584
Warrants exercised	1,413,018	2		4,729		—		—		4,731
Stock-based compensation	—	—		318		—		—		318
Consolidated net loss	—	—		—		(1,221)		—		(1,221)
Cumulative translation adjustment	—	—		—		—		(2)		(2)
Balance, June 30, 2019	45,197,048	$	45	$	53,643	$	(31,618)	$	22	$	22,092

See accompanying notes to unaudited condensed consolidated financial statements.

6

Moleculin Biotech, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Nature of Business and Liquidity

The terms "MBI" or "the Company", "we", "our", and "us" are used herein to refer to Moleculin Biotech, Inc. MBI is a clinical-stage pharmaceutical company, organized as a Delaware corporation in July 2015, with its focus on the treatment of highly resistant cancers and viruses via the development of its drug candidates, all of which are based on license agreements with The University of Texas System on behalf of the MD Anderson Cancer Center, which we refer to as MD Anderson. MBI formed Moleculin Australia Pty. Ltd., (MAPL), a wholly owned subsidiary, to perform certain preclinical development in Australia. This enables the Company to enjoy the benefits of certain research and development tax credits in Australia. In February 2019, the Company entered into an agreement with Animal Life Sciences, LLC (ALI), where the Company has granted a sublicense to ALI to research, develop, make, have made, use, offer to sell, sell, export or import and commercialize certain licensed products for non-human use and share development data. ALI issued to the Company a 10% interest in ALI. ALI converted into a corporation and became Animal Life Sciences, Inc.

Core Technologies - MBI has three core technologies, two of which have multiple drug candidates, and all of which are based on discoveries made at MD Anderson. These core technologies are 1) Annamycin, 2) its STAT3 Immune/Transcription Modulators, or simply "Immune/Transcription Modulators" WP1066 portfolio and 3) its Antimetabolite (including Metabolism/Glycosylation Inhibitors) WP1122 portfolio of molecules. The Company’s clinical stage drugs are Annamycin, an anthracycline which is in two Phase 1/2 studies for the treatment of relapsed acute myeloid leukemia, (AML), WP1066, an Immune/Transcription Modulator, which is in two Phase 1 clinical trials in the United States of America (US) for the treatment of brain tumors, and WP1220, a member of the WP1066 portfolio of drugs, which has completed a Phase 1 proof-of-concept clinical trial for the topical treatment of cutaneous T-cell lymphoma (CTCL), a form of skin cancer.

The Company refers to Annamycin as a "Next Generation Anthracycline" since it is designed to avoid the multidrug resistance mechanisms that typically defeat currently approved anthracyclines, as well as to be non-cardiotoxic, which is the dose limiting toxicity for all currently approved anthracyclines. Annamycin is currently in a Phase 1/2 clinical trial in Europe, having successfully completed a Phase 1 safety trial in the US in 2019, and preliminary clinical data suggests that it may have the potential to become the first therapy suitable for the majority of relapsed AML patients regardless of gene mutations. These trials have so far demonstrated safety, including the absence of any cardiotoxicity, and have demonstrated some initial efficacy despite the fact that the Company considers testing so far to have been at substantially sub-therapeutic doses. Additionally, preclinical research in animal models at MD Anderson demonstrated that Annamycin is able to significantly improve survival in an aggressive form of triple negative breast cancer metastasized to the lungs. Coupled with research demonstrating that Annamycin is capable of accumulating in the lungs at high levels, this suggests that Annamycin may be well suited to become a treatment for lung-localized tumors and the Company is performing preclinical work to enable an IND or its equivalent to be filed this year.

WP1066 is one of several Immune/Transcription Modulators in the Company's pipeline that appear capable of stimulating immune response to tumors by inhibiting the errant activity of Regulatory T-Cells (TRegs) while also inhibiting key oncogenic transcription factors, including p-STAT3, c-Myc and HIF-1α. These transcription factors are widely sought targets that may also play a role in the lack of efficacy of immune checkpoint inhibitors in certain resistant tumors. The “proof-of-concept” Phase 1 trial in Poland for WP1220 demonstrated safety and efficacy and the Company intends to file a Phase 2 IND or its equivalent or to attempt to join efforts with a strategic partner for the continued development of WP1220 as a topical therapy for CTCL.

