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 September 30, 2017
 
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: 000-31265
 
MABVAX THERAPEUTICS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
Delaware
 
93-0987903
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
 
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
 
11535 Sorrento Valley Road, Suite 400, San Diego, CA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
 
(858) 259-9405
(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
(Do not check if a smaller reporting company)
 
  
Smaller reporting company
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
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
 
The number of shares of common stock outstanding as of November 7, 2017 was 20,588,765.
 

 
 
 
Table of Contents
 
INDEX
 
 
 
 
Page
 
 
 
  
 
 
 
 
 
 
 
1
 
 
 
 
 
 
 
 
 
 
 
 
2
 
 
 
 
 
 
3
 
 
 
 
 
 
4
 

 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
5
 
 
 
 
 
32
 
 
 
 
 
43
 
 
 
 
 
43
 
 
 
 
 
 
 
 
 
 
 
44
 
 
 
 
 
44
 
 
 
 
 
46
 
 
 
 
 
46
 
 
 
 
 
46
 
 
 
 
 
46
 
 
 
 
47
 
 
 
- i -
 
 
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
MABVAX THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Balance Sheets
 
 
 
September 30,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
 
(Unaudited)
 
 
(Note 1)
 
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $3,052,778 
 $3,979,290 
Prepaid expenses
  303,543 
  281,858 
Other current assets
  118,454 
  32,830 
Total current assets
  3,474,775 
  4,293,978 
Property and equipment, net
  619,208 
  731,712 
Goodwill
  6,826,003 
  6,826,003 
Other long-term assets
  178,597 
  168,597 
Total assets
 $11,098,583 
 $12,020,290 
Liabilities and Stockholders' Equity
    
    
Current liabilities:
    
    
Accounts payable
 $1,550,113 
 $1,137,903 
Accrued compensation
  742,285 
  770,592 
Accrued clinical operations and site costs
  1,502,505 
  1,218,641 
Accrued lease contingency fee
  590,504 
  590,504 
Other accrued expenses
  255,098 
  315,034 
Interest payable
  42,029 
  51,295 
Current portion of notes payable
  1,693,065 
  1,589,661 
Current portion of capital leases payable
  17,447 
  17,004 
Total current liabilities
  6,393,046 
  5,690,634 
Long-term liabilities:
    
    
Long-term portion of notes payable, net
  1,957,657 
  2,774,627 
Long-term portion of capital lease payable
  50,448 
  68,113 
Other long-term liabilities
  177,016 
  144,394 
Total long-term liabilities
  2,185,121 
  2,987,134 
Total liabilities
  8,578,167 
  8,677,768 
 
    
    
Commitments and contingencies
    
    
 
    
    
Stockholders' equity:
    
    
Series D convertible preferred stock, $0.01 par value, 1,000,000 shares authorized,
44,104 and 132,489 shares issued and outstanding with a liquidation preference of
$441 and $1,325 as of September 30, 2017, and December 31, 2016, respectively
  441 
  1,325 
Series E convertible preferred stock, $0.01 par value, 100,000 shares authorized,
33,333 shares issued and outstanding with a liquidation preference of $333
  333 
  333 
Series F convertible preferred stock, $0.01 par value, 1,559,252 shares authorized,
665,281 shares issued and outstanding with a liquidation preference of $6,653
  6,653 
  6,653 
Series G convertible preferred stock, $0.01 par value, 5,000,000 shares authorized,
1,000,000 and 0 issued and outstanding with a liquidation preference of $10,000 and $0
as of September 30, 2017, and December 31, 2016, respectively
  10,000 
   
Series H convertible preferred stock, $0.01 par value, 2,000 shares authorized,
850 and 0 shares issued and outstanding with a liquidation preference of $850,000 and $0
as of September 30, 2017, and December 31, 2016, respectively
  9 
   
Series I convertible preferred stock, $0.01 par value, 1,968,664 shares authorized,
1,048,460 and 0 issued and outstanding with a liquidation preference of $10,485 and $0
as of September 30, 2017, and December 31, 2016, respectively
  10,485 
   
Series J convertible preferred stock, $0.01 par value, 3,400 shares authorized,
818.18 and 0 shares issued and outstanding with a liquidation preference of
$562,500 and $0 as of September 30, 2017, and December 31, 2016, respectively
  8 
   
Series K convertible preferred stock, $0.01 par value, 65,000 shares authorized,
65,000 and 0 shares issued and outstanding with a liquidation preference of
$650 and $0 as of September 30, 2017, and December 31, 2016, respectively
  650 
   
Common stock, $0.01 par value; 150,000,000 shares authorized,
18,924,085 and 6,296,110 shares issued and outstanding as of September 30, 2017,
and December 31, 2016, respectively
  189,241 
  62,961 
Additional paid-in capital
  103,349,153 
  81,533,511 
Accumulated deficit
  (101,046,557)
  (78,262,261)
Total stockholders' equity
  2,520,416 
  3,342,522 
Total liabilities and stockholders' equity
 $11,098,583 
 $12,020,290 
 
See Accompanying Notes to Condensed Consolidated Financial Statements
 
 
 
- 1 -
 
MABVAX THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30,
 
 
September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
     Grants
 $ 
 $ 
 $ 
 $148,054 
Total revenues
   
   
   
  148,054 
 
    
    
    
    
Operating costs and expenses:
    
    
    
    
     Research and development
  1,017,061 
  1,671,181 
  6,168,125 
  4,967,695 
     General and administrative
  1,831,629 
  2,420,516 
  7,513,621 
  7,001,521 
Total operating costs and expenses
  2,848,690 
  4,091,697 
  13,681,746 
  11,969,216 
Loss from operations
  (2,848,690)
  (4,091,697)
  (13,681,746)
  (11,821,162)
Interest and other expense
  (231,471)
  (266,051)
  (743,137)
  (729,331)
Net loss
  (3,080,161)
  (4,357,748)
  (14,424,883)
  (12,550,493)
Deemed dividend on inducement shares
   
   
  (5,220,000)
   
Deemed dividend on incentive shares
  (3,120,000)
   
  (3,120,000)
   
Deemed dividend on warrant reprice
   
   
  (19,413)
   
Net loss allocable to common stockholders
 $(6,200,161)
 $(4,357,748)
 $(22,784,296)
 $(12,550,493)
Basic and diluted net loss per share
 $(0.54)
 $(0.86)
 $(2.68)
 $(2.87)
Shares used to calculate basic and diluted net loss per share
 11,490,839
  5,041,408 
 8,504,076
  4,374,801 
 
See Accompanying Notes to Condensed Consolidated Financial Statements
 
 
 
- 2 -
 
MABVAX THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Statement of Stockholders’ Equity
For the Nine Months Ended September 30, 2017
(Unaudited)
 
 
 
Series D thru K Convertible
Preferred Stock
 
 
Common Stock
 
 
Additional Paid-in
 
 
Accumulated
 
 
Total Stockholders' 
 
 
 
Shares
 
 
Amount 
 
 
Shares
 
 
Amount 
 
 
Capital
 
 
Deficit
 
 
Equity 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
  831,103 
 $8,311 
  6,296,110 
 $62,961 
 $81,533,511 
 $(78,262,261)
 $3,342,522 
 
    
    
    
    
    
    
    
Private placement, net of costs, May 2017
  850 
  9 
   
   
  820,562 
   
  820,571 
Underwritten offering, net of costs, May 2017
  1,000,000 
  10,000 
  1,342,858 
  13,429 
  3,623,962
   
  3,647,391 
Private placement, net of costs, August 2017
   
   
  152,143 
  1,521 
  123,479 
   
  125,000 
Underwritten offering, net of costs, August 2017
  2,386 
  24 
   
   
  1,189,393 
   
  1,189,417 
Registered Direct offering, net of costs, September 2017
   
   
  4,000,000 
  40,000 
  1,812,361 
   
  1,852,361 
Registered Direct offering, net of costs, September 2017
   
   
  2,016,129 
  20,162 
  1,194,838 
   
  1,215,000 
Issuance of inducement shares, May 2017
  1,968,664 
  19,687 
  931,336 
  9,313 
  (29,000)
   
   
Deemed dividends on inducement shares, May 2017
   
   
   
   
  5,220,000 
  (5,220,000)
   
Deemed dividends on incentive shares, August 2017
  65,000 
  650 
   
   
  3,119,350 
  (3,120,000)
   
Repricing of warrants
   
   
   
   
  19,413 
  (19,413)
   
Stock issued for services
   
   
  400,000 
  4,000 
  232,666 
   
  236,666 
Preferred stock conversions – Series D
  (88,385)
  (884)
  1,194,391 
  11,944 
  (11,060)
   
   
Preferred stock conversions – Series I
  (920,204)
  (9,202)
  920,204 
  9,202 
   
   
   
Preferred stock conversions – Series J
  (1,568)
  (16)
  1,568,171 
  15,682 
  (15,666)
   
   
Stock issued upon vesting of RSUs
   
   
 102,743
 1,027
  (1,027)
   
   
Stock-based compensation
   
   
   
   
  4,516,371 
   
  4,516,371 
Net loss
   
   
   
   
   
  (14,424,883)
  (14,424,883)
Balance at September 30, 2017
  2,857,846 
 $28,579 
  18,924,085
 $189,241
 $103,349,153
 $(101,046,557)
 $2,520,416 
 
See Accompanying Notes to Condensed Consolidated Financial Statements
 
 
 
- 3 -
 
MABVAX THERAPEUTICS HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
For the Nine
 Months Ended September 30,
 
 
 
2017
 
 
2016
 
Operating activities
 
 
 
 
 
 
Net loss
 $(14,424,883)
 $(12,550,493)
Adjustments to reconcile net loss to net cash used in operating activities:  
    
    
Depreciation and amortization
  122,315 
  60,058 
Stock-based compensation
  4,516,372 
  3,459,992 
Issuance of restricted common stock for services
  236,666 
  164,000 
Amortization and accretion related to notes payable
  309,213 
  337,151 
Increase (decrease) in operating assets and liabilities:
    
    
Grants receivable
   
  757,562 
Other receivables
  (7,061)
   
Prepaid expenses and other
  (62,672)
  122,522 
Accounts payable
  403,210 
  (2,476,130)
Accrued clinical operations and site costs
  283,864 
  275,105 
Accrued compensation
  (28,307)
  77,437 
Other accrued expenses
  (51,649)
  150,487 
Net cash used in operating activities
  (8,702,932)
  (9,622,309)
Investing activities
    
    
Purchases of property and equipment
  (21,072)
  (412,498)
Net cash used in investing activities
  (21,072)
  (412,498)
Financing activities
    
    
Cash receipt from bank loan, net of financing costs
   
  4,610,324 
Private placement, net of issuance costs (May 3, 2017)
  820,571 
   
Underwritten offering, net of issuance costs (May 19, 2017)
  3,647,391 
  8,572,343 
Private placement, net of issuance costs (July 27, 2017)
  125,000 
   
Underwritten offering, net of issuance costs (August 11, 2017)
  1,189,417 
   
Registered direct offering, net of issuance costs (September 14, 2017)
  1,852,361 
   
Registered direct offering, net of issuance costs (September 22, 2017)
  1,215,000 
   
Principal payments on bank loan
  (972,223)
   
Principal payments on financed insurance policies
  (69,240)
  (106,405)
Principal payments on capital lease
  (10,785)
  (6,504)
Purchase of vested employee stock in connection with tax withholding obligation
   
  (177,823)
Net cash provided by financing activities
  7,797,492 
  12,891,935 
Net change in cash and cash equivalents
  (926,512)
  2,857,128 
Cash and cash equivalents at beginning of period
  3,979,290 
  4,084,085 
Cash and cash equivalents at end of period
 $3,052,778 
 $6,941,213 
 
    
    
Supplemental disclosures:
    
    
Cash paid during the period for income taxes
 $1,600 
 $1,600 
Cash paid during the period for interest on term note
 $443,495 
 $379,560 
Supplemental disclosures of non-cash investing and financing information:
    
    
Purchase of equipment in accounts payable
 $ 
 $82,006 
Fair value of warrants issued
 $ 
 $607,338 
Fair value of repricing of warrants issued in previous financing
 $19,413 
 $ 
Conversion of Series D preferred stock to common stock
 $11,944 
 $7,974 
Conversion of Series I preferred stock to common stock
 $9,202 
 $ 
Conversion of Series J preferred stock to common stock
 $15,682 
 $ 
Deemed dividends on inducement shares
 $5,220,000 
 $ 
Deemed dividends on incentive shares
 $3,120,000 
 $ 
Capital lease in connection with purchase of equipment
 $ 
 $95,656 
Financing transaction costs not yet paid
 $52,317 
 $2,500 
 
See Accompanying Notes to Condensed Consolidated Financial Statements
 
 
 
- 4 -
 
MABVAX THERAPEUTICS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
 
1. Basis of Presentation
 
We are a Delaware corporation, originally incorporated in 1988 under the name Terrapin Diagnostics, Inc. in the State of Delaware, and subsequently renamed “Telik, Inc.” in 1998, and thereafter renamed MabVax Therapeutics Holdings, Inc. (“MabVax”) in September 2014. Our principal corporate office is located at 11535 Sorrento Valley Road, Suite 400, San Diego, CA 92121 telephone: (858) 259-9405. On July 8, 2014, we consummated a merger with MabVax Therapeutics, Inc. (“MabVax Therapeutics”), pursuant to which our subsidiary Tacoma Acquisition Corp. merged with and into MabVax Therapeutics, with MabVax Therapeutics surviving as our wholly owned subsidiary. This transaction is referred to as the “Merger.”  Unless the context otherwise requires, references to “we,” “our,” “us,” or the “Company” in this Quarterly Report mean MabVax Therapeutics Holdings, Inc. on a condensed consolidated financial statement basis with our wholly-owned subsidiary following the Merger, MabVax Therapeutics, as applicable. Beginning October 10, 2014, our common stock was quoted on the OTCQB under the symbol “MBVX.” Since August 17, 2016, our common stock has been trading on the NASDAQ Capital Market under the symbol “MBVX.”
 
The balance sheet data at December 31, 2016, has been derived from audited financial statements at that date. It does not include, however, all the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The condensed consolidated financial statements as presented reflect certain reclassifications from previously issued financial statements to conform to the current year presentation.
 
On August 16, 2016, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware in order to effectuate a reverse stock split of our issued and outstanding common stock on a 1 for 7.4 basis, effective on August 16, 2016 (the “Reverse Stock Split”). The Reverse Stock Split was effective with The Financial Industry Regulatory Authority (FINRA) and the Company’s common stock began trading on the NASDAQ Capital Market at the open of business on August 17, 2016. All share and per share amounts, and number of shares of common stock into which each share of preferred stock will convert, in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital.
 
MabVax is a clinical stage biopharmaceutical company engaged in the discovery, development and commercialization of proprietary human monoclonal antibody products for the treatment of a variety of cancers. We have discovered a pipeline of human monoclonal antibody products based on the protective immune responses generated by patients who have been vaccinated against targeted cancers with our proprietary vaccines. We have the exclusive license to the vaccines from Memorial Sloan Kettering Cancer Center (“MSK”). We operate in only one business segment.
 
We have incurred net losses since inception and expect to incur substantial losses for the foreseeable future as we continue our research, development and clinical activities. To date, we have funded operations primarily through government grants, proceeds from the sale of common and preferred stock, the issuance of debt, the issuance of common stock in lieu of cash for services, payments from collaborators, and interest income. The process of developing products will require significant additional research and development, preclinical testing and clinical trials, as well as regulatory approvals. We expect these activities, together with general and administrative expenses, to result in substantial operating losses for the foreseeable future. We will not receive substantial revenue unless we or our collaborative partners complete clinical trials, obtain regulatory approvals and successfully commercialize one or more products; or we license our technology after achieving one or more milestones of interest to a potential partner.
 
The accompanying unaudited condensed consolidated financial statements were prepared using GAAP for interim financial information and the instructions to Regulation S-X. While these statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of the interim period, they do not include all information or notes required by GAAP for annual financial statements and should be read in conjunction with the Audited Financial Statements of MabVax Therapeutics Holdings, Inc. for the year ended December 31, 2016, filed in our Annual Report on Form 10-K on March 1, 2017.
 
 
 
- 5 -
 
 
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Management believes that these estimates are reasonable; however, actual results may differ from these estimates.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606)”, which contains new accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for the Company’s fiscal year beginning January 1, 2018, which reflects a one year deferral approved by the FASB in July 2015, and will be adopted by the Company beginning January 1, 2018. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-2, “Leases (Topic 842).” This update will increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged, and it simplified the accounting for sale and leaseback transactions. Lessees will no longer be provided with a source of off-balance sheet financing. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently in the process of assessing what impact this new standard may have on our condensed consolidated financial statements.
 
