UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~June 30, ~~2017~~2020

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

For the transition period from to

Commission File Number: 001-37758

MOLECULIN BIOTECH, INC.

(Exact name of registrant as specified in its charter)

Delaware

2834

47-4671997

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(IRS Employer

Identification Number)

~~2575 West Bellfort,~~

5300 Memorial Drive,

Suite ~~333~~

~~Houston, TX~~

950

~~77054~~

Houston

77007

(Address of principal executive offices)

(Zip Code)

~~713-300-5160~~

~~(Registrant’s telephone number, including area code)~~

713-300-5160

(Registrant’s telephone number, including area code)

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

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

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



Large accelerated filer o☐	~~Accelerated filer~~ o	Smaller reporting company x ☒
Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~☒			Emerging growth company x☒
Accelerated filer ☐

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

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

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


Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	MBRX	The NASDAQ Stock Market LLC

The registrant had ~~21,136,059~~61,704,290 shares of common stock outstanding at ~~November 1, 2017.~~

August 7, 2020.

Moleculin Biotech, Inc.

~~Form 10-Q~~

~~For the quarterly period ended September 30, 2017~~

Table of Contents


			Page
		PART I – FINANCIAL INFORMATION

~~ITEM 1. FINANCIAL STATEMENTS~~	3
Item 1.
~~ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Condensed Consolidated Financial Statements (unaudited)	203

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	293

~~ITEM 4. CONTROLS AND PROCEDURES~~Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months ended June 30, 2020 and 2019	304
		Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2020 and 2019	5
		Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 2020 and 2019	6
		Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.		Controls and Procedures	28

		PART II – OTHER INFORMATION	30
Item 1.
~~ITEM 1. LEGAL PROCEEDINGS~~Legal Proceedings	30
Item 1A.
~~ITEM 1A. RISK FACTORS~~Risk Factors	30
Item 2.
~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~Unregistered sales of Equity Securities and Uses of Proceeds	3031
Item 3.
~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~Defaults Upon Senior Securities	31
Item 4.
~~ITEM 4. MINE SAFETY DISCLOSURES~~Mine Safety Disclosures	31
Item 5.
~~ITEM 5. OTHER INFORMATION~~Other Information	31
Item 6.
~~ITEM 6. EXHIBITS~~Exhibits	32

		~~SIGNATURES~~Signatures	33

PART 1.1 FINANCIAL INFORMATION

Item 1. Financial ~~Statements.~~Statements

Moleculin Biotech, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for ~~par~~share and per share ~~amounts)~~data)

(unaudited)


	September 30, 2017			December 31, 2016				June 30,		December 31,
	(Unaudited)							2020		2019
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	8,736		$	5,007		Cash and cash equivalents	$	16,734	$	10,735
Prepaid expenses and other	727			215
Prepaid expenses and other current assets							Prepaid expenses and other current assets	3,015		2,749
Total current assets	9,463			5,222			Total current assets	19,749		13,484

Furniture and equipment, net of accumulated depreciation of $14 and $6, respectively	22			23
Furniture and equipment, net							Furniture and equipment, net	238		316
Intangible assets	11,148			11,148			Intangible assets	11,148		11,148
Operating lease right-of-use asset							Operating lease right-of-use asset	245		287
Total assets	$	20,633		$	16,393		Total assets	$	31,380	$	25,235

Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable and accrued expenses	$	1,089		$	1,069
Convertible notes payable	—			276
Warranty liability	743			—
Accounts payable							Accounts payable	$	1,918	$	2,153
Accrued expenses and other current liabilities							Accrued expenses and other current liabilities	1,821		1,417
Total current liabilities	1,832			1,345			Total current liabilities	3,739		3,570

Long-term deferred compensation – related party	150			88
Operating lease liability - long-term, net of current portion							Operating lease liability - long-term, net of current portion	220		276
Warrant liability - long-term							Warrant liability - long-term	11,792		5,818
Total liabilities	1,982			1,433			Total liabilities	15,751		9,664

Commitments and contingencies (Note 7)	—			—			Commitments and contingencies (Note 7)

Stockholders’ equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued or outstanding	—			—
Common stock, $0.001 par value; 75,000,000 shares authorized, 20,822,214 issued outstanding at September 30, 2017 and 12,164,852 issued and outstanding at December 31, 2016	21			12
Stockholders' equity							Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized, 0 shares issued or outstanding							Preferred stock, $0.001 par value; 5,000,000 shares authorized, 0 shares issued or outstanding	—		—
Common stock, $0.001 par value; 100,000,000 shares authorized as of June 30, 2020 and December 31, 2019, 60,403,164 and 45,727,700 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively							Common stock, $0.001 par value; 100,000,000 shares authorized as of June 30, 2020 and December 31, 2019, 60,403,164 and 45,727,700 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	60		46
Additional paid-in capital	29,925			19,623			Additional paid-in capital	66,428		55,055
Accumulated other comprehensive income							Accumulated other comprehensive income	23		31
Accumulated deficit	(11,295		)	(4,675		)	Accumulated deficit	(50,882)		(39,561)
Total stockholders’ equity	18,651			14,960			Total stockholders’ equity	15,629		15,571

Total liabilities and stockholders’ equity	$	20,633		$	16,393		Total liabilities and stockholders’ equity	$	31,380	$	25,235

See accompanying notes to ~~the~~unaudited condensed consolidated financial statements.

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Operations

~~(Unaudited)~~ and Comprehensive Loss

(in thousands, except share and per share ~~amounts)~~data)

(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues $ —
$ —
$ —
$ —

Operating expenses:

Research and development 1,061
497
2,260
616
General and administrative 1,338
924
2,987
1,848
Depreciation 5
1
13
2
Total operating expenses 2,404
1,422
5,260
2,466

Loss from operations (2,404 ) (1,422 ) (5,260 ) (2,466 )

Other income (expense):

Loss from change in fair value of warrant liability (470 ) —
(2,753 ) —
Gain from settlement of liability —
—
149
—
Gain from expiration of warrants —
—
1,238
—
Other income 9
—
8
—
Interest expense (1 ) (10 ) (2 ) (37 )

Net loss $ (2,866 ) $ (1,432 ) $ (6,620 ) $ (2,503 )

Net loss per common share – basic and diluted $ (0.14 ) $ (0.12 ) $ (0.37 ) $ (0.28 )
Weighted average common shares outstanding – basic and diluted 20,534,720
11,579,239
17,683,441
9,066,804


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues	$	—	$	—	$	—	$	—

Operating expenses:
Research and development	3,329		2,099		6,535		5,031
General and administrative	1,653		1,484		3,463		3,075
Depreciation and amortization	52		49		98		97
Total operating expenses	5,034		3,632		10,096		8,203
Loss from operations	(5,034)		(3,632)		(10,096)		(8,203)
Other income (loss):
Gain (loss) from change in fair value of warrant liability	(5,099)		2,407		(1,254)		2,936
Other income, net	17		—		22		—
Interest income, net	4		4		7		5
Net loss	$	(10,112)	$	(1,221)	$	(11,321)	$	(5,262)

Net loss per common share - basic and diluted	$	(0.17)	$	(0.03)	$	(0.21)	$	(0.15)
Weighted average common shares outstanding, basic and diluted	59,483,267		42,393,031		54,707,132		35,765,790

Net Loss	$	(10,112)	$	(1,221)	$	(11,321)	$	(5,262)
Other comprehensive income (loss):
Foreign currency translation	25		(2)		(8)		(13)
Comprehensive loss	$	(10,087)	$	(1,223)	$	(11,329)	$	(5,275)

See accompanying notes to ~~the~~unaudited condensed consolidated financial statements.