The Company is also developing new prodrugs to exploit the potential uses of its WP1122 portfolio of antimetabolites, including inhibitors of glycolysis and glycosylation. Its lead Metabolism/Glycosylation Inhibitor compound, WP1122, provides an opportunity to cut off the fuel supply of tumors and viruses by taking advantage of their overdependence on glucose and glycolysis as compared with healthy cells. New research also points to the potential for the glucose decoy (2-DG) within WP1122 to be capable of enhancing the usefulness of checkpoint inhibitors and inhibiting glycosylation and glycolysis in virally infected cells. During the first half of 2020, the Company entered into agreements with several outside research centers to conduct research on WP1122 for antiviral properties against a range of viruses, including Coronavirus. Additional research with other molecules in this portfolio with independent contractors has also begun.

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Drug Candidates - Within the Company's core technologies, it currently has five drug candidates representing three substantially different mechanisms of action. Annamycin is a chemotherapy designed to inhibit the replication of DNA of rapidly dividing cells and is the Company's most mature drug candidate. The Company has a trial open in Poland and one that recently completed in the US. The US Phase 1 portion of the Phase 1/2 trial reached key safety end points in early 2020. As a result of discussions with the FDA, the Company will utilize its trial in Europe to establish a recommended Phase 2 dose (RP2D) and to generate additional safety and efficacy data as requested by the FDA. The Phase 1/2 trial in Poland continues its dose escalation and is in its fifth cohort. So far both trials have demonstrated that Annamycin, to date, is safe and is non-cardiotoxic. The trials have demonstrated initial efficacy as well.

In addition to Annamycin, the Company has other drug development projects, two of which are also in clinical trials:

•Two separate Phase 1 physician-sponsored clinical trials are under way to evaluate WP1066. One trial is at MD Anderson Cancer Center for the potential treatment of adult patients with brain tumors and the other is at Emory University for the potential treatment of pediatric brain tumors. Both have begun treating patients.

•The Company is also evaluating WP1066 for the potential treatment of AML and pancreatic and other cancers. MBI has begun pre-clinical work that it expects to generate sufficient data for an IND for an intravenous formulation of one of its STAT3 inhibitors, which filing is expected to be submitted in 2021.

•WP1220 is an analog of WP1066 for which Polish authorities approved the Company's Clinical Trial Application (CTA) in 2019 for a Phase 1 "proof-of-concept" clinical trial to study the topical treatment of CTCL. This trial was completed, and the Company believes it demonstrated sufficient efficacy to justify a Phase 2 trial. The Company intends to file a Phase 2 IND or its equivalent or to attempt to join efforts with a strategic partner in 2021 for the further development of WP1220 for the treatment of CTCL.

•Several molecules in the WP1122 portfolio are being evaluated for their potential to address hard to treat cancers and viruses. This portfolio of antimetabolites includes WP1122 which inhibits glycolysis and glycosylation. The Company has begun preclinical work on WP1122 and other analogs in this portfolio to position one or more of them as treatments for certain cancers and viruses, including the Coronavirus. The Company believes this work may support an IND or its equivalent for WP1122 and/or related compounds.

Clinical Trials - The Company has concluded the initial Phase 1 portion of its Phase 1/2 trial of Annamycin for the potential treatment of AML in the US due to the FDA’s requirement to set the initial dose level relatively low in comparison with previous Annamycin clinical trials. Additionally, the Company believes that patient recruitment for its Annamycin AML clinical trial in Europe will continue to be more successful than in the US due to a comparatively lower number of competitive clinical trials and the protocol there being approved to start at a significantly higher dose than in the US with fewer enrollment screening limitations. This European AML trial is in its fifth cohort in the dose ranging Phase 1 portion of the trial. The Company has also announced plans to submit an IND or its equivalent for the use of Annamycin to potentially treat lung metastases, which it expects to submit before the end of 2020.