In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This update includes multiple provisions intended to simplify various aspects of the accounting for share-based payment transactions including accounting for excess tax benefits and tax deficiencies, classification of excess tax benefits in the statement of cash flows and accounting for award forfeitures. This update is effective for annual and interim reporting periods of public entities beginning after December 15, 2016, with early adoption permitted. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
 
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments. This ASU requires instruments measured at amortized cost to be presented at the net amount expected to be collected. Entities are also required to record allowances for available-for-sale debt securities rather than reduce the carrying amount. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
 
 
- 6 -
 
 
In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard provides guidance on eight (8) cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 with early adoption permitted. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
In August 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” This ASU requires the recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
In January 2017, the FASB issued ASU No. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323).” This ASU amends the disclosure requirements for ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), ASU No. 2016-02, Leases (Topic 842) and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU states that if a registrant does not know or cannot reasonably estimate the impact that the adoption of the above ASUs is expected to have on the financial statements, then in addition to making a statement to that effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted. This ASU was effective upon issuance. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
 
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU eliminates Step 2 from the goodwill impairment test. Instead, an entity should recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements. 
 
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
Management believes that any other recently issued, but not yet effective, accounting standards if currently adopted would not have a material effect on the accompanying condensed consolidated financial statements.
 
2. Liquidity and Going Concern
 
The accompanying condensed consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss of $14,424,883, net cash used in operating activities of $8,702,932, net cash used in investing activities of $21,072, and net cash provided by financing activities of $7,797,492 for the nine months ended September 30, 2017. As of September 30, 2017, the Company had $3,052,778 in cash and cash equivalents, a working capital deficit of $2,918,271, an accumulated deficit of $101,046,557 and stockholders’ equity of $2,520,416.
 
 
 
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On January 15, 2016, we and Oxford Finance, LLC, as collateral agent and lender, entered into a Loan and Security Agreement (the “Loan Agreement”) providing for senior secured term loans to the Company in an aggregate principal amount of up to $10,000,000, subject to the terms and conditions set forth in the Loan Agreement (the “January 2016 Term Loan”).  On January 15, 2016, the Company received an initial loan of $5,000,000 under the Loan Agreement, before fees and issuance costs of approximately $390,000. The option to draw the second $5,000,000 expired on September 30, 2016.
 
On March 31, 2017, we and Oxford Finance, LLC, signed a First Amendment to the Loan Agreement (the “Amendment”), providing that the payment of principal of $138,889 on the January 2016 Term Loan that otherwise would have been due on the Amortization Date of April 1, 2017, will be due and payable on May 1, 2017 along with any other payment of principal due on May 1, 2017. We were obligated to pay a fully earned and non-refundable amendment fee of $15,000 to Oxford Finance LLC. On May 1, 2017, we paid the principal that was due on May 1, 2017, along with the $15,000 amendment fee. 
 
On May 3, 2017, we sold 850 shares of 0% Series H convertible preferred stock (the “Series H Preferred Stock”), at a stated value of $1,000 per share, representing an aggregate of $850,000 before offering costs of $29,429 in a private placement (the “May 2017 Private Placement”), to certain existing investors. The shares of Series H Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series H Preferred Stock, plus all accrued and unpaid dividends, if any, on such Series H Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series H Preferred Stock is $1,000 and the initial conversion price is $1.75 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. This May 2017 Private Placement is discussed in further detail in Note 5, Convertible Preferred Stock, Common Stock and Warrants.
 
On May 19, 2017, we closed a public offering of 1,342,858 shares of common stock and 1,000,000 shares of newly designated 0% Series G convertible preferred stock (the “Series G Preferred Stock”), at $1.75 per share of common stock and Series G Preferred Stock (the “May 2017 Public Offering”).  The Series G Preferred Stock is initially convertible into 1,000,000 shares of common stock, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events, to certain existing investors in the offering who, as a result of their purchases of common stock, would hold in excess of 4.99% of our issued and outstanding common stock, and elect to receive shares of our Series G Preferred Stock. We received $4,100,000 in gross proceeds, before underwriting discounts and commissions and offering expenses estimated at $452,609. The May 2017 Public Offering is described in more detail in Note 5, Convertible Preferred Stock, Common Stock and Warrants.
 
On July 27, 2017, we entered into a subscription agreement with an accredited investor pursuant to which we agreed to sell 152,143 restricted shares of common stock for $125,000 (the “July 2017 Private Placement”). The July 2017 Private Placement closed on August 2, 2017. 
 
On August 11, 2017, we entered into a security purchase agreement with a group of existing investors in the Company, where we sold 2,386.36 shares of 0% Series J convertible preferred stock (“the Series J Preferred Stock”), at a stated value of $550 per share, representing an aggregate of approximately $1,312,500 before offering costs estimated at $123,083 in a registered direct offering (the “August 2017 Financing”). The shares of Series J Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series J Preferred Stock plus the base amount on such Series J Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series J Preferred Stock is $550 and the initial conversion price is $0.55 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.
 
On August 23, 2017, we engaged Greenhill & Co. (NYSE: GHL) to serve as a financial advisor to assist us in exploring and evaluating strategic options with the goal of maximizing shareholder value. We are evaluating inbound inquiries and transaction options, as well as identifying new opportunities, which could include the acquisition of MabVax by another company, the sale or divestiture of specific assets coupled with a reverse merger, merging with another company, or licensing of selected technologies. We do not have a defined timeline for the exploration of strategic alternatives and are not confirming that the evaluation will result in any strategic alternative being announced or consummated.  We do not intend to discuss or disclose further developments during this process unless and until our Board of Directors has approved a specific action or otherwise determined that further disclosure is appropriate. While Greenhill & Co. continues as our financial advisor, we will continue to advance our Phase 1 clinical programs including our MVT-1075 radioimmunotherapy clinical trial for the treatment of pancreatic, colon and lung cancers, and our MVT-5873 clinical trial in combination with one or more chemotherapy agents in first line therapy for patients newly diagnosed with pancreatic cancer.
 
 
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On September 14, 2017, the Company entered into subscription agreements with select accredited investors relating to the Company’s registered direct offering, issuance and sale of 4,000,000 shares of the Company’s common stock. The purchase price per share was $0.50. We received $2.0 million in gross proceeds, before offering expenses estimated at $147,639. The offering closed September 14, 2017.
 
On September 22, 2017, the Company entered into additional subscription agreements with select accredited investors relating to the Company’s registered direct offering, issuance and sale of 2,016,129 shares of the Company’s common stock. The purchase price per share was $0.62. We received $1.25 million in gross proceeds, before offering expenses estimated at $35,000. The offering closed on September 27, 2017.
 
On October 10, 2017, the Company entered into additional subscription agreements with select accredited investors relating to the Company’s registered direct offering, issuance and sale of 769,231 shares of the Company’s common stock. The purchase price per share was $0.65. We received $500,000 in gross proceeds, before offering expenses totaling approximately $15,000. The offering closed on October 11, 2017.
 
We plan to continue to fund the Company’s losses from operations and capital funding needs through equity or debt financings, strategic collaborations, licensing arrangements, government grants or other arrangements. Further, to extend availability of existing cash available for our programs for the purpose of achieving milestones or a strategic transaction, we have cut personnel from 25 full time people to 10, and reduced other operating expenses following the completion of two phase 1a clinical trials of our lead antibody HuMab 5B1, which has enabled us to reduce our expenditures on clinical trials. We continue to develop our radioimmunotherapy product MVT-1075 discussed further in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Several members of management have volunteered to defer receiving portions of their salaries until the earlier of achieving one or more business transactions or the end of 2017. However, we cannot be sure that capital funding will be available on reasonable terms, or at all. If we are unable to secure adequate additional funding, we may be forced to make additional reductions in spending, incur further cutbacks in personnel, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. In addition, if the Company does not meet its payment obligations to third parties as they come due, it may be subject to litigation claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
 
We anticipate that the Company will continue to incur net losses into the foreseeable future as we: (i) continue our clinical trial for the development of MVT1075 as a radioimmunotherapy, (ii) continue our clinical trial of MVT-5873 in combination with gemcitabine and nab-paclitaxal in first line therapy for the treatment of patients newly diagnosed with pancreatic cancer; and (iii) continue operations as a public company. Based on receipt of the $125,000 private placement in July 2017, and financings of $1.3 million in August 2017, $2.0 million on September 14, $1.25 million on September 22, 2017, and $500,000 on October 10, 2017, before offering expenses, and without any other additional funding or receipt of payments from potential licensing agreements, we expect we will have sufficient funds to meet our obligations until February 2018. These conditions give rise to substantial doubt as to the Company’s ability to continue as a going concern. Any of these actions could materially harm the Company’s business, results of operations, and prospects. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict the Company’s ability to operate its business.
 
 
 
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3. Cash and Cash Equivalents
 
We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company limits its exposure to credit loss by holding cash in U.S. dollars, or, from time to time, placing cash and investments in U.S. government, agency and government-sponsored enterprise obligations.
 
4. Fair value of financial instruments
 
Our financial instruments consist of cash and cash equivalents and accounts payable, both of which are generally considered to be representative of their respective fair values because of the short-term nature of those instruments.
 
5. Convertible Preferred Stock, Common Stock and Warrants
 
Dividends on Preferred Stock
 
We immediately recognize the changes in the redemption value on preferred stock as they occur and the carrying value of the security is adjusted to equal what the redemption amount would be as if redemption were to occur at the end of the reporting date based on the conditions that exist as of that date.
 
No dividends were ever declared by our Board of Directors since our inception on any series of convertible preferred stock.
 
Series D Preferred Stock
 
As of September 30, 2017, and December 31, 2016, there were 44,104 and 132,489 shares of Series D convertible preferred stock (“Series D Preferred Stock”) issued and outstanding that are convertible into an aggregate of 596,000 and 1,790,392 shares of common stock, respectively.
 
The Series D Preferred Stock had been issued on March 25, 2015, to certain holders of the Company’s Series A-1 Preferred Stock and Merger warrants (the “Series A-1 Exchange Securities”) and holders of the Company’s Series B Preferred Stock and Series B warrants (the “Series B Exchange Securities” and, collectively with the Series A-1 Exchange Securities, the “Exchange Securities”), all previously issued by the Company. Pursuant to the exchange agreements, the holders exchanged the Exchange Securities and relinquished any and all other rights they may have had pursuant to the Exchange Securities, their respective governing agreements and certificates of designation, including any related registration rights, in exchange for an aggregate of 342,906 shares of the Company’s common stock and an aggregate of 238,156 shares of the Company’s newly designated Series D Preferred Stock, convertible into 3,218,325 shares of common stock.
 
As contemplated by the exchange agreements and as approved by the Company’s Board of Directors, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D Certificate of Designations”), on March 25, 2015. Pursuant to the Series D Certificate of Designations, the Company designated 1,000,000 shares of its blank check preferred stock as Series D Preferred Stock. Each share of Series D Preferred Stock has a stated value of $0.01 per share. In the event of a liquidation, dissolution or winding up of the Company, each share of Series D Preferred Stock will be entitled to a per share preferential payment equal to the stated value. Each share of Series D Preferred Stock is convertible into 13.5135 shares of common stock. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Company is prohibited from effecting the conversion of the Series D Preferred Stock to the extent that, as a result of such conversion, the holder beneficially would own more than 4.99% (provided that certain investors elected to block their beneficial ownership initially at 2.49% in the exchange agreements), in the aggregate, of the issued and outstanding shares of the Company’s common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series D Preferred Stock. Each share of Series D Preferred Stock entitles the holder to vote on all matters voted on by holders of common stock. With respect to any such vote, each share of Series D Preferred Stock entitles the holder to cast such number of votes equal to the number of shares of common stock such shares of Series D Preferred Stock are convertible into at such time, but not in excess of the beneficial ownership limitations.
 
 
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Series E Preferred Stock
 
As of September 30, 2017, and December 31, 2016, there were 33,333 shares of Series E convertible preferred stock (“Series E Preferred Stock”) issued and outstanding, convertible into 519,751 shares of common stock.
 
On March 30, 2015, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (the “Series E Certificate of Designations”) to designate 100,000 shares of its blank check preferred stock as Series E Preferred Stock.
 
The shares of Series E Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of such preferred share, plus all accrued and unpaid dividends, if any, on such share of Series E Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series E Preferred Stock is $75 and the initial conversion price is $5.55 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. In addition, during the period proscribed for in the Series E Certificate of Designations, in the event the Company issues or sells, or is deemed to issue or sell, shares of common stock at a per share price that is less than the conversion price then in effect, the conversion price shall be reduced to such lower price, subject to certain exceptions. The Company is prohibited from effecting a conversion of the share of Series E Preferred Stock to the extent that, as a result of such conversion, such holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series E Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s share of Series E Preferred Stock, but not in excess of beneficial ownership limitations. The shares of Series E Preferred Stock bear no interest. 
 
On August 22, 2016, when the Company closed on the August 2016 Public Offering, the current Series E Preferred Stock conversion price of $5.55 per share was reduced to $4.81 per share under the terms of the Series E Certificate of Designations, resulting in an increase in the number of shares of common stock to 519,751 that the Series E Preferred Stock may be converted into. There is no further adjustment required by the Series E Certificate of Designations in the event of an offering of shares below $4.81 per share by the Company.
 
Series F Preferred Stock
 
As of September 30, 2017, and December 31, 2016, there were 665,281 shares of Series F convertible preferred stock (the “Series F Preferred Stock”), par value of $0.01 per share, issued and outstanding, convertible into 665,281 shares of common stock.
 
On August 16, 2016, we filed a Certificate of Designations, Preferences and Rights of the 0% Series F Convertible Preferred Stock with the Delaware Secretary of State, designating 1,559,252 shares of preferred stock as 0% Series F Preferred Stock
 
The shares of Series F Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of such Series F Preferred Stock, plus all accrued and unpaid dividends, if any, on such Series F Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series F Preferred Stock is $4.81 and the initial conversion price is $4.81 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. In the event of a liquidation, dissolution or winding up of the Company, each share of Series F Preferred Stock will be entitled to a per share preferential payment equal to the par value. All shares of the Company’s capital stock will be junior in rank to Series F Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, except for the Company’s Series D Preferred Stock and Series E Preferred Stock.
 
 
 
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The holders of Series F Preferred Stock will be entitled to receive dividends if and when declared by our Board of Directors. The Series F Preferred Stock shall participate on an “as converted” basis, with all dividends declared on the Company’s common stock. In addition, if we grant, issue or sell any rights to purchase our securities pro rata to all our record holders of our common stock, each holder will be entitled to acquire such securities applicable to the granted purchase rights as if the holder had held the number of shares of common stock acquirable upon complete conversion of all Series F Preferred Stock then held.
 
We are prohibited from effecting a conversion of the Series F Preferred Stock to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series F Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s Series F Preferred Stock, but not in excess of the beneficial ownership limitations.
 
Series G Preferred Stock
 
As of September 30, 2017, and December 31, 2016, there were 1,000,000 and no shares of our Series G Preferred Stock issued and outstanding and convertible into 1,000,000 and no shares of our common stock, respectively.
 
Pursuant to a Series G Preferred Stock Certificate of Designations, on May 15, 2017, we designated 5,000,000 shares of our blank check preferred stock as Series G Preferred Stock, par value of $0.01 per share. The shares of Series G Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the of such Series G Preferred Stock, plus all accrued and unpaid dividends, if any, on such Series G Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series G Preferred Stock is $1.75 and the initial conversion price is $1.75 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.  The holder of a majority of the Series G Preferred Stock shall have the right to nominate a candidate for the Board, such right to expire on December 31, 2017.
 
In the event of a liquidation, dissolution or winding up of the Company, each share of Series G Preferred Stock will be entitled to a per share preferential payment equal to the par value. All shares our capital stock will be junior in rank to Series G Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, except for the Company’s Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock. The holders of Series G Preferred Stock will be entitled to receive dividends if and when declared by our Board of Directors. The Series G Preferred Stock shall participate on an “as converted” basis, with all dividends declared on our common stock.  In addition, if we grant, issue or sell any rights to purchase our securities pro rata to all our record holders of our common stock, each holder will be entitled to acquire such securities applicable to the granted purchase rights as if the holder had held the number of shares of common stock acquirable upon complete conversion of all Series G Preferred Stock then held.
 
We are prohibited from effecting a conversion of the Series G Preferred Stock to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series G Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s Series G Preferred Stock, but not in excess of the beneficial ownership limitations.
 
Series H Preferred Stock
 
As of September 30, 2017, and December 31, 2016, there were 850 and no shares of our Series H Preferred Stock issued and outstanding and convertible into 485,714 and no shares of our common stock, respectively.
 
 
 
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Pursuant to a Series H Preferred Stock Certificate of Designations, on May 3, 2017, we designated 2,000 shares of our blank check preferred stock as Series H Preferred Stock, par value of $0.01 per share.
 
The shares of Series H Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series H Preferred Stock, plus the base amount, if any, on such Series H Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series H Preferred Stock is $1,000 and the initial conversion price is $1.75 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.
 