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Cash Flows

~~(Unaudited)~~

(in thousands)

(unaudited)

Nine Months Ended September 30,
2017 2016
Cash Flows from Operating Activities:
Net loss $ (6,620 ) $ (2,503 )
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation 13
2
Stock-based compensation 487
209
Deferred CEO compensation 62
88
Change in fair value of warrant liability 2,753
—
Gain in settlement of liability (149 ) —
Gain from expiration of warrants (1,238 ) —
Other (9 ) —
Changes in operating assets and liabilities:

Prepaid expenses (518 ) (245 )
Accounts payable and accrued expenses 285
(147 )
Net Cash Used in Operating Activities (4,934 ) (2,596 )
Cash Flows from Investing Activities:

Purchase of fixed assets (12 ) (10 )
Purchase paid for acquisition of Moleculin, LLC, net with cash acquired —
(100 )
Net Cash Used in Investing Activities (12 ) (110 )
Cash Flows from Financing Activities:

Proceeds from notes payable —
165
Payments on note payable —
(470 )
Proceeds from exercise of warrants 3,808
—
Proceeds from sale of common stock units, net of cash stock issuance costs 4,867
9,167
Net Cash Provided by Financing Activities 8,675
8,862
Net change in cash and cash equivalents 3,729
6,156
Cash and cash equivalents, at beginning of period 5,007
28
Cash and cash equivalents, at end of period $ 8,736
$ 6,184
Supplemental disclosures of cash flow information:

Cash paid for interest $ 2
$ 48
Cash paid for income taxes $ —
$ —
Supplemental disclosure of non-cash investing and financing activities:

Common stock issued for conversion of debt $ 302
$ 342
Common stock issued for services provided $ 89
$ —
Common stock issued to acquire Moleculin, LLC $ —
$ 9,774


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

Supplemental disclosures of cash flow information:
Cash paid for interest	$	—	$	1
Cash paid for taxes	$	15	$	11
Non-cash investing and financing activities:
Purchases of property and equipment in accounts payable and accrued liabilities	$	21	$	21

See accompanying notes to ~~the~~unaudited condensed consolidated financial statements.

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

~~(Unaudited)~~

(in thousands, except for ~~shares and per unit)~~shares)

(unaudited)

Common Stock
Number Amount
Additional
Paid-In-Capital

Accumulated
Deficit

Stockholders'
Equity
Balance at December 31, 2016 12,164,852
$ 12
$ 19,623
$ (4,675 ) $ 14,960

Issued for cash – sale of units at $1.35 per unit, net of stock issuance costs of $550 3,710,000
4
313
317
Warrants exercised, net of issuance costs of $80 2,703,434
3
8,753

8,756
Issued for cash - sale of common stock in ATM offering, net of issuance costs of $47 154,121
—
360
360
Stock-based compensation
487
487
Issued for convertible debt 2,010,640
2
300
302
Issued for settlement of service 79,167
—
89
89
Net loss
(6,620 ) (6,620 )
Balance at September 30, 2017 20,822,214
$ 21
$ 29,925
$ (11,295 ) $ 18,651


	Six Months Ended June 30, 2020
	Common Stock									Accumulated Other Comprehensive Income (Loss)
	Shares	Par Value Amount		Additional Paid-In Capital		Accumulated Deficit						Stockholders' Equity
Balance, December 31, 2019	45,727,700	$	46	$	55,055	$	(39,561)	$	31	$	15,571
Issued for cash - sale of common stock, net of issuance costs of $709	7,500,000	7		559		—		—		566
Stock-based compensation	—	—		397		—		—		397
Consolidated net loss	—	—		—		(1,209)		—		(1,209)
Cumulative translation adjustment	—	—		—		—		(33)		(33)
Balance, March 31, 2020	53,227,700	$	53	$	56,011	$	(40,770)	$	(2)	$	15,292
Issued for cash - sale of common stock, net of issuance costs of $336	7,170,964	7		10,000		—		—		10,007
Warrants exercised	4,500	—		9		—		—		9
Stock-based compensation	—	—		408		—		—		408
Consolidated net loss	—	—		—		(10,112)		—		(10,112)
Cumulative translation adjustment	—	—		—		—		25		25
Balance, June 30, 2020	60,403,164	$	60	$	66,428	$	(50,882)	$	23	$	15,629

	Six Months Ended June 30, 2019
	Common Stock									Accumulated Other Comprehensive Income (Loss)
	Shares	Par Value Amount		Additional Paid-In Capital		Accumulated Deficit						Stockholders' Equity

Balance, December 31, 2018	28,528,663	$	29	$	40,564	$	(26,356)	$	35	$	14,272
Issued for cash - sale of common stock, net of issuance costs of $617	5,250,000	5		3,221		—		—		3,226
Issued to Lincoln Park - sale of common stock	605,367	—		883		—		—		883
Stock options exercised	25,000	—		5		—		—		5
Stock-based compensation	—	—		348		—		—		348
Consolidated net loss	—	—		—		(4,041)		—		(4,041)
Cumulative translation adjustment	—	—		—		—		(11)		(11)
Balance, March 31, 2019	34,409,030	$	34	$	45,021	$	(30,397)	$	24	$	14,682
Issued for cash - sale of common stock, net of issuance costs of $302	9,375,000	9		3,575		—		—		3,584
Warrants exercised	1,413,018	2		4,729		—		—		4,731
Stock-based compensation	—	—		318		—		—		318
Consolidated net loss	—	—		—		(1,221)		—		(1,221)
Cumulative translation adjustment	—	—		—		—		(2)		(2)
Balance, June 30, 2019	45,197,048	$	45	$	53,643	$	(31,618)	$	22	$	22,092

See accompanying notes to ~~the~~unaudited condensed consolidated financial statements.

Moleculin Biotech, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

~~(Unaudited)~~

1. Nature of Business and Liquidity

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

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

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

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

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

Drug Candidates - Within the Company's core technologies, it currently has 5 drug candidates representing ~~three~~3 substantially different ~~approaches to treating cancer. Liposomal Annamycin, which we refer to as~~mechanisms of action. Annamycin is a chemotherapy designed to inhibit the replication of DNA of rapidly dividing ~~cells. WP1122~~cells and is the Company's most mature drug candidate. The Company has a trial open in Poland and one that recently completed in the US. The US Phase 1 portion of the Phase 1/2 trial reached key safety end points in early 2020. As a result of discussions with the FDA, the Company will utilize its trial in Europe to establish a recommended Phase 2 dose (RP2D) and to generate additional safety and efficacy data as requested by the FDA. The Phase 1/2 trial in Poland continues its dose escalation and is in its fifth cohort. So far both trials have demonstrated that Annamycin, to date, is safe and is non-cardiotoxic. The trials have demonstrated initial efficacy as well.

In addition to Annamycin, the Company has other drug development projects, 2 of which are also in clinical trials:

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

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

•WP1220 is an ~~inhibitor~~analog of ~~glycolysis intended~~WP1066 for which Polish authorities approved the Company's Clinical Trial Application (CTA) in 2019 for a Phase 1 "proof-of-concept" clinical trial to ~~cut~~study the topical treatment of CTCL. This trial was completed, and the ~~fuel supply~~Company believes it demonstrated sufficient efficacy to justify a Phase 2 trial. The Company intends to file a Phase 2 IND or its equivalent or to attempt to join efforts with a strategic partner in 2021 for the further development of ~~tumor cells, which are often overly dependent on glycolysis as compared to healthy cells. And, finally, WP1066 and~~ WP1220 ~~have shown capability, in~~ ~~in vivo~~ ~~testing, of altering the cell signaling associated with tumors.~~

~~Annamycin is an anthracycline being studied~~ for the treatment of ~~relapsed~~CTCL.