In September 2018, the physician-sponsored WP1066 Phase 1 clinical trial for the treatment of glioblastoma and melanoma metastasized to the brain, which opened for recruitment in July 2018, began treating patients. In April 2020, a second physician-sponsored Phase 1 trial for the potential treatment of pediatric brain tumors began recruitment and has treated its first patient. In August 2019, the Company completed its proof-of-concept Phase 1 clinical trial in Poland to study WP1220, a part of the WP1066 portfolio, for the treatment of CTCL. This trial demonstrated the safety of WP1220 and also demonstrated, the Company believes, initial efficacy sufficient for a Phase 2 trial. The Company intends to file a Phase 2 IND or its equivalent or to attempt to join efforts with a strategic partner in 2021 for the further development of WP1220 for the treatment of CTCL.

Moleculin has recently announced discoveries (both internally funded and independently developed) supporting the potential use of WP1122 for the treatment of COVID-19 and other viral diseases. The Company is focusing resources on the development of an IND or its equivalent for testing WP1122 in COVID-19 patients, which it expects to submit before the end of 2020.

Licenses - The Company has been granted royalty-bearing, worldwide, exclusive licenses for the patent and technology rights related to all of MBI's drug technologies, as these intellectual property rights are owned in part or entirely by MD Anderson. The Annamycin drug substance is no longer covered by any existing patent protection, however, the Company filed new patent applications in July 2019 for formulation, synthetic process and reconstitution related to MBI's Annamycin

8

drug product candidate, although there is no assurance that the Company will be successful in obtaining such patent protection. Such technology is also licensed from MD Anderson. The Company sponsors significant research at MD Anderson. New patents may result out of this research. From time to time, there are license issues that need to be discussed and handled with MD Anderson such as adding additional patents to existing license agreements and extension of milestones. The Company believes that such issues will be handled in the ordinary course of business.

On May 20, 2020, the Company entered into an amendment (Amendment) to the Patent and Technology License Agreement dated April 2, 2012 entered into by and between Intertech Bio Corporation and The Board of Regents (Board) of The University of Texas System on behalf of The University of Texas M. D. Anderson Cancer Center (UTMDACC), as previously amended on October 19, 2015 (Amendment 1) and November 1, 2018 (Amendment 2) and collectively, the (WP122 Agreement). The WP1122 Agreement was assigned to the Company on November 17, 2015. Pursuant to the WP1122 Agreement, the Company obtained a royalty-bearing, worldwide, exclusive license to intellectual property, including patent rights, related to its WP1122 portfolio and to the drug product candidate, WP1122. In consideration, the Company must make payments to UTMDACC including an up-front payment, license documentation fee, annual maintenance fee, milestone payments and minimum annual royalty payments for sales of products developed under the WP1122 Agreement. Pursuant to the WP1122 Agreement, the Board and UTMDACC have the right to terminate the WP1122 Agreement if the Company does not, within certain time periods: (i) file an Investigational New Drug Application with the FDA for a Phase I Study for a Licensed Product ("IND filing requirement"); and (ii) commence a Phase I Study for a Licensed Product (Phase I study requirement). Pursuant to the Amendment, the Company is required to meet the IND filing requirement within nine months of the date of the Amendment (the previous requirement was three years from the date of Amendment 1 and 18 months from the date of Amendment 2) and the Phase I study requirement within 2.5 years of the date of the Amendment (the previous requirement was five years from the date of Amendment 1 and 3.5 years from the date of Amendment 2); provided the Company has the right to extend such time periods for up to an additional 18 months by the payment of certain extension payments to UTMDACC.

Independently from potential patent protection, MBI has received Orphan Drug designation (ODD) from the FDA for Annamycin for the treatment of AML and for WP1066 for the treatment of glioblastoma. ODD may provide tax and other benefits during product development, and if either product is approved, may lead to a grant of seven-year market exclusivity. Under that exclusivity, which runs from the date of the approval of the New Drug Application (NDA) in the US, the FDA generally (there are important exceptions) could not approve another product containing the same drug for the designated indication. The Company also intends to apply for similar status in the European Union (EU) where market exclusivity could extend to 10 years from the date of Marketing Authorization Application (MAA) approval. Separately, the FDA may also grant market exclusivity of 5 years for newly approved new chemical entities (which the Company believes Annamycin would be one), which would preclude approval of any other annamycin product, but there can be no assurance that such exclusivity will be granted. In April 2019, FDA approved the Company's request for Fast Track Designation for Annamycin for the treatment of relapsed or refractory AML. Fast Track Designation, the purpose of which is to expedite drug development and approval, is granted to drugs intended to treat serious conditions and where data demonstrate the potential to address an unmet medical need.