In the event of a liquidation, dissolution or winding up of the Company, each share of Series H Preferred Stock will be entitled to a per share preferential payment equal to the base amount. All shares of our capital stock will be junior in rank to Series H Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company other than Series A through G Preferred Stock. The holders of Series H Preferred Stock will be entitled to receive dividends if and when declared by our Board of Directors. The Series H Preferred Stock shall participate on an “as converted” basis, with all dividends declared on our common stock.  In addition, if we grant, issue or sell any rights to purchase our securities pro rata to all our record holders of our common stock, each holder will be entitled to acquire such securities applicable to the granted purchase rights as if the holder had held the number of shares of common stock acquirable upon complete conversion of all Series H Preferred Stock then held.
  
We are prohibited from effecting a conversion of the Series H Preferred Stock to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s Series H Preferred Stock, but not in excess of the beneficial ownership limitations.
 
Series I Preferred Stock
 
As of September 30, 2017, and December 31, 2016, there were 1,048,460 and no shares of our Series I convertible preferred stock (the “Series I Preferred Stock”) issued and outstanding and convertible into 1,048,460 and no shares of our common stock, respectively.
 
Pursuant to a Series I Preferred Stock Certificate of Designations, on May 26, 2017, we designated 1,968,664 shares of our blank check preferred stock as Series I Preferred Stock, par value of $0.01 per share.
 
 Each share of Series I Preferred Stock has a stated value of $0.01 per share. In the event of a liquidation, dissolution or winding up of the Company, each share of Series I Preferred Stock will be entitled to a per share preferential payment equal to the stated value. Each share of Series I Preferred Stock is convertible into one share of common stock. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Company is prohibited from effecting the conversion of the Series I Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of the Company’s Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series I Preferred Stock (the “Beneficial Ownership Limitation”), which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each share of Series I Preferred Stock entitles the holder to vote on all matters voted on by holders of Common Stock. With respect to any such vote, each share of Series I Preferred Stock entitles the holder to cast such number of votes equal to the number of shares of Common Stock such shares of Series I Preferred Stock are convertible into at such time, but not in excess of the Beneficial Ownership Limitation.
 
 
 
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Series J Preferred Stock
 
As of September 30, 2017, and December 31, 2016, there were 818.18 and no shares of our Series J Preferred Stock issued and outstanding and convertible into 818,180 and no shares of our common stock, respectively.
 
On August 14, 2017, the Company filed a Certificate of Designations, Preferences and Rights of the 0% Series J Convertible Preferred Stock with the Delaware Secretary of State, designating 3,400 shares of preferred stock as Series J Preferred Stock.
 
The shares of Series J Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series J Preferred Stock, plus all accrued and unpaid dividends, if any, on such Series J Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series J Preferred Stock is $550 and the initial conversion price is $0.55 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.
 
For so long as the holder has Series J Preferred Stock, if the Company sells, or is deemed to have sold, common stock, or common equivalent shares, for consideration per share less than the conversion price in effect immediately prior to the issuance (the “Lower Issuance Price”), then the conversion price in effect immediately prior to such issuance will be adjusted to the Lower Issuance Price, provided however the Lower Issuance Price shall not be less than $0.10.
 
The holders of Series J Preferred Stock will be entitled to receive dividends if and when declared by our board of directors. The Series J Preferred Stock shall participate on an “as converted” basis, with all dividends declared on our common stock.  In addition, if we grant, issue or sell any rights to purchase our securities pro rata to all our record holders of our common stock, each holder will be entitled to acquire such securities applicable to the granted purchase rights as if the holder had held the number of shares of common stock acquirable upon complete conversion of all Series J Preferred Stock then held.
  
We are prohibited from effecting a conversion of the Series J Preferred Stock to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series J Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s Series J Preferred Stock, substituting the consolidated closing bid price of the common stock on August 10, 2017 for the then-applicable conversion price, and not in excess of the beneficial ownership limitations.
 
The Company shall not be obligated to issue any shares of common stock upon conversion of the Series J Preferred Stock, and the holder of any shares of Series J Preferred Stock shall not have the right to receive upon conversion of any shares of the Series J Preferred Stock if the issuance of such shares of common stock would exceed the aggregate number of shares of common stock which the Company may issue upon conversion of the Series J Preferred Stock without breaching the Company's obligations under the rules or regulations of the Nasdaq Capital Market, which aggregate number equals 19.99% of the number of shares outstanding on the closing date, except that such limitation shall not apply in the event that the Company obtains the approval of its stockholders as required by the applicable rules of the Nasdaq Capital Market for issuances of common stock in excess of such amount. Such approval was obtained in October 2017.
 
Holders of Series J Preferred Stock will be entitled to a preferential payment of cash per share equal to the greater of 125% of the base amount on the date of payment or the amount per share had the holders converted such preferred shares immediately prior to the date of payment upon the liquidation, dissolution or winding up of the affairs of the Company, or a consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed.
 
 
 
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Series K Preferred Stock
 
As of September 30, 2017, and December 31, 2016, there were 65,000 and no shares of our Series K convertible preferred stock (“Series K Preferred Stock”) issued and outstanding and convertible into 6,500,000 and no shares of our common stock, respectively.
 
On August 14, 2017, the Company filed a Certificate of Designations, Preferences and Rights of the Series K Convertible Preferred Stock with the Delaware Secretary of State, designating 65,000 shares of preferred stock as Series K Preferred Stock.
 
The shares of Series K Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series K Preferred Stock divided by the conversion price. The stated value of each share of Series K Preferred Stock is $0.01 and the initial conversion price is $0.0001 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.
 
The holders of Series K Preferred Stock will be entitled to receive dividends if and when declared by our board of directors. The Series K Preferred Stock shall participate on an “as converted” basis, with all dividends declared on our common stock.  In addition, if we grant, issue or sell any rights to purchase our securities pro rata to all our record holders of our common stock, each holder will be entitled to acquire such securities applicable to the granted purchase rights as if the holder had held the number of shares of common stock acquirable upon complete conversion of all Series K Preferred Stock then held.
   
We are prohibited from effecting any conversion of the Series K Preferred Stock if the Company has not obtained shareholder approval for the full conversion of the Series J Preferred Stock and Series K Preferred Stock in accordance with the rules of the NASDAQ Capital Market or to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series K Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s Series K Preferred Stock, substituting the consolidated closing bid price of the common stock on August 10, 2017 for the then-applicable conversion price, and not in excess of the beneficial ownership limitations. Such approval was obtained in October 2017.
 
Warrants Issued in Connection with April 2015 Private Placement
 
As of September 30, 2017, there were warrants outstanding to purchase 481,036 shares at $11.10 per share and 324,324 shares at $2.00 per share; and as of December 31, 2016, there were warrants outstanding to purchase 805,361 shares of common stock at $11.10 per share. All of the warrants at $11.10 and $2.00 per share that were outstanding on September 30, 2017, expired on October 10, 2017.
 
The warrants priced at $11.10 and $2.00 per share were remaining from our private offering in March and April 2015 (the “April 2015 Private Placement”) in which we sold $8,546,348 worth of units (the “Units”), net of $668,150 in issuance costs, of which $2,500,000 of the Units consisted of Series E Preferred Stock and the balance consisted of 1,660,271 shares of common stock, together with warrants to all investors to purchase 1,055,361 shares of common stock at $11.10 per share.  Each Unit was sold at a purchase price of $5.55 per Unit. OPKO Health, Inc., the lead investor in the April 2015 Private Placement, purchased $2,500,000 worth of Units consisting of all of the shares of the Series E Preferred Stock.
 
In connection with the May 2017 Public Offering, the Company had agreed to amend the terms of a portion of the outstanding warrants, or warrants to purchase 324,324 shares of common stock that had an exercise price of $11.10 per share, such that the amended warrants shall have an exercise price of $2.00 per share and no cashless exercise feature, for those investors who made a certain minimum required investment to qualify for repricing. After the repricing, the stock price never reached above $2.00 in order for the warrants to be exercised prior to the expiration date of October 10, 2017.
 
 
 
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Warrants Issued in Connection with October 2015 Public Offering
 
As of September 30, 2017, and December 31, 2016, there were warrants outstanding to purchase 168,919 shares of common stock at $9.77 per share in connection with a public offering on October 5, 2015.
 
The warrants at $9.77 per share were issued in connection with our public offering on October 5, 2015, which consisted of 337,838 shares of common stock and warrants to purchase 168,919 shares of common stock, at an offering price of $8.14 per share.  For every two shares of common stock sold, the Company issued one warrant to purchase one share of common stock.  We received $2,750,000 in gross proceeds, before underwriting discounts and commissions and offering expenses totaling approximately $586,608. The shares and warrants were separately issued and sold in equal proportions. The warrants are immediately exercisable, expire September 30, 2018, and have an exercise price of $9.77 per share.  The warrants are not listed on any securities exchange or other trading market.  
 
August 2016 Public Offering
 
As of September 30, 2017, there were warrants outstanding to purchase 436,332 shares at $5.55 per share and 436,332 shares at $6.29 per share. As of December 31, 2016, there were warrants outstanding to purchase 1,962,319 shares at $5.55 per share and 1,962,319 shares at $6.29 per share.
 
The warrants at $5.55 per share and $6.29 per share were issued on August 22, 2016, in connection with a public offering of 1,297,038 shares of common stock and 665,281 shares of Series F preferred stock, and warrants to purchase 1,962,319 shares of common stock at $5.55 per share and warrants to purchase 1,962,319 shares of common stock at $6.29 per share, at an offering price of $4.81 per share.  For every one share of common stock or Series F preferred stock sold, we issued one warrant to purchase one share of common stock at $5.55 per share and one warrant to purchase one share of common stock at $6.29 per share.  We received $9,438,753 in gross proceeds, before underwriting discounts and commissions and offering expenses totaling $871,305. The gross proceeds include the underwriter’s over-allotment option, which it exercised on the closing date.
 
May 2017 Private Placement
 
On May 3, 2017, we entered into separate subscription agreements with accredited investors pursuant to which we sold an aggregate of $850,000, or 850 shares, of Series H Preferred Stock, at a stated value of $1,000 per share, before offering costs of $29,429, in the May 2017 Private Placement. The shares of Series H Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series H Preferred Stock, plus the base amount, if any, on such Series H Preferred Stock, as of such date of determination, divided by the conversion price. The initial conversion price is $1.75 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. 
 
In the event of a liquidation, dissolution or winding up of the Company, each share of Series H Preferred Stock will be entitled to a per share preferential payment equal to the base amount. All shares of our capital stock will be junior in rank to Series H Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company other than Series A through G Preferred Stock. The holders of Series H Preferred Stock will be entitled to receive dividends if and when declared by our Board of Directors. The Series H Preferred Stock shall participate on an “as converted” basis, with all dividends declared on our common stock.  In addition, if we grant, issue or sell any rights to purchase our securities pro rata to all our record holders of our common stock, each holder will be entitled to acquire such securities applicable to the granted purchase rights as if the holder had held the number of shares of common stock acquirable upon complete conversion of all Series H Preferred Stock then held.
 
We are prohibited from effecting a conversion of the Series H Preferred Stock to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series H Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s Series H Preferred Stock, but not in excess of the beneficial ownership limitations.
  
 
 
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The shares were offered and sold solely to “accredited investors” in reliance on the exemption from registration afforded by Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). On the closing date, we entered into registration rights agreements with each of the investors, pursuant to which we agreed to undertake to file a registration statement to register the resale of the shares within thirty (30) days following the closing date, to cause such registration statement to be declared effective by the Securities and Exchange Commission (“SEC”) within sixty (60) days of the closing date and to maintain the effectiveness of the registration statement until all of such shares have been sold or are otherwise able to be sold pursuant to Rule 144 under the Securities Act, without any restrictions.
 
On May 10, 2017, we entered into exchange agreements with each of the holders of our Series H Preferred Stock representing an aggregate of $850,000 of our Series H Preferred Stock with such exchange to be effective on the closing of our May 2017 Public Offering. Prior to the closing of the May 2017 Public Offering, we and the holders rescinded and cancelled the exchange agreements and they have no force and effect and no transaction contemplated by the Exchange Agreements was consummated.
 
May 2017 Public Offering
 
On May 19, 2017, we closed a public offering of 1,342,858 shares of common stock and 1,000,000 shares of newly designated 0% Series G Convertible Preferred Stock, or Series G Preferred Stock, at $1.75 per share of common stock and Series G Preferred Stock, or the May 2017 Public Offering.  The Series G Preferred Stock is initially convertible into 1,000,000 shares of common stock, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events and was purchased by certain existing investors of the Company who, as a result of their purchases of common stock, would hold in excess of 4.99% of our issued and outstanding common stock. We received $4,100,000 in gross proceeds, before estimated underwriting discounts, commissions and offering expenses of $452,609.
 
The May 2017 Public Offering was consummated pursuant to an underwriting agreement that we signed on May 15, 2017, with Laidlaw & Company (UK) Ltd. (“Laidlaw”), as underwriter (the “Underwriter”) pursuant to which, among other things, we agreed to issue and sell to the Underwriter, and the Underwriter agreed to purchase from us, in an underwritten public offering, an aggregate of 1,342,858 shares of common stock and 1,000,000 shares of Series G Preferred Stock. We granted the Underwriters an option for a period of up to 45 days from the date of our prospectus to purchase up to an aggregate of 201,428 additional shares of our common stock at the public offering price of $1.75 per share, less the underwriting discount, solely to cover overallotments, which was not exercised.
 
In connection with the May 2017 Public Offering, we agreed with the lead investor of the August 2016 Public Offering (the “August Lead Investor”) pursuant to a Letter Agreement, dated May 18, 2017, to issue the Inducement Shares to the investors in the August 2016 Public Offering (the “August 2016 Investors”), as incentive shares to those investors to make a minimum required investment in this public offering of at least 50% of their investment in the $9,400,000 August 2016 Public Offering, or the Minimum Required Investment, and who still hold 100% of the shares of common stock previously acquired. Such August 2016 Investors shall be entitled to receive their pro rata share of 2,900,000 shares, after the Lead Investor in this offering receives the first 10%. For the August 2016 Investors who purchased Series F Preferred Stock and made the Minimum Required Investment and who still held 100% of the shares of Series F Preferred Stock at the closing of the May 2017 Public Offering, they may, instead of receiving a pro rata share of the 2,610,000 shares remaining after the August Lead Investor receives the first 290,000 shares, elect to receive their Inducement Shares in the form of a new Series I Preferred Stock to be created with similar rights as currently exist in the Series G Preferred Stock. The stated value of each share of Series I Preferred Stock will be $0.01 and the conversion rate shall be one (1) share of common stock for one (1) share of Series I Preferred Stock, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. In the event of a liquidation, dissolution or winding up of the Company, each share of Series I Preferred Stock will be entitled to a per share preferential payment equal to the par value, or $0.01 per share. All shares of the Company’s capital stock will be junior in rank to the Series I Preferred Stock at the time of creation, with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, except for the Company’s Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, and Series H Preferred Stock.
 
 
 
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Also in connection with the May 2017 Public Offering, for these August 2016 Investors to receive the Inducement Shares, each of them must also agree to the cancellation of the warrants issued to them in the August 2016 Public Offering. Investors in the Company’s 2015 private offering that invest at least 25% of their original investment from such private financing in the May 2017 Public Offering and still hold 100% of their common stock or Series E preferred stock from the private 2015 financing also must agree to amend the terms of their outstanding warrants that currently have an exercise price of $11.10 per share, such that the amended warrants shall have an exercise price of $2.00 per share and no cashless exercise feature (as amended, the “Inducement Amended Warrants”). The Company agreed with the Lead Investor to register for resale on a registration statement all the Inducement Shares and shares of common stock underlying the Inducement Amended Warrants, and to issue the Inducement Shares to each investor meeting the investment and ownership terms described above.
  
Based on the closing of the May 2017 Public Offering, and election of certain prior investors who made the Minimum Required Investment and elected to take Series I Preferred Stock upon its creation, 931,336 Inducement Shares of common stock were issued and 1,968,664 Inducement Shares were issued in the form of Series I Preferred Stock that was created following the closing of the May 2017 Public Offering and issued following verification with each investors that the terms of the Inducement Shares have been met. The Company recorded a deemed dividend of $5,220,000 in June 2017 in connection with issuing the Inducement Shares.
 
Additionally, in connection with participation by the April 2015 investors in the May 2017 Public Offering, the Company revised the exercise price for 90,099 warrants from $11.10 to $2.00 per warrant share and recorded a deemed dividend of $19,413 also in June 2017. In August 2017, the Company revised the exercise price for an additional 225,225 warrants from $11.10 to $2.00 per warrant share for the July 2017 Private Placement. The impact of the repricing of the additional warrants was immaterial as the stock price on the date of repricing was $0.70, with a volatility index in the neighborhood of 85%, and were expiring in 69 days. The warrants expired on October 10, 2017, unexercised.
 
May 2017 Letter Agreement
 
As a condition to the Lead Investor leading an investment in the May 2017 Public Offering, including the requirement that we offer incentive shares to August 2016 Investors who participate in making the Minimum Required Investment in the May 2017 Public Offering, we agreed to the following:
 
Board Nomination
 
The Company shall nominate one candidate to the Board of Directors of the Company acceptable to the holder of a majority of the Series G Preferred Stock by December 31, 2017, and two current Board members will resign.
 