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

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

In September 2018, the physician-sponsored WP1066 Phase 1 clinical trial for the treatment of glioblastoma and melanoma metastasized to the brain, which opened for recruitment in July 2018, began treating patients. In April 2020, a second physician-sponsored Phase 1 trial for the potential treatment of pediatric brain tumors began recruitment and has treated its first patient. In August ~~2015,~~2019, the Company acquired the rights and prior development data regarding Annamycin and the prior Annamycin investigative new drug application (“IND”) with the U.S. Food and Drug Administration (“FDA”), including all trade secrets, know-how, confidential information and other intellectual property rights. Annamycin had been incompleted its proof-of-concept Phase 1 clinical trials pursuant to an IND filed with the FDA by a prior drug developer, which was terminated when that developer ceased activity for financial reasons. Our review of that prior clinical data leads us to believe that Annamycin may have greater potential for efficacy and safety in relapsed or refractory AML patients than currently available therapies.

Because the prior developer of Annamycin allowed their IND to lapse, we were required to submit a new IND for continued clinical trials with Annamycin, which the FDA was allowed to proceed on September 22, 2017. The Company announced on October 3, 2017 that it had signed an agreement with a hospitaltrial in Poland to participate in this trial, which will be our first clinical site, assuming the receipt of regulatory approval in Poland. The data presented in our successful IND submission to FDA were submitted to Polish regulatory authorities on October 23, 2017, in support of our request for Clinical Trial Authorization (“CTA”) in that country. Depending on the timingstudy WP1220, a part of the ~~CTA approval, we could begin treating patients in~~WP1066 portfolio, for the treatment of CTCL. This trial demonstrated the safety of WP1220 and also demonstrated, the Company believes, initial efficacy sufficient for a Phase ~~I/II clinical trial, as early as late December of 2017.~~2 trial. The ~~Phase I dose-ranging portion of this trial is designed to establish a new Recommended Phase 2 Dosage, or RP2D, which we believe was not adequately explored in previous trials.~~

The Annamycin drug substance is no longer covered by any existing patent protection. On July 18, 2017, the Company announced that it had signed a new technology license agreement with MD Anderson Cancer Center based on new patent applications that the Company intends to file ~~relating~~a Phase 2 IND or its equivalent or to ~~Annamycin. These patent applications are related~~attempt to join efforts with a strategic partner in 2021 for the ~~formulation, synthetic process and reconstitution related to our Annamycin drug product candidate, although there is no assurance that we will be successful in obtaining such patent protection.~~

~~On March 21, 2017, we received notice that the FDA had granted us Orphan Drug designation for Annamycin~~further development of WP1220 for the treatment of ~~AML. Orphan Drug status could entitle us to market exclusivity~~CTCL.

Moleculin has recently announced discoveries (both internally funded and independently developed) supporting the potential use of ~~up to 7~~WP1122 for the treatment of COVID-19 and ~~10 years from~~other viral diseases. The Company is focusing resources on the date of approval of a New Drug Application (“NDA”) in the United States. If we obtain similar designation in the European Union (“EU”), we could be entitled to 10 years of market exclusivity there from the date of approval of a Marketing Authorization Application (“MAA”) in the United States and the European Union (“EU”), respectively. Separately, the FDA may also grant market exclusivity of up to 5 years with the approvaldevelopment of an ~~active moiety (a “new chemical entity,”~~IND or its equivalent for testing WP1122 in COVID-19 patients, which ~~we anticipate Annamycin would be), but there can be no assurance that such exclusivity will be granted.~~it expects to submit before the end of 2020.

Our other drug development projects relate to two distinct portfolios of small molecules, which we refer to as the WP1066 Portfolio, focused on the modulation of key oncogenic transcription factors involved in the progression of cancer, and the WP1122 Portfolio, a suite of molecules targeting the metabolic processes involved in cancer in general, and glioblastoma (the most common form of brain tumor) and pancreatic cancer in particular. We haveLicenses - The Company has been granted royalty-bearing, worldwide, exclusive licenses for the patent and technology rights related to ~~our WP1066 Portfolio and WP1122 Portfolio~~all of MBI's drug technologies, as these ~~patent~~intellectual property rights are owned in part or entirely by MD Anderson.

~~During 2017,~~ The Annamycin drug substance is no longer covered by any existing patent protection, however, the Company ~~announced the following progress on these two portfolios: 1)~~filed new patent applications in July 2019 for formulation, synthetic process and reconstitution related to MBI's Annamycin

drug product candidate, although there is no assurance that it engaged a contract research organization (“CRO”) to prepare for a proof-of-concept trial in Poland to study the Company's drug candidate WP1220 (part of the WP1066 portfolio described above) for the treatment of cutaneous T-cell lymphoma; 2) the Company ~~entered into collaborative~~will be successful in obtaining such patent protection. Such technology is also licensed from MD Anderson. The Company sponsors significant research at MD Anderson. New patents may result out of this research. From time to time, there are license issues that need to be discussed and handled with MD Anderson such as adding additional patents to existing license agreements ~~with the University~~and extension of ~~Bergen in Norway to test WP1122 in combination with another drug~~milestones. The Company believes that such issues will be handled in the ~~treatment~~ordinary course of business.

~~of brain tumors and separately to conduct further analysis on the capability of WP1066 to stimulate anti-tumor immune response: 3)~~On May 20, 2020, the Company entered into an ~~agreement~~amendment (Amendment) to the Patent and Technology License Agreement dated April 2, 2012 entered into by and between Intertech Bio Corporation and The Board of Regents (Board) of The University of Texas System on behalf of The University of Texas M. D. Anderson Cancer Center (UTMDACC), as previously amended on October 19, 2015 (Amendment 1) and November 1, 2018 (Amendment 2) and collectively, the (WP122 Agreement). The WP1122 Agreement was assigned to the Company on November 17, 2015. Pursuant to the WP1122 Agreement, the Company obtained a royalty-bearing, worldwide, exclusive license to intellectual property, including patent rights, related to its WP1122 portfolio and to the drug product candidate, WP1122. In consideration, the Company must make payments to UTMDACC including an up-front payment, license documentation fee, annual maintenance fee, milestone payments and minimum annual royalty payments for sales of products developed under the WP1122 Agreement. Pursuant to the WP1122 Agreement, the Board and UTMDACC have the right to terminate the WP1122 Agreement if the Company does not, within certain time periods: (i) file an Investigational New Drug Application with the ~~Mayo Clinic~~FDA for a Phase I Study for a Licensed Product ("IND filing requirement"); and (ii) commence a Phase I Study for a Licensed Product (Phase I study requirement). Pursuant to the Amendment, the Company is required to meet the IND filing requirement within nine months of the date of the Amendment (the previous requirement was three years from the date of Amendment 1 and 18 months from the date of Amendment 2) and the Phase I study requirement within 2.5 years of the date of the Amendment (the previous requirement was five years from the date of Amendment 1 and 3.5 years from the date of Amendment 2); provided the Company has the right to extend such time periods for up to an additional 18 months by the payment of certain extension payments to UTMDACC.

Independently from potential patent protection, MBI has received Orphan Drug designation (ODD) from the FDA for Annamycin for the treatment of AML and for WP1066 for the treatment of ~~rare pediatric brain tumors:~~glioblastoma. ODD may provide tax and 4)other benefits during product development, and if either product is approved, may lead to a grant of seven-year market exclusivity. Under that exclusivity, which runs from the date of the approval of the New Drug Application (NDA) in the US, the FDA generally (there are important exceptions) could not approve another product containing the same drug for the designated indication. The Company also intends to apply for similar status in the European Union (EU) where market exclusivity could extend to 10 years from the date of Marketing Authorization Application (MAA) approval. Separately, the FDA may also grant market exclusivity of 5 years for newly approved new chemical entities (which the Company ~~agreed to assist MD Anderson in submitting an IND~~believes Annamycin would be one), which would preclude approval of any other annamycin product, but there can be no assurance that such exclusivity will be granted. In April 2019, FDA approved the Company's request for Fast Track Designation for Annamycin for the ~~study~~treatment of ~~WP1066~~relapsed or refractory AML. Fast Track Designation, the purpose of which is to expedite drug development and approval, is granted to drugs intended to treat serious conditions and where data demonstrate the potential to address an unmet medical need.