COVID 19 - In March 2020, the World Health Organization declared the outbreak of a novel Coronavirus (COVID-19) as a pandemic, which continues to spread throughout the US. The spread of COVID-19 has caused significant volatility in US and international markets, including Poland, where the Company conducts some of its clinical trials and Italy, where its drug supply is produced. There has been limited interruption of the Company’s drug supply, and some Polish clinics where the Company is conducting trials have limited access on monitoring activities, which for now has not materially slowed the progress of the Company's trials. This could change at any time. Furthermore, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the US and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations.

Nasdaq - On April 23, 2020, the Company received a letter from NASDAQ notifying the Company that it had regained compliance with NASDAQ Listing Rule 5550(a)(2) as a result of the closing bid price of the Company's common stock being at $1.00 per share or greater for the 10 consecutive business days from April 8, 2020 through April 22, 2020. Accordingly, the Company is in compliance with the Bid Price Rule and NASDAQ considers the matter closed.

2. Basis of presentation, principles of consolidation and significant accounting policies

Basis of Presentation – Unaudited Interim Condensed Consolidated Financial Information - The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with

9

accounting principles generally accepted in the US (U.S. GAAP) for financial information, and in accordance with the rules and regulations of the US Securities and Exchange Commission (SEC) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These interim condensed unaudited consolidated financial statements should be read in conjunction with the audited financial statements of the Company as of December 31, 2019 and December 31, 2018 and notes thereto contained in the Form 10-K filed with the SEC on March 19, 2020.

Principles of consolidation - The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The company views its operations and manages its business in one operating segment. All long-lived assets of the Company reside in the US.

Use of Estimates - The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of financial statements. Estimates are used in the following areas, among others: fair value estimates on intangible assets, warrants, and stock-based compensation expense, as well as accrued expenses and taxes.

Going Concern - These condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As of June 30, 2020, the Company has incurred an accumulated deficit of $50.9 million since inception and had not yet generated any revenue from operations. Additionally, management anticipates that its cash on hand as of June 30, 2020, is sufficient to fund its planned operations into but not beyond the near term. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These unaudited 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. The Company may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. Management cannot be certain that such events or a combination thereof can be achieved.

On May 1, 2020, the Securities and Exchange Commission (SEC) announced a temporary suspension of trading in the Company's securities due to questions regarding the accuracy and adequacy of information in the marketplace about the Company and its securities, related to, among other things, statements made by the Company and others, in the Company's Form 10-K filed March 19, 2020, in press releases on March 20, 2020 and April 8, 2020 and in other statements on March 19, 2020; March 20, 2020; and April 16, 2020 concerning the Company's business, including the status of development of a drug candidate labeled WP1122 for potential application to COVID-19, and the Company's ability to expedite regulatory approval of any such treatment. Pursuant to the suspension order, the trading halt was initiated at 9:30 a.m. EDT on May 4, 2020 and terminated at 11:59 p.m. EDT on May 15, 2020. Commencing May 18, 2020, the Nasdaq Stock Market placed a halt on the trading of the Company's common stock pending the receipt of additional information, which the Company provided. This halt was lifted on May 28, 2020. The Company believes in the accuracy and adequacy of its public disclosures but can provide no assurances that it will not encounter future similar actions, which may adversely affect the holders of the Company's common stock.

Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less at the date of acquisition to be cash equivalents. Periodically in the ordinary course of business, the Company may carry cash balances at financial institutions in excess of the Federally insured limits of $250,000.