 
   
Executive Hire
 
The Company shall hire a new C-level executive in a leadership role by July 15, 2017.
 
 
 
Board Compensation
 
The Company is obligated to issue an aggregate of 1,050,000 options to certain employees and members of the Board, at a price not less than $2.00 per share, and 50,000 options to each other Board member at the current market price in connection with this offering. The options shall be issued pursuant to the Company’s option plan and are subject to the requisite approvals and subject to availability under the plan. To the extent we need to increase the number of shares available under such plan, we will need the approval of our Board and Stockholders.  All Board fees will be waived for 2017.
 
 
 
Funds Held in Escrow
 
$500,000 of the funds from this offering will be held in escrow and released to one or more investor relations services acceptable to the Company following the closing of this offering.
 
Additionally we granted the Lead Investor in the May 2017 Public Offering certain rights to approve future (i) issuances of our securities, (ii) equity or debt financings and (iii) sales of any development product assets currently held by us, subject to certain exceptions, if such securities are sold at price below $2.50 per share and for as long as the Lead Investor in the offering holds 50% or more of the shares of Series G Preferred Stock purchased by the Lead Investor in this offering (the “May 2017 Consent Right”). All other prior consent rights of the Lead Investor have been superseded by the May 2017 Consent Right.
 
 
 
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For the period from the May 2017 Public Offering to September 30, 2017, the Company incurred approximately $223,000 in expenses related to outside investor relations services, and the Company has engaged additional services for the remainder of 2017 that will complete our obligation for spending on investor relations. The Lead Investor elected not to hold the funds in escrow. Further, two Board members have resigned, which achieves one of the conditions of the Lead Investor.
 
July 2017 Private Placement
 
On July 27, 2017, we entered into a subscription agreement with an accredited investor pursuant to which we agreed to sell 152,143 restricted shares of common stock for $125,000 (the “July 2017 Private Placement”). As part of the transaction, the Company agreed to reprice the investor’s warrant to purchase 225,225 shares of common stock from $11.10 to $2.00 per warrant share and remove the cashless exercise feature. The transaction closed on August 2, 2017.  The impact of repricing the warrants to $2.00 a share, which took effect on August 2, 2017, was immaterial, as the stock price on the date of the closing of the transaction was $0.70 and the warrants at $2.00 a share expired on October 10, 2017, unexercised.
 
August 2017 Registered Direct Offering
 
On August 11, 2017, we entered into securities purchase agreements to sell 2,386.36 shares of Series J Preferred Stock with a stated value of $550 per share (the “August 2017 Offering”).  The Series J Preferred Stock is convertible into common stock at $0.55 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events and was purchased by certain existing investors of the Company (the “Prior Investors”). The total amount of the securities purchase agreements amounted to approximately $1,312,500, before estimated expenses of $123,083. The Certificate of Designation for the Series J Preferred Stock includes a 4.99% beneficial ownership conversion blocker, a 19.99% blocker provision to comply with the NASDAQ Capital Market rules until stockholders have approved any or all shares of common stock issuable upon conversion of the Series J Preferred Stock, which was approved in a special meeting of stockholders on October 2, 2017 (the “October 2017 Special Meeting”), and a 125% liquidation preference. All shares of the Company’s capital stock will be junior in rank to the Series J Preferred Stock at the time of creation, with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, except for the Company’s Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, and Series I Preferred Stock.
 
In connection with the August 2017 Offering, we agreed with the Lead Investor pursuant to a Letter Agreement, dated August 9, 2017 (the “August 2017 Letter Agreement”), to issue incentive shares (the “Incentive Shares”) to Prior Investors as an incentive to invest in the August 2017 Offering. Such Prior Investors received a portion of 65,000 shares in the form of a new Series K Preferred Stock, allocated by the Lead Investor, and convertible into 6,500,000 shares of common stock, subject to stockholder approval, which was also approved in the October 2017 Special Meeting. The stated value of each share of Series K Preferred Stock is $0.01 and the conversion rate is the stated value of $0.01 divided by .0001, or one hundred (100) shares of common stock upon conversion of one (1) share of Series K Preferred Stock, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar event, and have a 4.99% beneficial ownership conversion blocker. In the event of a liquidation, dissolution or winding up of the Company, each share of Series K Preferred Stock will be entitled to a per share preferential payment equal to the par value, or $0.01 per share. All shares of the Company’s capital stock will be junior in rank to the Series K Preferred Stock at the time of creation, with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, except for the Company’s Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock. The Company recorded a deemed dividend of $3,120,000 in August 2017 in connection with issuing the Incentive Shares.
 
 
 
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The August 2017 Letter Agreement also specified the following:
 
That the Company files a proxy statement for a special meeting of stockholders within 10 days of closing the August 2017 Offering. Proposals shall include (i) an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split of its issued and outstanding common stock by a ratio of not less than one-for-two and not more than one-for-twenty at any time prior to one year from the date of the special meeting, with the exact ratio to be set at a whole number within this range as determined by the Board of Directors, (ii) the issuance of securities in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent to a discount of 30% below the market price of the common stock, as required by and in accordance with Nasdaq Marketplace Rule 5635(d), (iii) the issuance of securities in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent to a discount of 20% below the market price of the Common Stock, as required by and in accordance with Nasdaq Marketplace Rule 5635(d), (iv) the issuance of the Series J Conversion Shares and (v) the issuance of the Inducement Shares.
 
Lead Investor will commit to investing an additional $1,000,000 in a new private or public offering of up to $8,000,000 (the “$8,000,000 Financing”). The $8,000,000 Financing shall sign and close following shareholder approval of each of the proposals identified in the August 2017 Letter Agreement.
 
That the employment terms of all management be reduced to two years from three years and that management defer portions of their salary for the remainder of the year, which shall be paid upon the earlier of completion of the $8,000,000 Financing or a business transaction that represents, or transactions in the aggregate that represent, in excess of $10,000,000.
 
Effective with the Company’s pay period ending August 10, 2017, and without changing their employment agreements dated July 1, 2017, several members of management volunteered to defer receiving portions of their salaries for the remainder of 2017. The voluntary deferral of cash payments is intended to help with the Company’s cash flow for the remainder of the year, with voluntary reductions by the management team committed to remain in effect until the earlier of completing a successful financing of at least $8.0 million, a business transaction that represents, or business transactions in the aggregate that represent, an amount of $10.0 million or greater, or the end of the year, whichever occurs first. The employment agreements with the Company remain unchanged, except that the executives have volunteered to reduce the terms of their employment agreements to two years from three in connection with the August 11, 2017 registered direct offering and Letter Agreement with the Lead Investor.
 
  On August 14, 2017, the Chairman of the Compensation Committee, acting on behalf of the Board of Directors sent a letter to each executive of the Company stating that the Board deems it in the best interests of the Company to request that the executive voluntarily defer a portion of his regular salary to help with cash flow of the Company. On August 16 and August 21, 2017, Paul Resnick, M.D. and Paul Maffuid, Ph.D., respectively gave notice of good reason (as that term is defined in their employment agreements, or “Good Reason”) for termination of their employment. The Company had 30 days from the notification date under each of their employment agreements to cure their concerns. In oral discussions with each executive the President and Chief Executive Officer communicated on behalf of the Compensation Committee the Company’s intention to provide additional equity compensation in return for salary deferrals. Given the perceived uncertainty about the Company’s plans at the time for addressing the concerns of Dr. Resnick and Dr. Maffuid, and that nothing in writing had been provided as possible equity compensation, they each submitted their notices to the Company of good reason for termination. Further, they each expressed in oral conversations that they wanted to remain employed by the Company. The Company cured each executive’s concerns within the 30-day cure period, by reinstating the deferred salary for Dr. Resnick in one instance, and in granting restricted stock to all executives with vesting over time, as disclosed in the filings of Form 4s following the approvals. Both executives rescinded their notices of good reason for termination on September 7, 2017, and all executives’ employment agreements remain unchanged as the salary deferrals remain to be voluntary.
 
In order to meet the Nasdaq Capital Market rules in the August 2017 Offering, we were not obligated to issue any shares of common stock upon conversion of the Series J Preferred Stock which would cause the Company to breach our obligations under the rules and regulations of the Nasdaq Capital Market, which limit the aggregate number of shares issued at a discount to market at 19.99% of the number of shares outstanding on the closing date of the August 2017 Offering, except that such limitation shall not apply in the event that we obtain the approval of our stockholders as required by the applicable rules of the Nasdaq Capital Market for issuances of common stock in excess of such amount. Similarly, none of the Series K Preferred Stock may be converted into common stock until we obtain the approval of our stockholders. On October 2, 2017, in a special meeting of stockholders, we obtained approval to issue shares underlying all of the Series J Preferred Stock and the Series K Preferred Stock.
 
September 2017 Registered Direct Offerings
 
On September 11, 2017, we entered into an agreement to sell 4.0 million shares of common stock at $0.50 a share for gross proceeds of approximately $2.0 million, before estimated expenses of $147,639. The shares were offered and sold to certain accredited investors in a registered direct offering. Laidlaw acted as placement agent for the offering.
 
On September 22, 2017, we entered into a subscription agreement with select accredited investors relating to the Company’s registered direct offering, issuance and sale of 2,016,129 shares of the Company’s common stock, $0.01 par value per share. The purchase price per share was $0.62. The total amount of the subscription agreements amounted to $1,250,000, before estimated expenses of $35,000.
 
 
 
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Consultant Grants 
 
On January 13, 2016, the Board of Directors approved the issuance of 13,514 shares of restricted stock with immediate vesting valued at $64,000 to a consultant for advisory services to the Company.
 
On February 10, 2017, we entered into a consulting agreement with MDM Worldwide, pursuant to which MDM Worldwide began providing investor relations services to the Company in consideration for an immediate grant of 20,000 shares of the Company’s common stock and a monthly cash retainer of $10,000 a month for ongoing services for a period of one year. As the shares granted were fully vested upon grant and the Company has no legal recourse to recover the shares in the event of nonperformance, the Company recognized the grant date fair value of the 20,000 shares, or $56,600, as investor relations expense upon grant during the first quarter of 2017.
 
On March 7, 2017, we entered into a consulting agreement with Jenene Thomas Communications, pursuant to which Jenene Thomas Communications began providing investor relations services to the Company on April 1, 2017. In consideration for the services, we began paying a monthly cash retainer of $12,500. Additionally, we issued 20,000 restricted shares of common stock on April 1, 2017, to be vested at 5,000 per quarter over the four quarters of services under the agreement beginning April 1, 2017. The shares granted vest over a one-year period over which the services are performed and, as such, will be amortized over the same period beginning in April 1, 2017. During the three and nine months ended September 30, 2017, we have recognized $3,250 and $10,200, respectively, in general and administrative expenses related to this arrangement in common stock for services.
 
On September 14, 2017, we issued 100,000 restricted shares of common stock for legal services and 100,000 restricted shares of common stock for due diligence services in connection with the September 11, 2017 registered direct offering.
 
6. Notes Payable
 
On January 15, 2016, we entered into the Loan Agreement with Oxford Finance, LLC pursuant to which we had the option to borrow $10,000,000 in two equal tranches of $5,000,000 each.  The first tranche of $5,000,000 was funded at close on January 15, 2016 (the “Term A Loan”). The option to fund the second tranche of $5,000,000 (the “Term B Loan”) was upon the Company achieving positive interim data on the Phase 1 HuMab-5B1 antibody trial in pancreatic cancer and successfully uplisting to either the NASDAQ Capital Market or NYSE MKT on or before September 30, 2016.  The option for the Term B Loan expired on September 30, 2016. The Company is not pursuing completion of any additional debt financing with Oxford Finance, LLC at the present time. The interest rate for the Term A Loan is set on a monthly basis at the index rate plus 11.29%, where the index rate is the greater of the 30-day LIBOR rate or 0.21%.  Interest is due on the first day of each month, in arrears, calculated based on a 360-day year.  The loan is interest only for first year after funding, and the principal amount of the loan is amortized in equal principal payments, plus period interest, over the next 36 months.  A facility fee of 1.0% or $100,000 was due at closing of the transaction, and was earned and paid by the Company on January 15, 2016.  The Company is obligated to pay a $150,000 final payment upon completion of the term of the loan, and this amount is being accreted using the effective interest rate method over the term of the loan. Each of the term loans can be prepaid subject to a graduated prepayment fee, depending on the timing of the prepayment.
 
Concurrent with the closing of the transaction, the Company issued 225,226 common stock purchase warrants to Oxford Finance, LLC with an exercise price of $5.55 per share.  The warrants are exercisable for five years and may be exercised on a cashless basis, and expire on January 15, 2021. The Company recorded $607,338 for the fair value of the warrants as a debt discount within notes payable and an increase to additional paid-in capital on the Company’s balance sheet. We used the Black-Scholes-Merton valuation method to calculate the value of the warrants. The debt discount is being amortized as interest expense over the term of the loan using the effective interest method.
 
We granted Oxford Finance, LLC a perfected first priority lien on all of the Company’s assets with a negative pledge on intellectual property. The Company paid Oxford Finance, LLC a good faith deposit of $50,000, which was applied towards the facility fee at closing.  The Company agreed to pay all costs, fees and expenses incurred by Oxford Finance, LLC in the initiation and administration of the facilities including the cost of loan documentation.
 
 
 
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At the initial funding, the Company received net proceeds of approximately $4,610,000 after fees and expenses. These fees and expenses are being accounted for as a debt discount and classified within notes payable on the Company’s condensed consolidated balance sheet. The Company's transaction costs of approximately $390,000 are presented in the condensed consolidated balance sheet as a direct deduction from the carrying amount of the notes payable, consistent with debt discounts. Debt discounts, issuance costs and the final payment are being amortized or accreted as interest expense over the term of the loan using the effective interest method.
 
The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain of the Company's obligations under the Loan Agreement, the occurrence of a material adverse change, which is defined as a material adverse change in the Company's business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of the Lenders’ lien in the collateral or in the value of such collateral. In the event of default by the Company under the Loan Agreement, the Lenders would be entitled to exercise their remedies thereunder, including the right to accelerate payment of the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement, which could harm the Company's financial condition.
 
On March 31, 2017, we and Oxford Finance, LLC signed the Amendment, providing that the payment of principal on the January 2016 Term Loan that otherwise would have been due on the Amortization Date will be due and payable on May 1, 2017 along with any other payment of principal due on May 1, 2017. We were obligated to pay a fully earned and non-refundable amendment fee of $15,000 to the Collateral Agent. On May 1, 2017, we paid the principal due on May 1, 2017, along with the $15,000 amendment fee.
 
The Company was in compliance with all applicable covenants set forth in the Loan Agreement as of September 30, 2017.
 
For the three and nine months ended September 30, 2017, the Company recorded interest expense related to the term loan of $138,642 and $445,934, respectively. For the three and nine months ended September 30, 2016, the Company recorded $266,057 and $729,350 in interest expense related to the term loan, respectively. The annual effective interest rate on the note payable, including the amortization of the debt discounts and accretion of the final payment, but excluding the warrant amortization, was approximately 12.3% and approximately 13.8% as of September 30, 2017 and 2016, respectively.
 
In July 2016, we entered into a premium insurance agreement with First Insurance of California for the financing of our 2016-17 insurance policy premiums in the amount of $183,584, payable in monthly installments of $20,783 with an effective interest rate of 3.9% which was completed in April 2017. In July 2017, we entered into another premium finance agreement with First Insurance of California for the financing of our 2017-18 insurance policy premiums in the amount of $33,756, payable in nine monthly installments of $3,855. The effective interest rate is 6.7%.
 
Future principal payments under the Loan Agreement and the insurance notes as of September 30, 2017, are as follows:
 
Years ending December 31:
 
 
 
2017 (remaining)
 $581,952 
2018
  1,666,667 
2019
  1,666,667 
2020
  138,889 
Notes payable, balance as of September 30, 2017
  4,054,175 
Unamortized discount on notes payable
  (403,453)
Notes payable, balance as of September 30, 2017
  3,650,722 
Current portion of notes payable
  (1,693,065)
Non-current portion of notes payable
 $1,957,657 
 
 
 
- 22 -
 
 
7. Related Party Transactions
 
On April 1, 2016, the Company entered into a two-year consulting agreement with Jeffrey Ravetch, M.D., Ph.D., a Board member until August 3, 2017, for work beginning January 1, 2016 through December 31, 2017, at a rate of $100,000 a year, in support of scientific and technical advice on the discovery and development of technology and products for the Company primarily related to monoclonal antibodies, corporate development, and corporate partnering efforts.  In April 2016, the Company paid Dr. Ravetch $100,000 for services to be performed in 2016, and will pay quarterly thereafter beginning January 1, 2017. During the three and nine months ended September 30, 2017, the Company recorded $25,000 and $75,000, respectively, in consulting expenses, as part of general and administration expenses, related to this agreement, of which $25,000 is outstanding and included in other accrued expenses on the balance sheet as of September 30, 2017.
 