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

Nasdaq - On April 23, 2020, the Company received a letter from NASDAQ notifying the Company that ~~has metastasized to the brain, which MD Anderson filed on November 1, 2017.~~

~~In accordance~~it had regained compliance with ~~FASB ASC Topic 280, Segment Reporting, we view our operations and manage our business~~NASDAQ Listing Rule 5550(a)(2) as ~~principally one segment. As~~ a result of the ~~financial information disclosed herein represents all~~closing bid price of the ~~material financial information related to our principal operating segment.~~Company's common stock being at $1.00 per share or greater for the 10 consecutive business days from April 8, 2020 through April 22, 2020. Accordingly, the Company is in compliance with the Bid Price Rule and NASDAQ considers the matter closed.

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

~~2. Summary of Significant Accounting Policies~~

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

accounting principles generally accepted in the ~~United States of America (“U.S. GAAP”)~~US (U.S. GAAP) for financial information, and in accordance with the rules and regulations of the ~~United States~~US Securities and Exchange Commission ~~(the “SEC”)~~(SEC) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These interim condensed unaudited consolidated financial statements should be read in conjunction with the audited financial statements of the Company as of December 31, ~~2016~~2019 and ~~for the period from July 28, 2015 (inception) to~~ December 31, ~~2015~~2018 and notes thereto contained in the Form 10-K filed with the SEC on ~~April 3, 2017.~~March 19, 2020.

Principles of consolidation - The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP. The company views its operations and manages its business in 1 operating segment. All long-lived assets of the Company reside in the US.

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

Going Concern - These condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As of ~~September~~June 30, ~~2017,~~2020, the Company has incurred an accumulated deficit of ~~$11.3~~$50.9 million since inception and had not yet generated any revenue from operations. Additionally, management anticipates that its cash on hand as of ~~September~~June 30, ~~2017~~2020, is sufficient to fund its planned operations into but not beyond the near term. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. Management cannot be certain that such events or a combination thereof can be achieved.

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

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

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


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

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

Intangible Assets - Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Acquired intangible assets identified as in-process research and development (IPR&D) assets, are considered indefinite lived until the completion or abandonment of the associated research and development efforts. If the associated research and development effort is abandoned, the related IPR&D assets will be written-off and the Company will record a noncash impairment loss on its statements of operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. The Company evaluates the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. NaN impairments of intangible assets have been identified during any of the periods presented. Intangible assets are tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach.

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

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

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

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

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

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

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

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

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

Level 3 – Unobservable inputs for the asset or liability.

The Company’s financial assets and liabilities recorded at fair value on a recurring basis include the fair value of ~~our~~ warrant liability discussed in Note 4. ~~The fair value of this warrant liability is included in current liabilities on the accompanying financial statements as of September 30, 2017, as warrants are currently being exercised.~~

The following table provides ~~the financial~~ assets and liabilities reported at fair value and measured on a recurring basis at ~~September~~June 30, ~~2017:~~2020 and December 31, 2019 (in thousands):


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

~~In thousands~~

Description
Liabilities
Measured at Fair
Value

Quoted Prices
in Active
Markets for
Identical
Assets (Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant Other
Unobservable Inputs
(Level 3)
Fair value of warrant liability:

2017 $ 743
$ —
$ —
$ 743

The ~~following~~ table ~~provides a summary of changes in fair value associated with the Level 3 liabilities for the quarter ended September 30, 2017:~~

~~In thousands~~

Warrant
Liability –
Current

Warrant
Liability –
Long-Term

Warrant
Liability –
Total
Balance, June 30, 2017 $ 1,185
$ —
$ 1,185
Reclass of liability from long-term to current —
—
—
Change in fair value - net 470
—
470
Expiration of warrants —
—
—
Transfer in and out (exercise of warrants) (912 ) —
(912 )

Balance, September 30, 2017 $ 743
$ —
$ 743

~~The following table provides a summary of changes in fair value associated with the Level 3 liabilities for the nine months ended September 30, 2017:~~

~~In thousands~~

Warrant
Liability –
Current

Warrant
Liability –
Long-Term

Warrant
Liability –
Total
Balance, beginning of period December 31, 2016 $ —
$ —
$ —
Issuances of warrants 2,453
1,690
4,143
Reclass of liability from long-term to current 1,846
(1,846 ) —
Change in fair value - net 2,848
(95 ) 2,753
Transfers in and out (exercise of warrants) (5,166 ) 251
(4,915 )
Expiration of warrants (1,238 ) —
(1,238 )

Balance, September 30, 2017 $ 743
$ —
$ 743

~~The above table~~below (in thousands) of Level 3 liabilities begins with the ~~initial~~ valuation ~~given~~as of the beginning of the second quarter and then is adjusted for the issuances ~~occurred in the first quarter of 2017~~ and ~~adjusts the balances for changes~~exercises that occurred during the ~~current~~second quarter of 2020 and ~~prior~~adjusts for balances for changes in fair value that occurred during the current quarter. The ending balance of the Level 3 financial instrument presented above ~~represent~~represents our best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.


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

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


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

Loss Per Common Share - Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. For purposes of this calculation, options to purchase common stock, restricted stock units subject to vesting and warrants to purchase common stock are considered to be common stock equivalents. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be ~~anti-dilutive.~~ antidilutive. For the three ~~and nine~~ months ended ~~September~~June 30, ~~2017, the Company’s~~2020 and 2019, approximately 21.2 million and approximately 12.3 million, respectively, of potentially dilutive shares ~~which~~ were ~~not included~~excluded from the computation of diluted earnings per share due to their antidilutive effect. For the six months ended June 30, 2020 and 2019, approximately 19.8 million and approximately 9.5 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their antidilutive effect.

Stock-based Compensation - Stock-based compensation expense includes the estimated fair value of equity awards vested or expected to vest during the reporting period. The Company accounts for its stock-based compensation awards in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, restricted stock units, and modifications to existing stock options, to be recognized in the ~~calculation~~consolidated statements of ~~net loss per share, included~~operations based on their fair values. The grant date fair value of stock options ~~to purchase 670,000~~is determined using the Black-Scholes option pricing model and the grant date fair value of restricted stock awards is determined using the closing price of the Company’s common ~~shares and warrants to purchase 702,576 common shares as inclusion~~stock on the date of ~~these securities would have been anti-dilutive.~~

~~Reclassifications –~~ ~~A reclassification was made~~grant (or if the date of grant is not a business day, on the business day prior to the ~~December 31, 2016~~date of the grant). The awards are subject to service vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term, net of forfeitures which are recognized as they occur. Compensation expense related to awards to non-employees with service-based vesting conditions is recognized based on the then-current fair value at each financial ~~statements to conform~~reporting date prior to the ~~2017 presentation. Such reclassification did not affect net loss as previously reported. Historically, accrued interest~~measurement date over the associated ~~with “convertible notes payable” was included~~service period of the award or the vesting event, applicable, which is generally the vesting term. Effective January 1, 2020, the Company began using the volatility of its own stock since it now has sufficient historic data in the line item “accounts payable and accrued expense”. Management believes that these costs are best shown included in the amounts shown for “convertible notes payable” and, as such, a reclassification was made to the balance sheet for the year ended December 31, 2016 by reducing “accounts payable and accrued expenses” and increasing “convertible notes payable” by $0.02 million.its stock price.