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Prepaid Expenses and Other Current Assets - Prepaid expenses and other current assets consist of the following (in thousands):

	June 30, 2020		December 31, 2019
Vendor prepayments and deposits	$	1,352	$	1,857
Prepaid insurance	1,214		352
Related party receivables	10		10
Non-trade receivables	3		1
Other current assets	436		529
Total prepaid expenses and other current assets	$	3,015	$	2,749

Vendor prepayments at June 30, 2020 and December 31, 2019, respectively, includes approximately $1.1 million and $1.5 million, for the expansion of Annamycin production commitments on a commercial scale currently expected to be delivered in 2020 for use in clinical trials.

Intangible Assets - Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Acquired intangible assets identified as in-process research and development (IPR&D) assets, are considered indefinite lived until the completion or abandonment of the associated research and development efforts. If the associated research and development effort is abandoned, the related IPR&D assets will be written-off and the Company will record a noncash impairment loss on its statements of operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. The Company evaluates the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No impairments of intangible assets have been identified during any of the periods presented. Intangible assets are tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach.

Property and Equipment, net - Leasehold improvements, furniture, equipment and software are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term. Accumulated depreciation on property and equipment was $0.4 million and $0.3 million at June 30, 2020 and December 31, 2019, respectively.

Operating Lease Right-of-Use Asset - The Company determines if an arrangement is a lease at contract inception or during modifications or renewal of an existing lease. Operating lease assets represent the Company's right to use an underlying asset for the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. The lease payments used to determine the Company's operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable and are recognized in the Company's operating lease assets in the Company's condensed consolidated balance sheet. The Company has elected the practical expedient and does not separate lease components from nonlease components for its leases. The Company's operating leases are reflected in operating lease right-of-use asset (ROU), accrued expenses and other current liabilities, and operating lease liability - long-term, net of current portion in the Company's condensed consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Refer to Note 7 - Commitments and Contingencies - Lease Obligations Payable for additional information related to the Company’s operating leases.

Cost Method Investment - The Company's cost method investment consists of an investment in a corporation in which it does not have the ability to exercise significant influence over its operating and financial activities. Management evaluates this investment for possible impairment quarterly.

Fair Value of Financial Instruments - The Company's financial instruments consist primarily of non-trade receivables, accounts payable, accrued expenses and its warrant liability. The carrying amount of non-trade receivables, accounts payable, and accrued expenses approximates their fair value because of the short-term maturity of such.

The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy in accordance with U.S. GAAP. Fair value is defined as the exchange price that would be received for

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an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).

Assets and liabilities recorded in the balance sheets at fair value are categorized based on a hierarchy of inputs as follows:

Level 1 – Unadjusted quoted prices in active markets of identical assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 – Unobservable inputs for the asset or liability.

The Company’s financial assets and liabilities recorded at fair value on a recurring basis include the fair value of warrant liability discussed in Note 4.

The following table provides assets and liabilities reported at fair value and measured on a recurring basis at June 30, 2020 and December 31, 2019 (in thousands): 

Description	Liabilities Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Fair value of warrant liability as of June 30, 2020:	$	11,792	$	—	$	—	$	11,792
Fair value of warrant liability as of December 31, 2019:	$	5,818	$	—	$	—	$	5,818

The table below (in thousands) of Level 3 liabilities begins with the valuation as of the beginning of the second quarter and then is adjusted for the issuances and exercises that occurred during the second quarter of 2020 and adjusts for balances for changes in fair value that occurred during the current quarter. The ending balance of the Level 3 financial instrument presented above represents our best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. 

Three Months Ended June 30, 2020	Warrant Liability Current		Warrant Liability Long-Term		Warrant Liability Total
Balance, March 31, 2020	$	—	$	6,697	$	6,697
Exercise of warrants	—		(4)		(4)
Change in fair value - net	—		5,099		5,099
Balance, June 30, 2020	$	—	$	11,792	$	11,792

The table below (in thousands) of Level 3 liabilities begins with the valuation as of December 31, 2019 and then is adjusted for the issuances and exercises, and changes in fair value that occurred during the six months ended June 30, 2020. The ending balance of the Level 3 financial instrument presented above represents our best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.