On November 3, 2016, the Company granted 17,500 stock options to Jeffrey Ravetch, M.D., Ph.D., for his ongoing consulting services to the Company. The option award vests over a three-year period. During the three and nine months ended September 30, 2017, the Company recognized $3,900 and $11,572 of stock-based compensation expense, respectively, as part of general and administration expenses, related to this option grant.
 
On May 19, 2017, the Company granted each director, other than J. David Hansen, Jeffrey Ravetch, a Board member at the time, and Philip Livingston, 50,000 options at market price, $1.80 on May 19, 2017, with immediate vesting for their continuing service to the Company, in exchange for giving up their Board fees for the remainder of the year. J. David Hansen and Jeffrey Ravetch were each granted 500,000 options and Philip Livingston was granted 50,000 options each at $2.00 exercise price per share with immediate vesting and no performance obligations. Options granted to J. David Hansen, CEO and Philip Livingston were granted as a condition of the May 2017 financing transaction. The 450,000 options granted to Dr. Ravetch in addition to the 50,000 options granted to other non-employee members of the Company’s Board of Directors were in recognition of the additional value provided by Dr. Ravetch as a scientific expert. During the three and nine months ended September 30, 2017, the Company recorded $0 and $1,480,089 in stock-based compensation expense, respectively, in general and administration expenses, related to these grants.
  
8. Stock-based Activity
 
Amendment of Equity Incentive Plan
 
On March 31, 2015, the Company approved a Second Amended and Restated 2014 Employee, Director and Consultant Equity Incentive Plan (the “Plan”) to increase the number of shares reserved for issuance under the Plan from 21,362 to 1,129,837 shares of common stock. Additional changes to the Plan include:
 
An “evergreen” provision to reserve additional shares for issuance under the Plan on an annual basis commencing on the first day of fiscal 2016 and ending on the second day of fiscal 2024, such that the number of shares that may be issued under the Plan shall be increased by an amount equal to the lesser of: (i) 1,081,081 or the equivalent of such number of shares after the administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the Plan; (ii) the number of shares necessary such that the total shares reserved under the Plan equals (x) 15% of the number of outstanding shares of common stock on such date (assuming the conversion of all outstanding shares of Preferred Stock (as defined in the Plan) and other outstanding convertible securities and exercise of all outstanding warrants to purchase common stock) plus (y) 30,946; and (iii) an amount determined by the Board.
 
Provisions that no more than 405,406 shares may be granted to any participant in any fiscal year.
 
Provisions to allow for performance based equity awards to be issued by the Company in accordance with Section 162(m) of the Internal Revenue Code.
 
 
- 23 -
 
 
On September 22, 2016, the Board of Directors ratified an automatic increase in the number of shares reserved for issuance under the Plan, increasing the total shares reserved from 1,129,837 to 1,208,307 shares of common stock, under the annual evergreen provision for the Plan, plus a fixed amount of 30,946.
 
On January 1, 2017, the Board of Directors ratified an automatic increase in the number of shares reserved for issuance under the Plan, effective January 1, 2017, increasing the total shares reserved from 1,208,307 to 2,159,352 shares of common stock, under the annual evergreen provision for the Plan , plus a fixed amount of 30,946.
 
On June 12, 2017, the Company’s stockholders at its annual meeting approved a proposal to increase in the number of shares reserved for issuance under the Plan, increasing the total shares reserved under the Plan from 2,128,406 (including the fixed amount of 30,946) to 4,128,406, and increasing the number of shares that may be granted to any participant in any fiscal year to 900,000, from 405,406.
 
On October 2, 2017, in a special meeting of stockholders, the Company received approval of the Fifth Amended and Restated MabVax Therapeutics Holdings, Inc. 2014 Employee, Director and Consultant Equity Incentive Plan (the “Plan”), including an increase in the shares of common stock reserved for issuance under the Plan from 4,128,406 to 6,128,406 shares.
 
 Stock-based Compensation
 
We measure stock-based compensation expense for equity-classified awards, principally related to stock options and restricted stock units, or RSUs, based on the estimated fair value of the award on the date of grant. We recognize the value of the portion of the award that we ultimately expect to vest as stock-based compensation expense over the requisite service period in our condensed consolidated statements of operations. Due to limited activity in 2017, 2016 and 2015, we assumed a forfeiture rate of zero.
 
We use the Black-Scholes model to estimate the fair value of stock options granted. The expected term of stock options granted represents the period of time that we expect them to be outstanding. For the three and nine months ended September 30, 2017 and 2016, the following valuation assumptions were used (there were no options granted for the three months ended September 30, 2017):
 
 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
Risk-free interest rate
    - 
0.87%
1.5 to 2.0%
1.43%
Dividend yield
    - 
0%
0%
0%
Expected volatility
    - 
70.98%
73 to 85%
85.91%
Expected life of options, in years
    - 
2.9 yrs.
1.4 to 6.0 years
6.0 yrs.
Weighted-average grant date fair value
    - 
   $3.43 
   $1.53 
   $3.23 
 
 
- 24 -
 
 
Total estimated stock-based compensation expense, related to all of the Company’s stock-based payment awards recognized under ASC 718, “Compensation—Stock Compensation” and ASC 505, “Equity” was comprised of the following:
 
 
 
Three Months Ended
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
Nine Months Ended
 
 
 
September 30,
 
 
September 30,
 
 
September 30,
 
 
September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
Research and development
 $292,523 
 $301,985 
 $989,884 
 $889,666 
General and administrative
  721,213 
  666,556 
  3,526,488 
  2,570,326 
Total stock-based compensation expense
 $1,013,736 
 $968,541 
 $4,516,372 
 $3,459,992 
 
Stock-based Award Activity
 
The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2017:
 
 
 
Options Outstanding
 
 
Weighted-Average Exercise Price
 
Outstanding at December 31, 2016
  851,375 
 $10.94 
Granted
  2,046,690 
  2.37 
Exercised
   
   
Forfeited/cancelled/expired
  (82,825)
  5.67 
Outstanding and expected to vest at September 30, 2017
  2,815,240 
 $4.87 
Vested and exercisable at September 30, 2017
  1,742,632 
 $4.79 
 
The total unrecognized compensation cost related to unvested stock option grants as of September 30, 2017, was $2,519,222 and the weighted average period over which these grants are expected to vest is 1.71 years. The weighted average remaining contractual life of stock options outstanding at September 30, 2017 and 2016 is 9.1 and 9.0 years, respectively.
 
During the first nine months of 2017, the Company granted 2,046,690 options to officers and employees with a weighted average exercise price of $2.37 which consisted of 1,300,000 shares vesting immediately at grant and the remainder vesting over a three-year period starting at the one-year anniversary of the grant date.  During the first nine months of 2016, the Company granted 413,578 options to officers and employees with a weighted average exercise price of $5.21. Stock options granted to employees generally vest over a three-year period with one third of the grants vesting at each one-year anniversary of the grant date.  
 
Because the Company had a net operating loss carryforward as of September 30, 2017, no tax benefits for the tax deductions related to stock-based compensation expense were recognized in the Company’s condensed consolidated statements of operations. Additionally, no stock options were exercised in the three and nine months ended September 30, 2017 and 2016.
 
 
 
- 25 -
 
 
A summary of activity related to restricted stock grants under the Plan for the nine months ended September 30, 2017 is presented below:
 
 
 
Shares
 
 
Weighted Average Grant-Date Fair Value
 
Non-vested at December 31, 2016
  205,478 
 $16.84
Granted
  850,965 
  .55 
Vested
  (102,737)
  16.22 
Forfeited
   
   
Non-vested at September 30, 2017
  953,706 
 $2.30 
 
As of September 30, 2017, there were 953,706 non-vested restricted stock units remaining outstanding.
 
As of September 30, 2017 and 2016, unamortized compensation expense related to restricted stock grants amounted to $1,169,284 and $2,553,920, respectively, which is expected to be recognized over a weighted average period of 0.24 and 1.5 years, respectively.
 
Management Bonus Plan and Compensation for Non-Employee Directors
 
On February 16, 2016, our Compensation Committee approved a 2016 Management Bonus Plan (the “2016 Management Plan”) outlining maximum target bonuses of the base salaries of certain of our executive officers. Under the terms of the 2016 Management Plan, the Company's Chief Executive Officer shall receive a maximum target bonus of up to 50% of his annual base salary, and the Chief Financial Officer and each of the Company's Vice Presidents shall receive a maximum target bonus of up to 30% of their annual base salary.
 
Also, on February 16, 2016, the Compensation Committee of the Board of Directors of the Company approved the following amendments to Company's policy for compensating non-employee members of the Board:
 
The initial equity grant upon first appointment (or election) of future non-employee directors to the Board shall be a 10-year option to purchase 6,757 shares of the Company's common stock, under the Company's Second Amended and Restated 2014 Equity Incentive Plan with 3-year annual vesting and a strike price equal the closing price of the Company's common stock on the effective date of the appointment (or election);
 
The annual cash retainer for each non-employee director, paid quarterly, is increased by $1,000 per calendar quarter to a total of $7,000 per quarter, effective April 1, 2016; and
 
The additional annual cash retainer for the chairperson of each of the Audit, Compensation, and Nominating and Governance Committees, paid quarterly, is increased by $1,000 per calendar year, such that each chairperson retainer shall be as follows, effective April 1, 2016: Audit Committee: $13,000; Compensation Committee: $9,000; Nominating and Governance Committee: $6,000.
 
On August 25, 2016, the Compensation Committee of the Board of Directors of the Company approved the following amendments to Company's policy for compensating non-employee members of the Board:
 
The initial equity grant upon first appointment (or election) of future non-employee directors to the Board shall be a 10-year option to purchase 25,000 shares of the Company's common stock, under the Plan with 3-year annual vesting and a strike price equal to the closing price of the Company's common stock on the effective date of the appointment (or election); and
 
 
- 26 -
 
 
the additional automatic annual option grant to each non-employee director on the date of the Company's annual meeting shall be a 10-year option to purchase 17,500 shares of the Company's common stock, under the Plan with 1-year vesting and a strike price equal to the closing price of the Company's common stock on the date of the annual meeting.
 
On February 6, 2017, the Compensation Committee of the Board of Directors of the Company approved the following amendments to Company's policy for compensating non-employee members of the Board:
 
the initial equity grant upon first appointment (or election) of future non-employee directors to the Board shall be a 10-year option to purchase 30,000 shares of the Company's common stock, under the Plan with 3-year annual vesting and a strike price equal to the closing price of the Company's common stock on the effective date of the appointment (or election); and
 
the additional automatic annual option grant to each non-employee director on the date of the Company's annual meeting shall be a 10-year option to purchase 20,000 shares of the Company's Common Stock, under the Plan with 1-year vesting and a strike price equal the closing price of the Company's common stock on the date of the annual meeting.
 
On May 19, 2017, in connection with the May 2017 Public Offering, the Company entered into the May 2017 Letter Agreement with the Lead Investor, whereby the Company was obligated to issue an aggregate of 1,050,000 options to certain employees and members of the Board, at a price not less than $2.00 per share, and 50,000 options to each other Board member at the current market price. Further, all Board fees were waived for 2017 in connection with the May 2017 Letter Agreement.
 
On August 14, 2017, the Chairman of the Compensation Committee, acting on behalf of the Board of Directors sent a letter to each executive of the Company stating that the Board deems it in the best interests of the Company to request that the executive voluntarily defer a portion of his regular salary to help with cash flow of the Company. On August 16 and August 21, 2017, Paul Resnick, M.D. and Paul Maffuid, Ph.D., respectively gave notice of good reason (as that term is defined in their employment agreements, or “Good Reason”) for termination of their employment. The Company had 30 days from the notification date under each of their employment agreements to cure their concerns. In oral discussions with each executive the President and Chief Executive Officer communicated on behalf of the Compensation Committee the Company’s intention to provide additional equity compensation in return for salary deferrals. Given the perceived uncertainty about the Company’s plans at the time for addressing the concerns of Dr. Resnick and Dr. Maffuid, and that nothing in writing had been provided as possible equity compensation, they each submitted their notices to the Company of good reason for termination. Further, they each expressed in oral conversations that they wanted to remain employed by the Company. The Company cured each executive’s concerns within the 30-day cure period, by reinstating the deferred salary for Dr. Resnick in one instance, and in granting restricted stock to all executives with vesting over time, as disclosed in the filings of Form 4s following the approvals. Both executives rescinded their notices of good reason for termination on September 7, 2017, and all executives’ employment agreements remain unchanged as the salary deferrals remain to be voluntary.
 
Common stock reserved for future issuance
 
Common stock reserved for future issuance consists of the following at September 30, 2017:
 
Common stock reserved for issuance upon conversion of preferred stock
  11,633,387 
Common stock reserved for issuance upon exercise of warrants
  2,073,416 
Common stock options outstanding
  2,815,240 
Authorized for future grant or issuance under the Stock Plan
  181,839 
Unvested restricted stock
  953,706 
Total
  17,657,588 
 
9. Net Loss per Share
 
The Company calculates basic and diluted net loss per share using the weighted-average number of shares of common stock outstanding during the period.
 
When the Company is in a net loss position, it excludes from the calculation of diluted net loss per share all potentially dilutive stock options, preferred stock and warrants, and the diluted net loss per share is the same as the basic net loss per share for such periods. If the Company was to be in a net income position, the weighted average number of shares used to calculate the diluted net income per share would include the potential dilutive effect of in-the-money securities, as determined using the treasury stock method.
 
 
 
- 27 -
 
 
The table below presents, the potentially dilutive securities that would have been included in the calculation of diluted net loss per share if they were not antidilutive for the periods presented.
 
 
 
As of September 30,
 
 
 
2017
 
 
2016
 
Stock options
  2,815,240 
  815,412 
Restricted stock awards
  953,706 
  205,478 
Preferred stock
  11,633,387 
  2,975,424 
Common stock warrants
  2,073,416 
  5,124,144 
Total
  17,475,749
  9,120,458 
 
10. Contracts and Agreements
 
Memorial Sloan Kettering Cancer Center, or MSK
 
Since 2008 the Company has engaged in various research agreements and collaborations with MSK including licensed rights to cancer vaccines and the blood samples from patients who have been vaccinated with MSK’s cancer vaccines. Total sponsored research contracts outstanding in 2016 amounting to approximately $800,000 in 2016 were 100% complete as of the year ended December 31, 2016. Such sponsored research agreements provide support for preclinical work on the Company’s product development programs. The work includes preparing radioimmunoconjugates of the Company’s antibodies and performing in vitro and in vivo pharmacology studies for our therapeutic antibody product, imaging agent product and radioimmunotherapy product programs. For the three and nine months ended September 30, 2017 the Company incurred $0 and $184,000 in expenses related to these contracts, respectively, and for the three and nine months ended September 30, 2016, the Company incurred $0 and $212,574, respectively.
 
Life Technologies Licensing Agreement
 
On September 24, 2015, the Company entered into a licensing agreement with Life Technologies Corporation, a subsidiary of ThermoFisher Scientific.  Under the agreement MabVax agreed to license certain cell lines from Life Technologies Corporation to be used in the production of recombinant proteins for the Company’s clinical trials.  The amount of the contract is for $450,000 and was fully expensed during 2015. This agreement was fully paid as of December 31, 2016. For the three and nine months ended September 30, 2017 and 2016, the Company recorded no expenses associated with the agreement.
 
Rockefeller University Collaboration
 
In July 2015, the Company entered into a research collaboration agreement with Rockefeller University's Laboratory of Molecular Genetics and Immunology. The Company provided antibody material to Rockefeller University, which is exploring the mechanism of action of constant region (Fc) variants of the HuMab 5B1 in the role of tumor clearance. The Company may supply additional research materials if requested by the Rockefeller University, which is evaluating ways to optimize the function. For the three and nine months ended September 30, 2017, and 2016, the Company recorded no expenses associated with the agreement.
 
Patheon Biologics LLC Agreement
 
On April 14, 2014, the Company entered into a development and manufacturing services agreement with Patheon (f.k.a. Gallus Biopharmaceuticals) to provide a full range of manufacturing and bioprocessing services, including cell line development, process development, protein production, cell culture, protein purification, bio-analytical chemistry and QC testing.  Total amount of the contract is estimated at approximately $3.0 million.  For the three and nine months ended September 30, 2017 and 2016, the Company recorded no expenses associated with the agreement. 
 
NCI PET Imaging Agent Grant
 
In September 2013, the NCI awarded the Company a SBIR Program Contract to support the Company’s program to develop a Positron Emission Tomography (“PET”) imaging agent for pancreatic cancer using a fragment of the Company’s 5B1 antibody (the “NCI PET Imaging Agent Grant”). The project period for Phase I of the grant award of approximately $250,000 covered a nine-month period, which commenced in September 2013 and ended in June 2014.
 