~~Research and Development Costs -~~ ~~Research and development costs are expensed as incurred.~~

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

Recent Accounting Pronouncements

In ~~May 2014,~~August 2018, the FASB issued Accounting ~~Standard~~Standards Update ~~("ASU") 2014-09, Revenue from Contracts with Customers~~(ASU) No. 2018-13, Fair Value Measurement (Topic ~~606), which will replace numerous~~820) (ASU 2018-13). ASU 2018-13 modifies the disclosure requirements on fair value measurements in ~~U.S. GAAP,~~ASC Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration ~~to which the company expects to be entitled~~of costs and benefits. The amendments in ~~exchange~~this ASU are effective for ~~those goods or services. In August 2015, the FASB approved a proposal to defer the effective date of the guidance until annual~~all entities for fiscal years, and interim ~~reporting~~ periods within those fiscal years, beginning after December 15, ~~2017.~~2019. The Company's adoption of this pronouncement effective January 1, 2020 did not have a material impact on the Company's condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) (ASU 2019-12). ASU 2019-12 modifies the requirements for the timing of adoption of enacted change in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the computation of annual effective tax rate in the first interim period that includes the enactment date of the new legislation, beginning after December 15, 2020. Early adoption is permitted upon issuance of this ASU. The Company is currently evaluating the impact that this standard will have, ~~on its financial statements at the time the Company starts to generate revenue or enters into other contractual arrangements, which the Company does not expect in the near term.~~

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under the new guidance, management will be required to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The provisions of this ASU are effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter; early adoption is permitted. This disclosure is effective within these financial statements for the year ended December 31, 2016 and thereafter. Such disclosure did not impact the financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that this standard will haveif any, on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact that this standard will have on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718). The new guidance changes the accounting and simplifies various aspects of the accounting for share-based payments to employees. The guidance allows for a policy election to account for forfeitures as they occur or based on an estimated number of awards that are expected to vest. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, with early adoption permitted. The adoption of this standard on January 1, 2017, did not have a significant impact on the Company’s financial statements.

In August 2016, the FASB issued ASU, Statement of Cash Flows (Topic 230). This ASU applies to all entities that are required to present a statement of cash flows under Topic 230. The amendments provide guidance on eight specific cash flow issues and includes clarification on how these items should be classified in the statement of cash flows and is designed to help eliminate diversity in practice as to where items are classified in the cash flow statement. Furthermore, in November 2016, the FASB issued additional guidance on this Topic that requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with earlier application permitted for all entities. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2018 and are currently evaluating the impact the adoption of this new accounting standard will have on our financial statements.

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805)," which provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments in this update also narrow the definition of the term "output" so that the term is consistent with how outputs are described in Topic 606. Public business entities are required to apply the amendments in this update to annual periods beginning after December 15, 2017, including interim periods within those periods. Early application is permitted. The Company will evaluate the effect of the update at the time of any future acquisition or disposal.

In May 2017, the FASB issued ASU 2017-09 "Compensation—Stock Compensation (Topic 718)." This update clarifies the existing definition of the term "modification," which is currently defined as "a change in any of the terms or conditions of a share-based payment award." The update requires entities to account for modifications of share-based payment awards unless the (1) fair value, (2) vesting conditions and (3) classification as an equity instrument or a liability instrument of the modified award are the same as of the original award before modification. Public business entities are required to adopt the amendments in this update for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. The Company will adopt the update when it becomes effective. The Company is in the process of determining the impact, if any, this adoption will have on its financial statements.

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

3. ~~Convertible Notes Payable~~Accrued Expenses and Other Current Liabilities

~~On various dates from August~~Accrued expenses and other current liabilities consist of the following components (in thousands):


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

4. Warrants

At June 30, 2020, and December 31, ~~2015 through January 19, 2016, each as amended on March 10, 2016,~~2019, respectively, the Company ~~entered into seven unsecured promissory notes with three separate third party investors. Each note bore interest at 8.0% per annum and was to mature on~~has the ~~earlier of September 30, 2016~~following warrants outstanding:


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

⁽¹⁾ If the Company subdivides (by any stock split, stock dividend, recapitalization or ~~the completion of an IPO of the Company’s securities.~~

~~Since the completion of the IPO occurred prior to September 30, 2016, these notes were to be automatically converted according to their terms into~~otherwise) its outstanding shares of ~~the Company’s~~its common stock ~~at applicable conversion~~into a smaller number of shares, the warrant exercise price upon the Company’s IPO to the extent and provided that no holder of these notes was permitted to convert such notes to the extent that the holder or any of its affiliates would beneficially own in excess of 4.99% of our common stock after such conversion. Due to this 4.99% limitation, a portion of these notes was not converted at the time of the IPOis proportionately reduced and the ~~remaining unconverted principal and accrued interest amounts~~number of shares under outstanding warrants is proportionately increased. Additionally, if the ~~effected notes remained~~Company combines (by combination, reverse stock split or otherwise) its outstanding ~~and was converted into shares of our common stock at such time as the 4.99% limitation was met. Until such time as the notes were converted into~~ shares of common stock into a smaller number of shares, the ~~maturity date of the notes was automatically extended~~warrant exercise price is proportionately increased and ~~we were not required to repay the notes or the accrued interest relating to the notes in cash.~~

The IPO was completed on May 31, 2016. On May 31, 2016, pursuant to the conversion feature of the foregoing notes and with restriction of the 4.99% beneficially owned condition limitation, discussed above, the Company issued 1,166,503 common shares in total, reducing convertible debt principal by $0.18 million and accrued interest by $0.02 million. Subsequent to these transactions and through June 30, 2017, an additional 2,920,738 common shares were issued due to the number of ~~common shares outstanding allowing for conversion of additional~~ shares under ~~the 4.99% beneficially owned condition limitation. This reduced the convertible debt principal by $0.3 million and accrued interest by $0.03 million.~~

~~On June 22, 2017, pursuant to the conversion feature of the foregoing notes and with restriction of the 4.99% beneficially owned condition limitation discussed above,~~outstanding warrants is proportionately decreased. Also, the Company may voluntarily reduce the warrant exercise price for its warrants issued ~~804,098 common shares~~ in ~~total, which effectively converted all remaining outstanding convertible debt~~March 2019 and ~~accrued interest outstanding as~~February 2017 and may voluntarily extend the contractual term of ~~that date. This conversion converted the remaining amount of debt and accrued interest at June 22, 2017 of $0.1 million.~~its warrants issued in February 2017.

~~4. Warrant Liability~~

On February 9, 2017, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, as representative of the several underwriters identified therein (collectively, the “Underwriters”), pursuant to which we sold in a registered public offering (the “Offering”), 3,710,000 units, priced at a public offering price of $1.35 per unit (the closing price that day was $1.50), with each unit consisting of: (i) one share of common stock, (ii) a five-year Series A warrant⁽²⁾ Includes warrants to purchase 0.50 of a share of common stock, (iii) a 90-day Series B warrant to purchase one share of common stock, and (iv) a five-year Series C warrant to purchase 0.50 of a share of common stock. The Series C warrants in a unit could only be exercised to the extent and in proportion to a holder of the Series C warrants exercising its Series B warrants included in the unit. The Series A and Series C warrant have710,212 shares at an exercise price of ~~$1.50 per share of common stock. The Series B warrant had~~$2.02, expiring December 22, 2023, and warrants to purchase 32,779 shares at an exercise price of ~~$1.35 per share of common stock.~~$2.32, expiring June 21, 2023.

~~Under the terms of the Underwriting Agreement, we granted the Underwriters a 45-day option~~

⁽³⁾ Includes warrants to purchase 100,000 shares at an ~~additional 556,500~~exercise price of $2.41 and warrants to purchase 50,000 shares at an exercise price of common stock and/or an additional 556,500 warrant combination (comprised of an aggregate of 278,250 Series A warrants, 556,500 Series B warrants and 278,250 Series C warrants), in any combinations thereof, from us to cover over-allotments at the public offering price per share of $1.349 and public offering price per warrant combination of $.001, respectively, less the underwriting discounts and commissions. Upon the closing of the Offering, the Underwriters exercised the over-allotment option with respect to $278,100 warrant combinations. We received approximately $4.5 million in net proceeds from the Offering, after deducting underwriting discounts and commissions and estimated offering expenses.$3.00.