Six Months Ended June 30, 2020	Warrant Liability Current		Warrant Liability Long-Term		Warrant Liability Total
Balance, December 31, 2019	$	—	$	5,818	$	5,818
Issuances of warrants	—		4,724		4,724
Exercise of warrants	—		(4)		(4)
Change in fair value - net	—		1,254		1,254
Balance, June 30, 2020	$	—	$	11,792	$	11,792

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Loss Per Common Share - Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. For purposes of this calculation, options to purchase common stock, restricted stock units subject to vesting and warrants to purchase common stock are considered to be common stock equivalents. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be antidilutive. For the three months ended June 30, 2020 and 2019, approximately 21.2 million and approximately 12.3 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their antidilutive effect. For the six months ended June 30, 2020 and 2019, approximately 19.8 million and approximately 9.5 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their antidilutive effect.

Stock-based Compensation - Stock-based compensation expense includes the estimated fair value of equity awards vested or expected to vest during the reporting period. The Company accounts for its stock-based compensation awards in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, restricted stock units, and modifications to existing stock options, to be recognized in the consolidated statements of operations based on their fair values. The grant date fair value of stock options is determined using the Black-Scholes option pricing model and the grant date fair value of restricted stock awards is determined using the closing price of the Company’s common stock on the date of grant (or if the date of grant is not a business day, on the business day prior to the date of the grant). The awards are subject to service vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term, net of forfeitures which are recognized as they occur. Compensation expense related to awards to non-employees with service-based vesting conditions is recognized based on the then-current fair value at each financial reporting date prior to the measurement date over the associated service period of the award or the vesting event, applicable, which is generally the vesting term. Effective January 1, 2020, the Company began using the volatility of its own stock since it now has sufficient historic data in its stock price.

Subsequent Events - The Company’s management reviewed all material events through the date these unaudited condensed consolidated financial statements were issued for subsequent events disclosure consideration, see other notes and specifically Note 8 - Subsequent Events.

Recent Accounting Pronouncements

In August 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-13, Fair Value Measurement (Topic 820) (ASU 2018-13). ASU 2018-13 modifies the disclosure requirements on fair value measurements in ASC Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company's adoption of this pronouncement effective January 1, 2020 did not have a material impact on the Company's condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) (ASU 2019-12). ASU 2019-12 modifies the requirements for the timing of adoption of enacted change in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the computation of annual effective tax rate in the first interim period that includes the enactment date of the new legislation, beginning after December 15, 2020. Early adoption is permitted upon issuance of this ASU. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.

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3. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following components (in thousands):

	June 30, 2020		December 31, 2019
Accrued payroll and bonuses	$	800	$	436
Accrued drug manufacturing costs	349		49
Accrued legal, regulatory and professional fees	220		272
Accrued clinical testing	135		93
Operating lease liability - current	110		103
Related party payable	99		99
Accrued other	75		164
Accrued license fees and sponsored research agreements	33		201
Total accrued expenses and other current liabilities	$	1,821	$	1,417

4. Warrants

At June 30, 2020, and December 31, 2019, respectively, the Company has the following warrants outstanding:

	Number of Shares Under Outstanding Warrants at June 30, 2020	Number of Shares Under Outstanding Warrants at December 31, 2019	Weighted Average Exercise Price at June 30, 2020		Remaining Contractual Life at June 30, 2020 (No. Years)
Liability Classified Warrants (1)
Issued February 2017	404,002	404,002	$	1.50	1.6
Issued February 2018	2,273,700	2,273,700	2.80		3.1
Issued June 2018 (2)	742,991	742,991	2.03		3.4
Issued March 2019	1,581,000	1,585,500	1.10		3.8
Issued April 2019	5,250,000	5,250,000	1.75		3.8
Issued February 2020	6,150,000	—	1.05		5.1
	16,401,693	10,256,193	$	1.58
Equity Classified Warrants
Issued May 2016 - Bonwick	107,802	107,802	$	7.50	0.8
Issued July 2017 - Consulting (3)	150,000	150,000	2.61		2.1
Issued April 2018 - Consulting	100,000	100,000	3.00		0.8
Issued August 2019 - Consulting	150,000	150,000	1.64		2.1
Issued April 2020 - Consulting	100,000	—	1.14		4.8
	607,802	507,802	$	3.06
Balance outstanding	17,009,495	10,763,995	$	1.63