 
 
- 28 -
 
 
On August 25, 2014, the Company was awarded a $1.5 million contract for the Phase II portion of the NCI PET Imaging Agent Grant. The contract is intended to support a major portion of the preclinical work being conducted by the Company, together with its collaboration partner, MSK, to develop a novel PET imaging agent for detection and assessment of pancreatic cancer. The total contract amount for Phase I and Phase II was approximately $1,749,000. The Company recorded revenue associated with the NCI PET Imaging Agent Grant as the related costs and expenses were incurred. For the three and nine month periods ended September 30, 2017 the Company recorded no revenues associated with the NCI PET Imaging Agent Grant, and during the same periods in 2016, the Company recorded $0 and $148,054 of revenue associated with the NCI PET Imaging Agent Grant, respectively.
 
11. Commitments and contingencies
 
Capital Leases
 
On March 21, 2016, the Company entered into a lease agreement with ThermoFisher Scientific (“Lessor”).  Under the terms of the agreement, the Company agreed to lease two pieces of equipment from the Lessor, a liquid chromatography system and an incubator, totaling in cost of $95,656.  The term of the lease is five years (60 months), and the monthly lease payment is $1,867. In addition, there is a $1.00 buyout option at the end of the lease term.
 
Minimum future annual capital lease obligations are as follows as of September 30, 2017:
 
2017 (remaining)
 $5,601 
2018
  22,402
 
2019
  22,402
 
2020
  22,402
 
2021
  7,467 
Less interest
  (12,379)
Principal
  67,895 
Less current portion
  (17,447)
Noncurrent portion
 $50,448 
 
Operating Leases
 
In connection with the Merger, the Company recorded a $590,504 contingent lease termination fee, in connection with the termination by MabVax (f.k.a. Telik, Inc.) of the master lease and sublease of 3165 Porter Drive in Palo Alto, California, which is payable to ARE-San Francisco No. 24, if the Company receives $15 million or more in additional financing in the aggregate. The additional financing was achieved in 2015 and the termination fee is reflected on the condensed consolidated balance sheet as an accrued lease contingency fee.
 
On September 2, 2015, the Company entered into a lease (the “Lease”) with AGP Sorrento Business Complex, L.P., for certain premises of office and laboratory space in buildings located at 11535 Sorrento Valley Rd., San Diego, California, to serve as the Company’s corporate offices and laboratories (the “New Premises”).  Because certain tenant improvements needed to be made to the New Premises before the Company could take occupancy, the term of the Lease did not commence until the New Premises were ready for occupancy, which was on February 4, 2016.  The Lease terminates six years after such term commencement date, unless earlier terminated in accordance with the Lease. Pursuant to the terms of the Lease, the monthly base rent is $35,631, subject to annual increases as set forth in the Lease. Effective March 1, 2017, the monthly base rent increased to $36,700. 
 
The Company has an option to extend the Lease term for a single, five-year period.  If the Lease term is extended for the optional five-year period, the monthly base rent will be adjusted based on fair market rental value.  In addition to rent, the Company agreed to pay a portion of the taxes and utility, maintenance and other operating costs paid or accrued in connection with the ownership and operation of the property.
 
During the three and nine months ended September 30, 2017, the Company recorded rent expense of $115,238 and $345,714, respectively, and during the three and nine months ended September 30, 2016, the Company recorded rent expense of $115,238 and $318,159, respectively.
 
 
 
- 29 -
 
 
Minimum future annual operating lease obligations are as follows as of September 30, 2017:
 
2017 (remaining)
 $110,100 
2018
  451,409 
2019
  464,951 
2020
  478,900 
2021
  493,267 
Thereafter
  82,612 
Total
 $2,081,239 
 
12. Subsequent Events
 
October 10, 2017 Registered Direct Offering – On October 10, 2017, we entered into a subscription agreement with select accredited investors relating to the Company’s registered direct offering, issuance and sale of 769,231 shares of the Company’s common stock, $0.01 par value per share. The purchase price per share was $0.65. The total amount of the subscription agreements amounted to $500,000, before estimated expenses of $15,000.
 
October 16, 2017 Series L Preferred Stock - On October 16, 2017, we filed a Certificate of Designations, Preferences and Rights of the 0% Series L Convertible Preferred Stock (the "Series L Certificate of Designation") with the Delaware Secretary of State, designating 58,000 shares of preferred stock as Series L convertible preferred stock (the “Series L Preferred Stock”). On October 18, 2017, we filed a Certificate of Correction to the Series L Certificate of Designation to include a sentence that was inadvertently omitted.
 
The shares of Series L Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series L Preferred Stock, plus all accrued and unpaid dividends, if any, on such Series L Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series L Preferred Stock is $100 and the initial conversion price is $0.60 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.
 
The holders of Series L Preferred Stock will be entitled to receive dividends if and when declared by our board of directors. The Series L Preferred Stock shall participate on an “as converted” basis, with all dividends declared on our common stock.  In addition, if the Company grants, issues or sells any rights to purchase its securities pro rata to all record holders of common stock, each holder will be entitled to acquire such securities applicable to the granted purchase rights as if the holder had held the number of shares of common stock acquirable upon complete conversion of all Series L Preferred Stock then held.
  
We are prohibited from effecting a conversion of the Series L Preferred Stock if the Company has not obtained stockholder approval for the full conversion of the Series L Preferred Stock in accordance with the rules of the NASDAQ Capital Market or to the extent that, as a result of such conversion, the holder would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series L Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder’s Series L Preferred Stock, substituting the consolidated closing bid price of the common stock on October 13, 2017, for the then-applicable conversion price, and not in excess of the beneficial ownership limitations or limitations required by the rules and regulations of the NASDAQ Capital Market.
 
Holders of Series L Preferred Stock will be entitled to a preferential payment of cash per share equal to the greater of 100% of the base amount on the date of payment or the amount per share had the holders converted such preferred shares immediately prior to the date of payment upon the liquidation, dissolution or winding up of the affairs of the Company, or a consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed.
 
 
 
- 30 -
 
 
October 17, 2017 Preferred Stock Exchange Agreement – On October 17, 2017, we entered into exchange agreements (each, an “Exchange Agreement” and collectively, the “Exchange Agreements”) with the holders of all of the Company’s outstanding shares of Series F Preferred Stock, Series G Preferred Stock and Series H Preferred Stock, pursuant to which 665,281 shares of Series F Preferred Stock, 1,000,000 shares of Series G Preferred Stock and 850 shares of Series H Preferred Stock were exchanged for 58,000 newly authorized shares of Series L Preferred Stock. The Company agreed to hold a special meeting of shareholders to approve the issuance of the Series L Preferred Stock and shares of common stock issuable upon conversion of the Series L Preferred Stock (the “Conversion Shares”). The special meeting has been scheduled for Novermber 22, 2017.
 
The terms of the Exchange Agreements and Series L Preferred Stock were determined by negotiation between the parties. No commission or other payment was received by the Company in connection with the Exchange Agreements. Such exchange was conducted pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, and Series L Preferred Stock issuable pursuant to the Exchange Agreements and the Conversion Shares will be issued in reliance on the exemption from registration contained in Section 3(a)(9) of the Securities Act.
 
Pursuant to a registration rights agreement entered into between the Company and the Holders on October 17, 2017, the Company agreed to use its reasonable best efforts to file a registration statement registering the Conversion Shares for resale within 10 days of closing and cause the registration statement to be declared effective within 30 days of filing. On October 25, 2017, we filed a registration statement with the SEC, which was within 10 days of closing. The registration statement is currently under review by the SEC.
 
Restricted Stock Grants – During the month of October 2017, we issued an aggregate of 415,000 shares of restricted common stock valued at $306,650 based on the closing market prices ranging from $0.63 to $0.78, depending on the date of issuance, to different investor relations services firms or individuals in connection with providing investor relations services to the Company. All of the shares were fully vested on the date of issuance.
 
 
- 31 -
 
  
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD LOOKING STATEMENTS
 
The following discussion should be read in conjunction with our condensed consolidated financial statements and other financial information appearing elsewhere in this quarterly report. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking statements. You can identify these statements by forward-looking words such as “plan,” “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future and thus you should not unduly rely on these statements.
 
The forward-looking statements included herein are based on current expectations that involve several risks and uncertainties set forth under “Risk Factors” in our Annual Report on Form 10-K as of and for the year ended December 31, 2016, Part II, Section 1A, herein, and other periodic reports filed with the SEC. Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company’s actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in forward-looking statements and thus you should not unduly rely on these statements.
 
Overview
 
We are a clinical-stage biotechnology company focused on the development of antibody-based products to address unmet medical needs in the treatment of cancer.  We have discovered a pipeline of human monoclonal antibody products based on the protective immune responses generated by patients who have been vaccinated against targeted cancers with our proprietary vaccines.  Our lead development program is centered on our HuMab-5B1 antibody, which is fully human and discovered from the immune response of cancer patients vaccinated with an antigen-specific vaccine during a Phase I trial at Memorial Sloan Kettering Cancer Center, or MSK.   The antigen the antibody targets is expressed on more than 90% of pancreatic cancers, and expressed in significant percentages on small cell lung cancer, stomach, colon and other cancers, making the antibody potentially broadly applicable to many types of cancers.  We have other antibody candidates that are in preclinical development.
 
Monoclonal antibodies are produced from a single DNA sequence encoded into multiple cells that all produce the same single antibody. We generate our pipeline of antibody-based product candidates from patients who have been vaccinated with proprietary vaccines licensed from MSK. Our approach involves surveying the protective immune response from many patients to identify a monoclonal antibody candidate against a specific target on the surface of a cancer cell. We believe this approach provides us with a novel next-generation human antibody technology platform. We believe our approach to antibody discovery allows us to identify antibody candidates with superior performance characteristics while minimizing many of the toxicity and off target binding drawbacks (phenomenon occurring when antibodies bind to non-cancer cells) of other discovery technologies.
 
Our lead clinical development program is a Phase 1 clinical trial of our HuMab-5B1 radioimmunotherapy product that we have designated as MVT-1075. The development of MVT-1075 is based on experience we gained through clinical studies of 50 patients with either our antibody we designate as MVT-5873, or our imaging agent we designate as MVT-2163 that are discussed in more detail in our descriptions and results to date of our clinical development programs. We initiated the phase I study of MVT-1075 in June 2017 and intend to treat additional patients to continue to assess the safety and potential efficacy of this treatment. Also, we intend to continue clinical development of MVT-5873 in combination with gemcitabine and nab-paclitaxal in first line therapy for the treatment of patients newly diagnosed with pancreatic cancer. We have treated two cohorts of patients in our combination therapy, for a total of six patients to date in this study. We intend to enroll an additional cohort of patients in the combination therapy with the objective of confirming early observations.
 
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On September 6, 2017, we announced that we have engaged Greenhill & Co. (NYSE: GHL) to serve as a financial advisor to assist us in exploring and evaluating strategic options with the goal of maximizing stockholder value. We are evaluating inbound inquiries and transaction options, as well as identifying new opportunities which could include the acquisition of MabVax by another company, the sale or divestiture of specific assets coupled with a reverse merger, merging with another company, or licensing of selected technologies. We do not have a defined timeline for the exploration of strategic alternatives and are not confirming that the evaluation will result in any strategic alternative being announced or consummated.  We do not intend to discuss or disclose further developments during this process unless and until our Board of Directors has approved a specific action or otherwise determined that further disclosure is appropriate. While Greenhill & Co. continues as our financial advisor, we will continue to advance our Phase 1 clinical programs including our MVT-1075 radioimmunotherapy clinical trial for the treatment of pancreatic, colon and lung cancers, and our MVT-5873 clinical trial in combination with one or more chemotherapy agents in first line therapy for patients newly diagnosed with pancreatic cancer.
 
We operate in only one business segment. We have incurred substantial losses since inception, and we expect to incur additional substantial losses for the foreseeable future as we continue our research and development activities. To date, we have funded our operations primarily through government grants, proceeds from the sale of common and preferred stock, the issuance of debt, the issuance of common stock in lieu of cash for services, payments from collaborators and interest income.  The process of developing our product candidates will require significant additional research and development, preclinical testing and clinical trials, as well as regulatory approval. We expect these activities, together with general and administrative expenses, to result in substantial operating losses for the foreseeable future. We will not receive product revenue unless we, or our collaborative partners, complete clinical trials, obtain regulatory approval and successfully commercialize one or more of our products.  We cannot provide assurance that we will ever generate revenues or achieve and sustain profitability in the future or obtain the necessary working capital for our operations.
 
During the nine months ended September 30, 2017, our loss from operations was $13,681,746, our net loss was $14,424,883, and our loss allocable to common stockholders was $22,784,296. Net cash used in operating activities for the nine months ended September 30, 2017 was $8,702,532 and cash and cash equivalents and working capital deficit as of September 30, 2017, were $3,052,778 and $2,918,271, respectively. As of September 30, 2017, we had an accumulated deficit of $101,046,557 and a stockholders’ equity of $2,520,416.
 
We are subject to risks common to biopharmaceutical companies, including the need for capital, risks inherent in our research, development and commercialization efforts, preclinical testing, clinical trials, uncertainty of regulatory and marketing approvals, enforcement of patent and proprietary rights, potential competition and retention of key employees. In order for a product to be commercialized, it will be necessary for us to conduct preclinical tests and clinical trials, demonstrate efficacy and safety of our product candidates to the satisfaction of regulatory authorities, obtain marketing approval, enter into manufacturing, distribution and marketing arrangements, obtain market acceptance and, in many cases, obtain adequate reimbursement from government and private insurers. We cannot provide assurance that we will ever generate revenues or achieve and sustain profitability in the future or obtain the necessary working capital for our operations.
 
Reverse Stock Split and Listing on the NASDAQ Capital Market
 
On August 16, 2016, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware in order to effectuate a reverse stock split of our issued and outstanding common stock on a 1 for 7.4 basis, effective on August 16, 2016. The reverse split was effective with The Financial Industry Regulatory Authority (FINRA), and the Company’s common stock began trading on the NASDAQ Capital Market at the open of business on August 17, 2016. All share and per share amounts, and number of shares of common stock into which each share of preferred stock will convert, in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Listing Reverse Split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital.
 
Our Clinical Development Programs and Plans for 2017
 
MVT-1075 – our lead development program as a Radioimmunotherapy for Pancreatic Cancer
 
In June 2017, we initiated a Phase 1 clinical trial of our HuMab-5B1 radioimmunotherapy product MVT-1075 based on experience we gained through clinical studies of 50 patients with either the naked antibody MVT-5873, or our imaging agent MVT-2163.
 
MVT-1075 combines the demonstrated targeting specificity of the HuMab-5B1 antibody with the proven clinical success of a low-energy radiation emitter, 177Lutetium [177Lu]. We dosed MVT-1075 in our first patient in June 2017. This Phase 1 first-in-human clinical trial is an open-label, multi-center study evaluating the safety and efficacy of MVT-1075 in up to 22 patients with CA19-9 positive malignancies. The primary objective is to determine the maximum tolerated dose and safety profile in patients with recurring disease who have failed prior therapies. Secondary endpoints are to evaluate tumor response rate and duration of response by RECIST 1.1, and to determine dosimetry and pharmacokinetics. This dose-escalation study utilizes a traditional 3+3 design that is commonly used by companies as a dose escalation strategy typical for phase I trials for the treatment of cancer. The investigative sites are Honor Health in Scottsdale, Arizona, and Memorial Sloan Kettering Cancer Center in New York City.
 
 
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Supporting the MVT-1075 RIT clinical investigation are the Company’s successful Phase 1a safety and target specificity data reported at the annual meetings of the American Society for Clinical Oncology (ASCO) and the Society for Nuclear Medicine and Molecular Imaging (SNMMI) in June 2017, including the clinical results for the Company’s HuMab-5B1 products, MVT-5873, a single agent therapeutic antibody and MVT-2163, an immuno-PET imaging agent. The combined results from 50 patients in the Phase 1 MVT-5873 and MVT-2163 studies established safety and provided significant insight into drug biodistribution and an optimal dosing strategy, which we have incorporated into the MVT-1075 program. In April 2017, we reported preclinical results for MVT-1075 at the American Association of Clinical Research (AACR) Annual Meeting, demonstrating marked suppression, and in some instances, regression of tumor growth in xenograft animal models of pancreatic cancer, potentially making this product an important new therapeutic agent in the treatment of pancreatic, colon and lung cancers.
 
MVT-5873 – for the Treatment of Pancreatic Cancer
 
We reported results from our Phase 1a clinical trial of 32 patients being treated with our therapeutic antibody MVT-5873, which was evaluated for safety and tolerability in patients with advanced pancreatic cancer and other CA19-9 positive cancers, in a poster presentation at the American Society of Clinical Oncology (ASCO) Annual Meeting on June 3, 2017. The Company highlighted that the single agent MVT-5837 appears safe and well tolerated in patients at biologically active doses. Furthermore, all patients were evaluated by RECIST 1.1 for tumor response, and the Company reported 11 patients achieved stable disease in this dose escalation safety trial of 32 patients.
 
The results of the Phase 1a trial with MVT-5873 indicate that this fully-human antibody targeting CA19-9 cancers can be administered at doses with acceptable safety and with a potentially positive impact on disease. CA19-9 is broadly expressed in various cancers including pancreatic, colon, and small cell lung cancer making this antibody potentially useful for a larger patient population. Clinical signals from an identifiable subset of subjects enabled us to understand those patients most likely to respond to a MVT-5873 based therapy. At the maximum tolerated dose (MTD) established in this trial, we have demonstrated an acceptable safety margin for the antibody.
 