Liability Classified Warrants

The basis of value is fair value, which is defined pursuant to Accounting Standards Codification (“ASC”) 820 to be “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. The Company ~~estimated the fair value of the Warrants under ASC 820 as of February 14, 2017 for financial reporting purposes. We used~~uses the Black-Scholes option pricing model ~~(“BSM”)~~(BSM) to determine the fair value of its warrants at the ~~Series A~~date of issue and Series B Warrants and a Monte Carlo simulation (“MCM”) with regard to the Series C Warrants in consideration of path dependent vesting terms of the contract. Both the BSM and MCM models are acceptable in accordance with GAAP. The BSM requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the Warrant. The MCM simulates the Company’s common stock price from the valuation date through the Series B Warrant and the unvested Series C Warrant expiration dates using Geometric Browman Motion on a risk-neutral basis – thereby impacting the likelihood that the Series B Warrants would have been exercised and, subsequently, the Series C Warrants would then vest. As disclosed, all Series B and unvested Series C warrants expired on May 15, 2017.outstanding at each reporting date.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon ~~U.S.~~US Treasury bonds ~~whose~~linearly interpolated to obtain a maturity period ~~is appropriate for~~commensurate with the term of the ~~Warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date.~~warrants.

Estimated volatility is a measure of the amount by which ~~our~~the Company's stock price is expected to fluctuate each year during the expected life of the ~~Warrants. Where appropriate, we~~warrants. Beginning in 2020, only the volatility of the Company's own stock is used in the BSM as it now has sufficient historic data in its stock price. In 2019, the Company used the ~~historical~~volatility of its own stock blended with the volatility of peer entities due to the lack of sufficient historical data of ~~our~~its stock ~~price during 2016-2017.~~price.

The assumptions used in determining the ~~BSM and MCM models for~~fair value of the ~~Warrants~~Company’s outstanding liability classified warrants are as follows:


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



	~~Nine Months Ended September 30, 2017~~	~~Year Ended December 31,~~ ~~2016~~
~~Risk-free interest rate~~	~~1.68%-1.86%~~	—
~~Volatility~~	~~80.00%-160.11%~~	—
~~Expected life (years)~~	~~0.5-5.0~~	—
~~Dividend yield~~	—%	—

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


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

Vested and Exercisable at June 30, 2020	10,251,693	$	1.10	$	2.80	$	1.89	3.5

Description
Number of
Shares Under
Warrant

Range of
Warrant Price
per Share

Weighted
Average
Exercise Price

Weighted Average
Remaining
Contractual Life (Years)
Balance at January 1, 2017 —
—
—
—
Granted 8,235,923
$1.35-$1.50
$ 1.43
1.6
Exercised (2,703,434 ) —
$ 1.46
—
Expired (5,087,717 ) —
$ 1.40
—
Balance at September 30, 2017 444,772
—
$ 1.46
4.63
Vested and Exercisable at September 30, 2017 444,772
$1.35-$1.50
$ 1.46
4.63

~~Warrant Activity During 2017:~~

OnIn connection with the Company's stock offering that closed on February ~~14, 2017, 8,235,923 Warrants were granted, as discussed above.~~

~~On March 24, 2017, 596,300 Series B Warrants were exercised for an equivalent amount~~10, 2020, the Company issued warrants to purchase 5,625,000 shares of its common ~~shares which vested 298,150 Series C Warrants.~~

~~On March 31, 2017, the Warrants were revalued with a fair value determination of $3.08 million which included a fair value adjustment of $1.06 million which was included as a gain~~stock, that are exercisable six months from the ~~change~~date of issuance, at a price of $1.05 per share, subject to adjustment in ~~fair value of warrant liability in “Other Income” in the accompanying financial statements.~~

~~On May 15, 2017, approximately 3.4 million~~certain circumstances, and ~~1.7 million Series B and Series C Warrants, respectively, expired, which reduced our warrant liability by $1.24 million in the accompanying financial statements.~~

~~On June 28, 2017, 1,295,995 Series A Warrants were exercised. On the same date, 295,650 Series C Warrants were exercised.~~

~~On June 30, 2017, 12,250 Series A Warrants were exercised.~~

~~On June 30, 2017, the Warrants were revalued with a fair value determination of $1.2 million which included a fair value adjustment of $3.3 million which was included as loss~~expire five years from the ~~change in fair value of~~date they are first exercisable, and issued Oppenheimer & Co. Inc. a warrant ~~liability in “Other income (expense)” in the accompanying financial statements.~~

~~During the quarter ended September 30, 2017, 500,739 Series A warrants and 2,500 Series C warrants were exercised with cash proceeds of approximately $0.8 million.~~

~~Series B and Series C Warrants~~

The Series B Warrants and the unvested Series C Warrants expired May 15, 2017. Therefore, the associated warranty liability of $1.24 million was extinguished on May 15, 2017 as no other Series B Warrants were exercised prior(Underwriter Warrant) to ~~that date.~~

~~5. Equity~~

~~On May 2, 2016, the Company amended and restated its certificate of incorporation~~purchase up to ~~increase the number of shares authorized to 80,000,000 of which 5,000,000~~525,000 shares of ~~preferred stock are authorized and 75,000,000 shares of common stock are authorized.~~

~~Preferred Stock~~

We are authorized to issue up to 5,000,000 shares of preferred stock. Our certificate of incorporation authorizes the board to issue these shares in one or more series, to determine the designations and the powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. As of September 30, 2017, there was no issued preferred stock.

~~Common Stock~~

On January 13, 2017, the Company agreed to issue 79,167 shares of common stock to a consultant in full settlement for prior services rendered to the Company. Settlement occurred February 21, 2017 with the issuance of the shares, resulting in a gain on settlement of $0.15 million recorded in gain in settlement of liability on the Statement of Operations. The obligation of $0.24 million had been recorded by the Company in accounts payable and accrued expenses as of December 31, 2016.

On February 14, 2017, the Company completed a public offering and sold 3,923,923 shares of the Company’s common stock. The offering price per unit was $1.35. The Company received net cash proceeds of $4.5 million after deducting underwriting discounts, commissions and direct offering expenses payable by us. See Note 4 above regarding Warrant issuances related to our February public offering.

~~During September 2017, the Company sold 154,121 shares of common stock from $2.52 to $2.71 per share with net cash proceeds of $0.4 million.~~

~~Adoption of 2015 Stock Plan~~

On December 5, 2015, the Board of Directors of the Company approved the Company’s 2015 Stock Plan, which was amended on April 22, 2016. The expiration date of the plan is December 5, 2025 and the total number of underlying shares of the Company’s common stock available for grant to employees, directors and consultants under the plan is 2,500,000 shares. The awards under the 2015 Stock Plan can be in the form of stock options, stock awards or stock unit awards. The following is a summary of option activities for the nine months ended September 30, 2017:

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic
Value
Outstanding, December 31, 2016 510,000
$ 3.40
$ 5.28
9.29 $ 275,500

Granted 160,000
$ 1.52
$ 2.14

Outstanding, September 30, 2017 670,000
$ 2.12
$ 1.78
8.85 $ 144,900
Exercisable, September 30, 2017 85,000
$ 1.66
$ 1.79
7.15 $ 117,300

~~In January 2017, the Company granted members of~~ its ~~science advisory board options in the aggregate to purchase 20,000 shares of the Company’s~~ common stock with an exercise price of ~~$2.31~~$1.05 per share, subject to adjustment in certain circumstances, which expires on February 6, 2025.