⁽¹⁾ If the Company subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of its common stock into a smaller number of shares, the warrant exercise price is proportionately reduced and the number of shares under outstanding warrants is proportionately increased. Additionally, if the Company combines (by combination, reverse stock split or otherwise) its outstanding shares of common stock into a smaller number of shares, the warrant exercise price is proportionately increased and the number of shares under outstanding warrants is proportionately decreased. Also, the Company may voluntarily reduce the warrant exercise price for its warrants issued in March 2019 and February 2017 and may voluntarily extend the contractual term of its warrants issued in February 2017.

⁽²⁾ Includes warrants to purchase 710,212 shares at an exercise price of $2.02, expiring December 22, 2023, and warrants to purchase 32,779 shares at an exercise price of $2.32, expiring June 21, 2023.

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⁽³⁾ Includes warrants to purchase 100,000 shares at an exercise price of $2.41 and warrants to purchase 50,000 shares at an exercise price of $3.00.

Liability Classified Warrants

The Company uses the Black-Scholes option pricing model (BSM) to determine the fair value of its warrants at the date of issue and outstanding at each reporting date.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon US Treasury bonds linearly interpolated to obtain a maturity period commensurate with the term of the warrants.

Estimated volatility is a measure of the amount by which the Company's stock price is expected to fluctuate each year during the expected life of the warrants. Beginning in 2020, only the volatility of the Company's own stock is used in the BSM as it now has sufficient historic data in its stock price. In 2019, the Company used the volatility of its own stock blended with the volatility of peer entities due to the lack of sufficient historical data of its stock price.

The assumptions used in determining the fair value of the Company’s outstanding liability classified warrants are as follows:

	June 30, 2020					December 31, 2019
Risk-free interest rate	0.2	%	to	0.4	%	1.6	%	to	1.7	%
Volatility	121.3	%	to	144.8	%	97.5	%	to	107.5	%
Expected life (years)	1.6		to	5.1		2.1		to	4.3
Dividend yield	—%					—%

A summary of the Company's liability classified warrant activity during the six months ended June 30, 2020 and related information follows: 

	Number of Shares Under Warrant	Range of Warrant Exercise Price per Share				Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Balance at January 1, 2020	10,256,193	$	1.10	$	2.80	$	1.89	4.0
Granted	6,150,000	1.05		1.05		1.05		5.1
Exercised	(4,500)	1.10		1.10		1.10		—
Expired	—	—		—		—		—
Balance at June 30, 2020	16,401,693	$	1.05	$	2.80	$	1.58	4.1
Vested and Exercisable at June 30, 2020	10,251,693	$	1.10	$	2.80	$	1.89	3.5

In connection with the Company's stock offering that closed on February 10, 2020, the Company issued warrants to purchase 5,625,000 shares of its common stock, that are exercisable six months from the date of issuance, at a price of $1.05 per share, subject to adjustment in certain circumstances, and expire five years from the date they are first exercisable, and issued Oppenheimer & Co. Inc. a warrant (Underwriter Warrant) to purchase up to 525,000 shares of its common stock with an exercise price of $1.05 per share, subject to adjustment in certain circumstances, which expires on February 6, 2025.

For a summary of the changes in fair value associated with our warrant liability for the six months ended June 30, 2020, see Note 2 - Basis of presentation, principles of consolidation and significant accounting policies - Fair Value of Financial Instruments.

Equity Classified Warrants

In April 2020, equity warrants to purchase up to 100,000 shares of common stock were issued to a consultant, with vesting contingent on certain conditions focused on generating up to $10 million of approved research and development expenditures on the Company's drug portfolio.

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At June 30, 2020 the Company had 607,802 equity classified warrants outstanding and 512,802 warrants were exercisable. At December 31, 2019, the Company had 507,802 equity classified warrants outstanding and all w