A second arm of the MVT-5873 Phase 1a trial is actively evaluating MVT-5873 in combination with gemcitabine plus nab-paclitaxel in newly diagnosed pancreatic cancer patients. Dr. Eileen O’Reilly, Associate Director of the David M. Rubenstein Center for Pancreatic Cancer Research, attending physician, member at Memorial Sloan Kettering Cancer Center and Professor of Medicine at Weill Cornell Medical College, is the lead investigator in the MVT-5873 Phase 1 clinical trial.
 
MVT-2163 –as an Imaging Agent for Pancreatic Cancer
 
We reported results from our Phase 1a clinical trial of ImmunoPET imaging agent, MVT-2163, in 12 patients with locally advanced or metastatic adenocarcinoma of the pancreas (PDAC) or other CA19-9 positive malignancies in a poster presentation and podium talk at the Society of Nuclear Medicine and Molecular Imaging (SNMMI) Annual Meeting held in Denver, CO on June 10-14, 2017.
 
The Phase Ia clinical trial of MVT-2163 was intended to evaluate our next generation diagnostic PET imaging agent in patients with locally advanced or metastatic adenocarcinoma of the pancreas (PDAC) or other CA19-9 positive malignancies. MVT-2163 (89Zr-HuMab-5B1) combines the well-established PET imaging radiolabel Zirconium-89 [89Zr] with the targeting specificity of MVT-5873. We designed the trial to establish safety, pharmacokinetics, biodistribution, optimal time to obtain the PET image, and the amount of MVT-5873 to be administered as a blocking dose prior to administration of MVT-2163 to obtain optimized PET scan images.
 
As of September 30, 2017, 12 patients had been treated in this first-in-human trial evaluating the safety and feasibility of MVT-2163 to image pancreatic tumors and other CA19-9 positive malignancies. MVT-2163 was administered alone and in combination with MVT-5873 and was well tolerated in all cohorts. The only toxicities were infusion reactions that resolved on the day of the injection, with some patients requiring standard supportive medication.
 
 
 
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Uptake of MVT-2163 was observed in primary tumors and metastases as early as day two and continuously through day seven. Standard Uptake Values (SUV), a measurement of activity in PET imaging, reached as high as 101 in the study. The investigators reported that the high SUVs are amongst the highest lesion uptake values they have ever seen for a radiolabeled antibody. Bone and soft tissue disease were readily visualized and lesion uptake of the radiotracer was higher than typically seen with PET imaging agents. The correlation with Computerized Tomography (CT) scans was high.
 
We reported that administering MVT-5873 prior to dosing MVT-2163 reduces liver uptake facilitating detection of liver metastases. In addition, we determined that the MVT-5873 cold antibody pre-dose does not interfere with the uptake of MVT-2163 on cancer lesions.
 
In summary, the MVT-2163 product produced acceptable safety tolerability, pharmacokinetics and biodistribution. MVT-2163 also produced high quality PET images identifying both primary tumor and metastatic sites. There was a promising correlation with diagnostic CT that warrants further studies correlating these findings with histopathology to assess the accuracy of MVT-2163 in identifying smaller metastatic nodes below the detection level of standard CT scans. The continual increase in high SUV values on cancer lesions in this study supports the use of the Company’s MVT-1075 radioimmunotherapy product, which utilizes the same antibody to deliver a radiation dose for the treatment of patients with pancreatic, lung and colon cancers.
 
Plan for remainder of 2017
 
We intend to continue clinical development of MVT-5873 in combination with gemcitabine and nab-paclitaxal in first line therapy for the treatment of patients newly diagnosed with pancreatic cancer. We have treated two cohorts of patients for a total of six patients through September 22, 2017 in this study; and we plan to enroll an additional cohort of patients with the objective of confirming early observations. We will also continue clinical development of MVT-1075 for the treatment of locally advanced or metastatic pancreatic cancer patients. We intend to treat additional patients to continue to assess the safety and potential efficacy of this treatment.  
 
RESULTS OF OPERATIONS
 
We are providing the following information about our revenues, expenses, cash and liquidity.
 
Comparison of the Three and Nine Months Ended September 30, 2017 and 2016
 
Revenues:
 
 
Three Months Ended
September 30,
 
 
%
Increase/
 
 
Nine Months Ended
September 30,
 
 
%
Increase/
 
 
 
2017
 
 
2016
 
 
(Decrease)
 
 
2017
 
 
2016
 
 
 (Decrease)
 
Revenues
 $ 
 $ 
  (0)% 
 $ 
 $148,054 
  (100)% 
 
For the three months ended September 30, 2017 and 2016, we had no revenues recorded. We had completed the current Phase of the NIH Imaging Contract during the first quarter of the prior year.
 
For the nine months ended September 30, 2017, we recognized no revenues, as compared to $148,054 for the same period in the prior year. This decrease was due to the completion of the current Phase of the NIH Imaging Contract during the first quarter of the prior year.
 
Research and development expenses:
 
 
Three Months Ended
September 30,
 
 
%
Increase/
 
 
  Nine Months Ended
September 30,
 
 
%
Increase/
 
 
 
2017
 
 
2016
 
 
(Decrease)
 
 
2017
 
 
2016
 
 
 (Decrease)
 
Research and development
 $1,017,061 
 $1,671,181 
  (39.1)% 
 $6,168,125 
 $4,967,695 
  24.2% 
 
For the three months ended September 30, 2017, we incurred research and development expenses of $1,017,061, as compared to $1,671,181 for the same period a year ago. Stock-based compensation expense included in research and development expenses for the three months ended September 30, 2017 and 2016 was $292,523 and $301,985, respectively. Expenses decreased during the three months ended September 30, 2017, compared to the same period in the prior year due to decreases in the following expenses: antibody research and development $162,251, stability and pharmacology studies $144,292, lab expenses $63,677, recruiting expenses $62,580, antibody manufacturing $48,677, clinical expenses $58,938, consortium costs $96,301 and the remaining decrease is predominately due to a reduction in payroll related costs as a result of the reduction in force beginning in August 2017.
 
 
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For the nine months ended September 30, 2017, we incurred research and development expenses of $6,168,125, as compared to $4,967,695 for the same period a year ago. Stock-based compensation expense included in research and development expenses for the nine months ended September 30, 2017 and 2016 was $989,884 and $889,666, respectively. Increased expenses in the nine months ended September 30, 2017, compared to the same period in the prior year are primarily due to increased spending on our Phase I clinical trials of MVT-5873 as a therapeutic and MVT-2163 as a diagnostic for pancreatic cancer and other CA 19.9 malignancies, and in-house staffing to support preclinical and clinical development efforts in support of our programs during the first two quarters of the year.
 
General and administrative expenses:
 
 
Three Months Ended
September 30,
 
 
 
%
Increase/
 
 
  Nine Months Ended
September 30,
 
 
%
Increase/
 
 
 
2017
 
 
2016
 
 
(Decrease)
 
 
2017
 
 
2016
 
 
(Decrease)
 
General and administrative
 $1,831,629 
 $2,420,516 
  (24.3)% 
 $7,513,621 
 $7,001,521
  (7.3)% 
 
For the three months ended September 30, 2017, we incurred general and administrative expenses of $1,831,629, as compared to $2,420,516 for the same period a year ago. Stock-based compensation expense included in general and administrative expenses for the three months ended September 30, 2017 and 2016 was $721,213 and $666,556, respectively. Stock-based compensation expense for the three months ended September 30, 2017 and 2016 included $68,250 and $8,333 in restricted stock for services, respectively. The decrease in general and administrative expenses was predominately due to a decrease in investor relations expenses of $437,394, board fees of $98,000, office facility expenses of $36,196, travel expenses of $20,383, franchise state taxes of $20,125, and payroll related costs of $14,588 as a result of the reduction in force beginning in August 2017. The remaining variance was offset by an increase in legal fees.
 
For the nine months ended September 30, 2017, we incurred general and administrative expenses of $7,513,621, as compared to $7,001,520 for the same period a year ago. Stock-based compensation expense included in general and administrative expenses for the nine months ended September 30, 2017 and 2016 was $3,526,488 and $2,570,326, respectively. Stock-based compensation expense for the nine months ended September 30, 2017 and 2016 included $131,800 and $592,329 in restricted stock for services, respectively. The increase in general and administrative expenses was primarily due to an increase in stock-based compensation expenses of $1,548,490 as a result of option granted during the second quarter. This increase was offset predominately by a decrease in investor relations of $313,661, business development consulting of $535,528, board fees of $136,953, insurance $30,929, and facility expenses $28,292.
 
Interest income and other income (expense):
 
 
Three Months Ended
September 30,
 
 
 %
Increase/
 
 
  Nine Months Ended
September 30,
 
 
%
Increase/
 
 
 
2017
 
 
2016
 
 
(Decrease)
 
 
2017  
 
 
2016  
 
 
(Decrease)
 
Interest and other expense
 $(231,471)
 $(266,051)
  (13.0)% 
 $(743,137)
 $(729,331)
  1.9% 
 
Interest and other expense was $231,471 and $266,051 for the three months ended September 30, 2017 and 2016, respectively. The amount of interest for the three months ended September 30, 2017, consisted of $142,007 related to Oxford Finance, First Insurance financing, and the Company's capital lease, $39,654 of financing cost amortization, $49,782 of warrant amortization and other items of $28. The amount for the three months ended September 30, 2016, consisted primarily of $158,735 of interest expense related to interest on the Company’s term loan from Oxford Finance, LLC (“Oxford Finance”), $47,584 of financing cost amortization, and $59,738 of warrant amortization.
 
 
 
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The amount of interest and other expense for the nine months ended September 30, 2017, consisted primarily of $449,300 interest expense related to the Company’s term loan from Oxford Finance, $130,416 of financing cost amortization, $163,727 of warrant amortization and other items of $306. The amount for the nine months ended September 30, 2016, consisted primarily of $443,175 interest expense related to interest on the Company’s term loan from Oxford Finance, $126,891 of financing cost amortization, and $159,302 of warrant amortization partially offset by interest income of $18.
 
The fair value of the warrants issued to Oxford Finance related to the term loan was recorded as a discount to the value of the note payable, and is amortized over the term of the loan. Financing costs incurred related to the term loan are also amortized over the term of the loan.
 
Critical Accounting Policies and Significant Judgments and Estimates
 
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements as well as the reported revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates and judgments related to our operating costs. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates under different assumptions or conditions.
 
Our critical accounting policies include:
 
Revenue recognition. Revenue from grants is based upon internal and subcontractor costs incurred that are specifically covered by the grant, including a facilities and administrative rate that provides funding for overhead expenses. NIH grants are recognized when we incur internal expenses that are specifically related to each grant, in clinical trials at the clinical trial sites, by subcontractors who manage the clinical trials, and provided the grant has been approved for payment. U.S. grant awards are based upon internal research and development costs incurred that are specifically covered by the grant, and revenues are recognized when we incur internal expenses that are related to the approved grant.
 
Any amounts received by us pursuant to the NIH grants prior to satisfying our revenue recognition criteria are recorded as deferred revenue.
 
Clinical trial expenses. We accrue clinical trial expenses based on work performed. In determining the amount to accrue, we rely on estimates of total costs incurred based on the enrollment of subjects, the completion of trials and other events defined in contracts. We follow this method because we believe reasonably dependable estimates of the costs applicable to various stages of a clinical trial can be made. However, the actual costs and timing of clinical trials are highly uncertain, subject to risks, and may change depending on several factors. Differences between the actual clinical trial costs and the estimated clinical trial costs that we have accrued in any prior period are recognized in the subsequent period in which the actual costs become known. Historically, these differences have not been material; however, material differences could occur in the future.
 
Stock-based compensation. Our stock-based compensation programs include grants of stock options and restricted stock to employees, non-employee directors and non-employee consultants. Stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the employee, non-employee director or non-employee consultant’s requisite service period (generally the vesting period of the equity grant). 
 
We account for equity instruments, including stock options and restricted stock, issued to employees and non-employees in accordance with authoritative guidance for equity based payments. Stock options issued are accounted for at their estimated fair value determined using the Black-Scholes-Merton option-pricing model, and restricted stock is accounted for using the grant date fair value of our common stock granted. The fair value of options and restricted stock granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are rendered. 
 
 
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Impairment of Goodwill. The Company applies the GAAP principles related to Intangibles – Goodwill and Other related to performing a test for goodwill impairment annually. During the quarter ended September 30, 2017, due to the Company’s determination to explore and evaluate strategic options, we performed a step 1 analysis and assessed the market value of the Company to determine whether an impairment had taken place. Based upon the analysis performed no impairment was noted, therefore performing step 2 was not required. We concluded that no impairment of Goodwill had taken place during the quarter ended September 30, 2017. Further, in performing a qualitative assessment, we concluded no events and circumstances had taken place that would have indicated that an impairment had taken place.
 
Income taxes. Significant judgment is required by management to determine our provision for income taxes, our deferred tax assets and liabilities, and the valuation allowance to record against our net deferred tax assets, which are based on complex and evolving tax regulations throughout the world. Our tax calculation is impacted by tax rates in the jurisdictions in which we are subject to tax and the relative amount of income earned in each jurisdiction. Our deferred tax assets and liabilities are determined using the enacted tax rates expected to be in effect for the years in which those tax assets are expected to be realized.
 
The effect of an uncertain income tax position is recognized as the largest amount that is “more-likely-than-not” to be sustained under audit by the taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. 
 
The realization of our deferred tax assets is dependent upon our ability to generate sufficient future taxable income. We establish a valuation allowance when it is more-likely-than-not that the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available evidence, both positive and negative. As of September 30, 2017, the Company concluded that it was more-likely-than-not that its deferred tax assets would not be realized, and a full valuation allowance has been recorded.
 
The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP. See our audited consolidated financial statements and notes thereto included in our 2016 Annual Report on Form 10-K, which contain additional accounting policies and other disclosures required by GAAP.
 
LIQUIDITY AND CAPITAL RESOURCES
 
To date, we have funded our operations primarily through government grants, proceeds from the sale of common and preferred stock, the issuance of debt, the issuance of common stock in lieu of cash for services, payments from collaborators and interest income. We have experienced negative cash flow from operations each year since our inception. As of September 30, 2017, we had an accumulated deficit of $101,046,557 and stockholders’ equity of $2,520,416. We expect to continue to incur increased expenses, resulting in losses, over the next several years due to, among other factors, our continuing and planned clinical trials and anticipated research and development activities, unless we can achieve a major license of one or more of our products under development. There can be no assurance that we will be able to achieve a license and earn revenues large enough to offset our operating expenses. We had cash of $3,052,778 and a working capital deficit of $2,918,271 as of September 30, 2017.
 
 
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September 30,
2017
 
 
December 31,
2016
 
Cash and cash equivalents
 $3,052,778 
 $3,979,290 
Working capital deficit
 $(2,918,271)
 $(1,396,656)
Current ratio
  
0.54:1
 
  
0.75:1
 
 
 
 
Nine Months Ended
September 30,
 
 
 
2017
 
 
2016
 
Cash provided by (used in):
 
 
 
Operating activities
 $(8,702,932)
 $(9,622,309)
Investing activities
 $(21,072)
 $(412,498)
Financing activities
 $7,797,492 
 $12,891,935 
 
 Sources and Uses of Net Cash for the Nine Months Ended September 30, 2017
 
Net cash used in operating activities was $8,702,932 for the nine months ended September 30, 2017, compared to $9,622,309 in the comparable period a year ago. The net cash used in both periods was primarily attributable to the net losses, adjusted to exclude certain non-cash items, primarily stock-based compensation and amortization of finance costs related to the term loan. Net cash used in operating activities for the nine months ended September 30, 2017 was also impacted by an increase of $403,210 in accounts payable and an increase in accrued clinical operation and site costs of $283,864.
 
The net cash used in investing activities for the nine months ended September 30, 2017 and 2016, amounted to $21,072 and $412,498, respectively, primarily as a result of discontinuing our in-house lab operations in the corresponding period.
 
Net cash provided by financing activities was $7,797,492 for the nine months ended September 30, 2017, compared to $12,891,935 in the comparable period in 2016. Net cash provided by financing activities for the nine months ended September 30, 2017 was attributable to the net proceeds from the May 2017 Private Placement and Public Offering during the second quarter of 2017, a Private Placement and Underwritten Offering in August 2017 and two Registered Direct Offerings in September 2017. Net cash provided by financing activities for the nine months ended September 30, 2016 was attributable to the net proceeds from the term loan during the first quarter in 2016.
 
On May 3, 2017, we sold 850 shares of Series H Preferred Stock at a stated value of $1,000 per share, representing an aggregate of $850,000 in the May 2017 Private Placement, to certain existing investors. The shares of Series H Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series H Preferred Stock, plus the base amount, if any, on such Series H Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series H Preferred Stock is $1,000 and the initial conversion price is $1.75 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. This financing is discussed in further detail in Note 5, Convertible Preferred Stock, Common Stock and Warrants of the Notes to Unaudited Condensed Consolidated Financial Statements included herein.
 