For a ~~term~~summary of ~~10 years,~~the changes in fair value associated with our warrant liability for the six months ended June 30, 2020, see Note 2 - Basis of presentation, principles of consolidation and significant accounting policies - Fair Value of Financial Instruments.

Equity Classified Warrants

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

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

The Company recorded stock compensation expense for non-employee consulting agreements of $5,000 and 0 for the three months ended June 30, 2020 and 2019, respectively, and $5,000 and $2,000 during the six months ended June 30, 2020 and 2019, respectively. At June 30, 2020, there was $91,000 of unrecognized stock compensation expense related to the Company's equity-classified warrants.

5. Equity

April 2020 Stock Issuances

In April 2020, pursuant to the 2019 ATM Agreement, the Company issued 7,170,964 shares of common stock at an average price of $1.44 per share through the ATM Prospectus Supplement. The Company received total proceeds of $10.3 million, net of $0.3 million in transaction expenses.

February 2020 Stock Offering

In February 2020, the Company entered into subscription agreements with certain institutional investors for the sale by the Company of 7,500,000 shares of its common stock and warrants to purchase 5,625,000 shares of common stock at a combined public offering price of $0.80 per share and related warrant. The Company received total proceeds of $6.0 million, net of $0.7 million in transaction expenses. See Note 4 ~~years.~~- Warrants for equity classified warrants granted during the six months ended June 30, 2020.

Stock-based Compensation and Outstanding Awards

Under the terms of the Company’s 2015 Stock Plan, as amended, and approved by its stockholders on June 15, 2020, 10.5 million shares of the Company’s common stock were available for grant to employees, non-employee directors and consultants. The 2015 Stock Plan provides for the grant of stock options, stock awards, stock unit awards, or stock appreciation rights. As of June 30, 2020, there were 6,227,093 shares remaining to be issued under the 2015 Stock Plan.

Stock-based compensation for the three and six months ended June 30, 2020 and 2019, are as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
General and administrative	$	329	$	271	$	664	$	573
Research and development	79		47		141		93
Total	$	408	$	318	$	805	$	666

Each of the Company's stock-based compensation arrangements are discussed below.

Stock Options

Stock option awards are generally granted with an exercise price ~~was based upon~~equal to the ~~closing~~market price of the Company’s stock at the date of grant. Stock option awards generally have a 10-year contractual term and vest over a 4-year period for employees and over a 1 to 3-year period for directors from the grant date on a straight-line basis over the ~~day of the grant.~~requisite service period. The ~~options have an aggregated~~grant-date fair value of ~~$35,196 that was calculated~~stock options is determined using the Black-Scholes option-pricing model. ~~In July and August 2017,~~Additionally, the ~~Company granted~~Company’s stock options toprovide for full vesting of unvested outstanding options, in the ~~Board and~~event of a ~~management member to purchase 140,000 shares~~change of control of the ~~Company's common stock with exercise~~Company.

prices of $1.87 and $2.88, respectively, with a term of 10 years and a vesting period of 4 years. The options have an aggregated fair value of $269,592 for the nine months ended September 30, 2017, calculated using the Black-Scholes option-pricing model.

Variables used in the Black-Scholes option-pricing model include ranges of: (1) discount of 1.30%-2.24%, (2) expected lives of 5 to 6.25 years, (3) expected volatility of 70.18% to 89.11%, and (4) zero expected dividends. The Company, due to the limited number of participants in the plan and their positions within the Company, uses a 0% estimated forfeiture rate. For the three and nine months ended September 30, 2017, the Company recorded $0.2 million and $0.5 million, respectively in stock-based compensation in relation to the options. As of September 30, 2017, there was $1.6 million of unrecognized compensation cost, net of estimated forfeitures, related to the Company’s non-vested equity awards, which is expected to be recognized over a weighted average period of 3.34 years.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted ~~in the above paragraph.~~below. The expected term of the ~~options~~stock option awards was computed using the “plain vanilla” method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin 107 because ~~we do~~the Company does not have sufficient data regarding employee exercise behavior to estimate the expected term. ~~The~~Beginning in 2020, the Company used the volatility of its own stock in the BSM as it now has sufficient historic data in its stock price. Prior to 2020, the volatility was determined by referring to the average historical volatility of a peer group of public companies ~~because we do not have~~combined with its

own due to the lack of sufficient ~~trading history to determine our~~ historical ~~volatility.~~data of its stock price. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

~~GSK Consulting Agreement~~

~~On July 29, 2017, the Company entered into a consulting agreement with GSK Strategies, LLC (“GSK”), for its investor relations operations.~~ The consulting agreement covers for a period of twelve months from the date of July 29, 2017. In exchange for the consulting services, the Company agreed to issue two warrants (collectively, the “Warrants”) to purchase 100,000 and 50,000 shares of common stock at exercise prices of $2.41 and $3.00 per share, respectively, subject to approval by Nasdaq of a listing of additional shares application, which was received in August 2017.

Each of the Warrants vests over a 12-month period in equal monthly installments starting July 29, 2017, provided that GSK is providing Services to the Company pursuant to the consulting agreement on each vesting date. The Warrants became initially exercisable on August 8, 2017, and expire five years from the initial exercise date. The Company recorded stock compensation expense for the non-employee consulting agreement of $63,000 for the period ended September 30, 2017 based on the fair value of the ~~warrants vested~~option grants has been estimated, with the following weighted-average assumptions:


	Six Months Ended June 30,
	2020						2019
Risk-free interest rate	0.28%	to	0.46	%	0.95%	to	2.24	%
Volatility	126.40%	to	127.98	%	70.18%	to	89.11	%
Expected life (years)	3.75	to	6.25		5	to	6.25
Expected dividend yield	—%						—%

Stock option activity for the six months ended June 30, 2020 is as follows:


	Number of Shares	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, December 31, 2019	3,836,000	$	1.59	$	2.26	8.3	$	—
Granted	90,000	$	1.06	$	1.24
Exercised	—	$	—	$	—
Forfeited	(20,000)	$	0.89	$	1.06
Outstanding, June 30, 2020	3,906,000	$	1.58	$	2.24	7.8	$	—
Exercisable, June 30, 2020	1,548,503	$	1.95	$	2.89	7.2	$	—

Options granted during 2020 have an aggregated fair value of ~~September~~$0.1 million that was calculated using the Black-Scholes option-pricing model. At June 30, ~~2017.~~

~~At Market Issuance Sales Agreement~~

~~On September 15, 2017,~~2020, total compensation cost not yet recognized was $2.2 million and the weighted average period over which this amount is expected to be recognized is 2.13 years. The aggregate fair value of options vesting in the six months ended June 30, 2020 and 2019, respectively, was $0.4 million and $0.5 million, respectively. In July 2020, the Company entered into an At Market Issuance Sales Agreement (the “Agreement”) with Roth Capital Partners, LLC and National Securities Corporation (collectively, the “Agents”). Pursuant to the terms of the Agreement,granted 1,349,750 employee stock options.

Restricted Stock

In July 2019, the Company ~~may sell from time to time through~~granted 316,907 restricted stock units, which vest annually in 4 equal installments. The weighted average grant date fair value of $1.31 per unit was determined using the ~~Agents shares~~closing price of the Company’s common stock ~~with an aggregate sales price of up to $13.0 million (the “Shares”).~~

~~Any sales of Shares pursuant to~~on the ~~Agreement will be made under~~grant date. Additionally, the Company’s ~~effective “shelf” registration statement on Form S-3 (File No. 333-219434) which became effective on August 21, 2017~~restricted stock unit agreements provide for full vesting of the restricted stock award in the event of a change of control of the Company. During the six months ended June 30, 2020, 0 restricted stock units vested or were forfeited. As of June 30, 2020, total compensation cost not yet recognized was $0.3 million and the ~~related prospectus supplement and the accompanying prospectus, as filed with the Securities and Exchange Commission (the “SEC”) on September 15, 2017. Under the Agreement,~~weighted average period over which this amount is expected to be recognized is 3.0 years. In July 2020, the Company ~~may sell Shares through an Agent by any method that is deemed an “at the market offering” as defined~~granted 353,211 restricted stock units, which vest annually in ~~Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”).~~4 equal installments, and 79,227 restricted stock units vested.