On May 19, 2017, we closed a public offering of 1,342,858 shares of common stock and 1,000,000 shares of newly designated Series G Preferred Stock, at $1.75 per share of common stock and Series G Preferred Stock.  The Series G Preferred Stock is initially convertible into 1,000,000 shares of common stock, subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events, to certain existing investors in the offering who, as a result of their purchases of common stock, would hold in excess of 4.99% of our issued and outstanding common stock, and elect to receive shares of our Series G Preferred Stock. This offering is discussed in further detail in Note 5, Convertible Preferred Stock, Common Stock and Warrants of the Notes to Unaudited Condensed Consolidated Financial Statements included herein. We received $4,100,000 in gross proceeds, before estimate underwriting discounts, commissions and offering expenses of $452,609.
 
On July 27, 2017, we entered into a subscription agreement with an accredited investor pursuant to which we agreed to sell 152,143 restricted shares of common stock for $125,000. As part of the July 2017 Private Placement, the Company agreed to reprice the investor’s warrant to purchase 225,225 shares of common stock from $11.10 to $2.00 per warrant share and remove the cashless exercise feature. The transaction closed on August 2, 2017.  The impact of repricing the warrants to $2.00 a share, which took effect on August 2, 2017, was immaterial, as the stock price on the date of the closing of the transaction was $0.70 and the warrants at $2.00 a share expired on October 10, 2017, unexercised.
 
 
 
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On August 11, 2017, we entered into a security purchase agreement with a group of existing investors in the Company, where we sold 2,386.36 shares of Series J Preferred Stock, at a stated value of $550 per share, representing an aggregate of approximately $1,312,500 before estimated offering costs of $ in August 2017 Financing. The shares of Series J Preferred Stock are convertible into shares of common stock based 123,083 on a conversion calculation equal to the stated value of the Series J Preferred Stock plus the base amount on such Series J Preferred Stock, as of such date of determination, divided by the conversion price. The stated value of each share of Series J Preferred Stock is $550 and the initial conversion price is $0.55 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. This financing is discussed in further detail in Note 15 – Convertible Preferred Stock, Common Stock and Warrants.
 
On September 14, 2017, the Company entered into subscription agreements with select accredited investors relating to the Company’s registered direct offering, issuance and sale of 4,000,000 shares of the Company’s common stock. The purchase price per share was $0.50. We received $2.0 million in gross proceeds, before offering expenses estimated at $147,639. The offering closed September 14, 2017.
 
On September 22, 2017, the Company entered into additional subscription agreements with select accredited investors relating to the Company’s registered direct offering, issuance and sale of 2,016,129 shares of the Company’s common stock. The purchase price per share was $0.62. We received $1.25 million in gross proceeds, before offering expenses estimated at $35,000. The offering closed on September 27, 2017.
 
On October 10, 2017, the Company entered into additional subscription agreements with select accredited investors relating to the Company’s registered direct offering, issuance and sale of 769,231 shares of the Company’s common stock. The purchase price per share was $0.65. We received $500,000 in gross proceeds, before offering expenses totaling approximately $15,000. The offering closed on October 11, 2017.
 
We plan to continue to fund the Company’s losses from operations and capital funding needs through equity or debt financings, strategic collaborations, licensing arrangements, government grants or other arrangements. Further, to extend availability of existing cash available for our programs for the purpose of achieving milestones or a strategic transaction, we have cut personnel from 25 full time people to 10, and reduced other operating expenses following the completion of two phase 1a clinical trials of our lead antibody HuMab 5B1, which has enabled us to reduce our expenditures on clinical trials. We continue to develop our radioimmunotherapy product MVT-1075 discussed further in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Several members of management have volunteered to defer receiving portions of their salaries until one or more business transactions can be achieved. However, we cannot be sure that capital funding will be available on reasonable terms, or at all. If we are unable to secure adequate additional funding, we may be forced to make additional reductions in spending, incur further cutbacks in personnel, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. In addition, if the Company does not meet its payment obligations to third parties as they come due, it may be subject to litigation claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
 
We anticipate that the Company will continue to incur net losses into the foreseeable future as we: (i) continue our clinical trial for the development of MVT1075 as a radioimmunotherapy, (ii) continue our clinical trial of MVT-5873 in combination with gemcitabine and nab-paclitaxal in first line therapy for the treatment of patients newly diagnosed with pancreatic cancer.; and (iii) continue operations as a public company. Based on receipt of the $125,000 private placement in July 2017, and financings of $1.3 million in August 2017, $2.0 million on September 14, $1.25 million on September 22, 2017, and $500,000 on October 10, 2017, and without any other additional funding or receipt of payments from potential licensing agreements, we expect we will have sufficient funds to meet our obligations until February 2018. These conditions give rise to substantial doubt as to the Company’s ability to continue as a going concern. Any of these actions could materially harm the Company’s business, results of operations, and prospects. These conditions give rise to substantial doubt as to the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
 
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If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict the Company’s ability to operate its business.
 
Future Contractual Obligations
 
On September 2, 2015, the Company entered into the Lease with AGP Sorrento Business Complex, L.P., for certain premises consisting of a total of approximately 14,971 square feet of office and laboratory space in buildings located at 11535-11585 Sorrento Valley Rd., San Diego, California, to serve as the Company’s corporate offices and laboratories. Because certain tenant improvements needed to be made to the New Premises before the Company could occupy the New Premises, the term of the Lease commenced on February 5, 2015. The Lease terminates six years after such term commencement date, unless earlier terminated in accordance with the Lease. Pursuant to the terms of the Lease, the current monthly base rent paid by the Company is $36,699, subject to annual increases as set forth in the Lease.
 
The Company has an option to extend the Lease term for a single, five-year period. If the Lease term is extended for the optional five-year period, the monthly base rent will be adjusted based on fair market rental value. In addition to rent, the Company agreed to pay a portion of the taxes and utility, maintenance and other operating costs paid or accrued in connection with the ownership and operation of the property.
 
Our master lease and sublease of our facility located at 3165 Porter Drive in Palo Alto, California were terminated on February 28, 2013, and we entered into a termination agreement with ARE-San Francisco No. 24 (“ARE”) on February 19, 2013 to voluntarily surrender its premises. Because of the termination agreement, we were relieved of further obligations under the master lease and further rights to rental income under the sublease and paid a termination fee of approximately $700,000. In addition to the termination fee, if we receive $15 million or more in additional financing, in the aggregate, an additional termination fee of $590,504 will be due to ARE. The additional financing was achieved in 2015 and the termination fee is reflected on the condensed consolidated balance sheet as an accrued lease contingency fee.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)", which contains new accounting literature relating to how and when a company recognizes revenue. Under ASU 2017-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for the Company’s fiscal year beginning January 1, 2018, which reflects a one year deferral approved by the FASB in July 2015, and will be adopted by the Company from January 1, 2018. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)."  This update will increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  Under the new guidance, lessees will be required to recognize the following for all leases (except for short-term leases) at the commencement date (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged, and it simplified the accounting for sale and leaseback transactions. Lessees will no longer be provided with a source of off-balance sheet financing. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently in the process of assessing what impact this new standard may have on our condensed consolidated financial statements.
 
 
 
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In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This update includes multiple provisions intended to simplify various aspects of the accounting for share-based payment transactions including accounting for excess tax benefits and tax deficiencies, classification of excess tax benefits in the statement of cash flows and accounting for award forfeitures. This update is effective for annual and interim reporting periods of public entities beginning after December 15, 2016, with early adoption permitted. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
 
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments”. This ASU requires instruments measured at amortized cost to be presented at the net amount expected to be collected. Entities are also required to record allowances for available-for-sale debt securities rather than reduce the carrying amount. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard provides guidance on eight (8) cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 with early adoption permitted. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
In August 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” This ASU requires the recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
In January 2017, the FASB issued ASU No. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323).” This ASU amends the disclosure requirements for ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” ASU No. 2016-02, “Leases (Topic 842) and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU states that if a registrant does not know or cannot reasonably estimate the impact that the adoption of the above ASUs is expected to have on the financial statements, then in addition to making a statement to that effect, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted. This ASU was effective upon issuance. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
 
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU eliminates Step 2 from the goodwill impairment test. Instead, an entity should recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
 
 
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In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. We expect the adoption of this new standard will not have a material impact on our condensed consolidated financial statements.
 
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed consolidated financial statements.
 
Off-Balance Sheet Arrangements
 
We have no material off-balance sheet arrangements.
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 
Interest Rate Sensitivity
 
Our cash and cash equivalents of $3,052,778 at September 30, 2017, consisted of cash and money market funds, all of which will be used for working capital purposes. We do not enter into investments for trading or speculative purposes. Our primary exposure to market risk is related to the variability of interest rates on our term loan with Oxford Finance, LLC initiated in January 2016.  Under the loan agreement the interest rate for the term loan is set monthly at an Index Rate plus 11.29%, where the Index Rate is the greater of the 30-day LIBOR rate or 0.21%.  Interest is due on the first day of each month, in arrears, calculated based on a 360-day year. In addition, interest income on our deposits is affected by changes in the general level of interest rates in the United States. Because of the short-term nature of our cash and cash equivalents, we do not believe that we have any material exposure to changes in their fair values as a result of changes in interest rates. The continuation of historically low interest rates in the United States will limit our earnings on investments held in U.S. dollars.
 
We do not hold any derivative financial instruments or commodity-based instruments.
 
Item 4.
Controls and Procedures.
 
Based on an evaluation carried out as of the end of the period covered by this quarterly report under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective at the reasonable assurance level. There was no change in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
 
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PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings.
 
None.
 
Item 1A.
Risk Factors.
 
RISK FACTORS
 
We will be required to raise additional funds to finance our operations and remain a going concern; we may not be able to do so when necessary, and/or the terms of any financings may not be advantageous to us, requiring cutbacks in personnel.
 
Our operations to date have consumed substantial amounts of cash. Negative cash flows from our operations are expected to continue over at least the next several years. Our cash utilization amount is highly dependent on the progress of our product development programs, particularly, the results of our preclinical and clinical studies and those of our partners, the cost, timing and outcomes of regulatory approval for our product candidates, and the rate of recruitment of patients in our human clinical trials. In addition, the further development of our ongoing clinical trials will depend on upcoming analysis and results of those studies and our financial resources at that time.
 
Although we have raised approximately $4,900,000, net of offering costs, since June 30, 2017, for various financings and offerings, we will require future additional capital infusions including public or private financing, strategic partnerships or other arrangements with organizations that have capabilities and/or products that are complementary to our own capabilities and/or products, in order to continue the development of our product candidates. At present, we have sufficient cash to fund operations until February 2018 assuming we do not complete any strategic or financing transactions between now and February 2018. We are exploring and evaluating strategic options with the goal of maximizing stockholder value, and currently working with our financial advisor Greenhill & Co., to assist us with our efforts.
 
Our ongoing capital requirements will depend on numerous factors, including: the progress and results of preclinical testing and clinical trials of our product candidates under development; the costs of complying with the FDA and other domestic and foreign regulatory agency requirements, the progress of our research and development programs and those of our partners; the time and costs expended and required to obtain any necessary or desired regulatory approvals; the resources that we devote to manufacturing expenditures; our ability to enter into licensing arrangements, including any unanticipated licensing arrangements that may be necessary to enable us to continue our development and clinical trial programs; the costs and expenses of filing, prosecuting and, if necessary, enforcing our patent claims, or defending against possible claims of infringement by third-party patent or other technology rights; the cost of commercialization activities and arrangements, if any, that we undertake; and, if and when approved, the demand for our products, which demand depends in turn on circumstances and uncertainties that cannot be fully known, understood or quantified unless and until the time of approval, including the range of indications for which any product is granted approval. If we are unable to raise additional capital, then we may have to substantially curtail our clinical trials which could slow the progress in the development of our products.
 
We are required to obtain the consent of an existing investor, or the Lead Investor, to certain future transactions, which may hinder our ability to obtain future financing.
 
We granted to the Lead Investor the right to approve future transactions that require stockholder approval under the rules of the NASDAQ Capital Market or any state laws (the “Consent”). These transactions could include offerings of our securities, mergers, acquisitions, or sales of some or substantially all of our assets.
  
Should the Consent be required in connection with future offerings, we may be required again to provide additional consideration, including, but not limited to, consideration in the form of cash and/or additional shares of our capital stock and/or securities convertible into or exercisable for shares of our capital stock, in order to obtain the Consent.  If we are unable to obtain the Consent when necessary for future offerings, we may be unable to raise additional funds. An inability to raise additional funds could have a material adverse effect on our financial condition, results of operations, ability to conduct our business and on the price of our common stock.
  
 
 
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We may fail to regain compliance for continued listing on the Nasdaq Capital Market and a delisting of our stock could make it more difficult for investors to sell their shares
 
Our common stock was approved for listing on the Nasdaq Capital Market in August 2016 where it continues to be listed. The listing rules of the Nasdaq Capital Market require the Company to meet certain requirements. These continued listing standards include specifically enumerated criteria, such as:
 
a $1.00 minimum closing bid price;
 
stockholders’ equity of $2.5 million;
 
500,000 shares of publicly-held common stock with a market value of at least $1 million;
 
300 round-lot stockholders; and
 
compliance with the Nasdaq Capital Market’s corporate governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of the Nasdaq Capital Market’s discretionary authority.
  
On September 6, 2017, the Nasdaq Capital Market informed the Company that it had failed to maintain a minimum bid price of $1.00 per share for more than 30 consecutive business days. The Company can regain compliance if, at any time during the 180-day period ending March 5, 2018, the closing bid price of the common stock is at least $1.00 for a minimum of ten consecutive business days. On October 2, 2017, at a special meeting of stockholders, our Board of Directors received approval, if the Board deems to be necessary to achieve a higher stock price to continue to meet the continued listing qualifications for the Nasdaq Capital Market, to amend our Amended and Restated Certificate of Incorporation to effect a reverse stock split of our issued and outstanding common stock by a ratio of not less than one-for-two and not more than one-for-twenty at any time prior to September 28, 2018, with the exact ratio to be set at a whole number within this range as determined by the Board of Directors. in its sole direction to continue to meet the continued listing qualifications for the Nasdaq Capital Market. No decision has been made yet by our Board of Directors to implement a reverse split. However, if we were to effect such a reverse stock split, our stockholders may bring actions against us in connection with that reverse stock split that could divert management resources, cause us to incur significant expenses or cause our common stock to be further diluted. Continued listing during this period is also contingent on our continued compliance with all listing requirements other than for the minimum bid price. On August 22, 2017, the Nasdaq Capital Market notified us that we also no longer satisfied the minimum $2.5 million stockholders’ equity requirement. As of September 30, 2017, we believe that we regained compliance with the stockholders’ equity requirement.
 
If we fail to comply with the Nasdaq Capital Market’s continued listing standards, we may be delisted and our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements.  In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all.
 
Finally, delisting of our common stock would likely result in our common stock becoming a “penny stock” under the Exchange Act.  The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the shares but must trade it on an unsolicited basis. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for shares that become subject to those penny stock rules. Under such circumstances, shareholders may find it more difficult to sell, or to obtain accurate quotations, for our common stock, and our common stock would become substantially less attractive to certain purchasers such as financial institutions, hedge funds and other similar investors.

 
 
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Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
On July 27, 2017, we entered into a subscription agreement with an accredited investor pursuant to which we agreed to sell 152,143 restricted shares of common stock for $125,000. The transaction closed on August 2, 2017. 
 
The securities referenced above were issued in reliance on the exemption from registration afford by Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
 
Except as set forth in this Item 2, there were no unregistered securities sold by us during the quarter ended September 30, 2017 that were not otherwise disclosed in a Current Report on Form 8-K.
 
Item 3.
Defaults Upon Senior Securities.
 
None.
 
Item 4.
Mine Safety Disclosures.
 
None.
 
Item 6.
Exhibits.
 
EXHIBIT INDEX
Exhibit
No.
 
Description
 
Form
Filing
Date/Period
End
 
Exhibit
Number
 
 
 
 
 
 
 
 
 
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
 
 
 
 
 
 
 
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
 
 
 
 
 
 
 
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 
 
 
 
 
 
 
 
101
Interactive data file*
 10-Q
9/30/2017 
101 
 
*Filed herewith 
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
Date: November 7, 2017
MABVAX THERAPEUTICS HOLDINGS, INC.
 
 
 
 
By:
/s/ J. David Hansen
 
 
J. David Hansen
 
 
President and Chief Executive Officer (Principal Executive Officer authorized to sign on behalf of the registrant)
 
 
 
 
 
 
 
 
By:
/s/ Gregory P. Hanson
 
 
Gregory P. Hanson
 
 
Chief Financial Officer (Principal Financial and Accounting Officer authorized to sign on behalf of the registrant)
 
 
 
 
 
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