Sales of the Shares may be made at market prices prevailing at the time of sale, subject to such other terms as may be agreed upon at the time of sale, including a minimum sales price that may be stipulated by the Company’s Board of Directors or a duly authorized committee thereof. The Company or the Agents, under certain circumstances and upon notice to the other, may suspend the offering of the Shares under the Agreement. The offering of the Shares pursuant to the Agreement will terminate upon the sale of Shares in an aggregate offering amount equal to $13.0 million, or sooner if either the Company or the Agents terminate the Agreement pursuant to its terms.

The Company agreed to pay a commission to the Agents of 3.0% of the gross proceeds of the sale of the Shares sold under the Agreement and to reimburse the Agents for certain expenses. The Company has also provided the Agents with customary indemnification rights. The Company is not obligated to make any sales of Common Stock under the Agreement.

~~As of September 30, 2017, the Company had sold 154,121 shares with gross proceeds of $0.4 million under this Agreement.~~

6. Income Taxes

Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. ~~We do~~The Company does not expect to pay any significant federal, state, or ~~state~~foreign income ~~tax for 2017~~taxes in 2020 as a result of the losses recorded during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and the additional losses expected for the remainder of ~~2017~~2020 and cumulative net operating loss ~~carry forwards from prior years.~~carryforwards. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As a result, as of ~~September~~June 30, ~~2017, we~~2020, the Company maintained a full valuation allowance for all deferred tax assets.

The Company recorded no0 income tax provision for the ~~nine~~ three and sixmonths ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019, respectively. The effective tax rate for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 was~~2019 is 0%. The income tax rates vary from the federal and state statutory rates primarily due to the change in fair value of the stock warrants and valuation allowances on the Company’s deferred tax assets. The Company estimates its annual effective tax rate at the end of each quarterly period. Jurisdictions with a projected loss for the year where no tax benefit can be recognized due to the valuation ~~exclusion~~allowance could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carry back periods, alternative minimum tax credit refunds, and modification to the net interest deduction limitations. The CARES Act did not have a material impact on the Company's condensed consolidated financial statements for the six months ended June 30, 2020. The Company continues to monitor any effects that may result from the CARES Act.

7. Commitments and Contingencies

~~WP1122 Portfolio~~In addition to the commitments and contingencies described elsewhere in these notes, see below for a discussion of the Company's commitments and contingencies as of June 30, 2020.

Lease Obligations Payable

During the six months ended June 30, 2020, the Company did not enter into any lease arrangements requiring any additional right-of-use assets or liabilities to be recorded.

The ~~rights~~following summarizes quantitative information about the Company's operating leases for the three and ~~obligations~~six months ended June 30, 2020 and 2019, respectively (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Lease cost:
Operating lease cost	$	29	$	8	$	58	$	16
Short-term lease cost	4		12		9		26
Variable lease cost	7		7		14		12
Total	$	40	$	27	$	81	$	54

The Company recorded approximately $10,000 and $21,000 in sublease income from a related party for the three and six months ended June 30, 2020, respectively. Sublease income is recorded as other income, net on the Company's condensed consolidated statement of operations and comprehensive loss.

Other supplemental cash flow information for operating leases is as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	33	$	13	$	66	$	21
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	—	$	—	$	—	$	110

At June 30, 2020, future minimum liabilities under ASC 842 for the Company's operating leases were as follows (in thousands):


Maturity of lease liabilities	As of June 30, 2020
2020 (remaining six months)	$	68
2021	138
2022	105
2023	56
2024	10
2025 and thereafter	—
Total lease payments	377
Less: imputed interest	(47)
Present value of operating lease liabilities	$	330

As of June 30, 2020, the weighted average remaining lease term for operating leases is 2.9 years, and the weighted average discount rate is 9.6%. The interest rate implicit in lease contracts is typically not readily determinable and as such, the Company uses an incremental borrowing rate based on a peer analysis using information available at the commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an ~~April 2012 Patent~~amount equal to the lease payments in a similar economic environment.

Licenses

MD Anderson - Total expenses related to the Company's license agreements with MD Anderson were $61,000 and ~~Technology License Agreement~~$60,000 for the three months ended June 30, 2020 and 2019, respectively, and $122,000 and $120,000 for the six months ended June 30, 2020 and 2019, respectively.

HPI - On March 16, 2020, the Company entered into 2 agreements with a related party, Houston Pharmaceuticals, Inc. (HPI). The first agreement, which has a term of two years, continues a prior consulting arrangement with HPI on the Company's licensed molecules and requires payments for $43,500 per quarter to HPI. The second agreement, which can be cancelled with sixty days' notice by either party, allows the Company's employees access to laboratory equipment owned by HPI for a payment of $15,000 per quarter to HPI. Total expenses related to the Company's agreements with HPI were $58,500 and ~~between IntertechBio~~0 for the three months ended June 30, 2020 and 2019, respectively, and $266,000 and $75,000 for the six months ended June 30, 2020 and 2019, respectively.

Sponsored Research Agreements with MD Anderson (the “IntertechBio Agreement”) have been assigned to MBI. Therefore, MBI has obtained a royalty-bearing, worldwide, exclusive license to intellectual property, including patent rights, related to our WP1122 Portfolio and to our drug product candidate, WP1122. In consideration, MBI must make payments to MD Anderson including an up-front payment, license documentation fee, annual maintenance fee, milestone payments and minimum annual royalty payments for sales of products developed under the license agreement. Under the agreement, annual maintenance fees are $10,000 on the first anniversary of the effective date of the agreement, $20,000 on the second anniversary of the effective date of the agreement, $40,000 on the third anniversary of the effective date of the agreement, $60,000 on the fourth anniversary of the effective date of the agreement, $80,000 on the fifth anniversary of the effective date of the agreement and $100,000 on the sixth anniversary of the effective date of the agreement, except that such payments will no longer be due upon the first sale of a licensed product. Under the assignment, MBI agrees to make a minimum annual royalty payment in the amount of $200,000 for the first anniversary following the first sale of a licensed product, $400,000 for the second anniversary following the first sale of a licensed product, and $600,000 for the third year following the first sale of a licensed product.

~~One-time milestone payments are due as follows: 1) Upon commencement of a Phase II study for a licensed product~~ - $200,000; 2) Upon commencement of a Phase III study for a licensed product - $250,000; 3) Upon filing of a New Drug Application (“NDA”) for a licensed product - $400,000; and 4) Upon receipt of market approval for sale of a licensed product - $500,000. The rights we have obtained pursuant to the assignment of the IntertechBio Agreement are made subject to the rights of the U.S. government to the extent that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government.

~~WP1066 Portfolio~~

The rights and obligations to a June 2010 Patent and Technology License Agreement entered into by and between Moleculin LLC and MD Anderson (the “Moleculin Agreement”) have been assigned to MBI. Therefore, MBI has obtained a royalty-bearing, worldwide, exclusive license to intellectual property rights, including patent rights, related to our WP1066 drug product candidate. In consideration, MBI must make payments to MD Anderson including an up-front payment, milestone payments and minimum annual royalty payments for sales of products developed under the license agreement. Annual Maintenance fee payments will no longer be due upon marketing approval in any country of a licensed product. One-time milestone payments are due upon commencement of the first Phase III study for a licensed product within the United States, Europe, China or Japan; upon submission of the first NDA for a licensed product in the United States; and upon receipt of the first marketing approval for sale of a licensed product in the United States. The rights we have obtained pursuant to the assignment of the Moleculin Agreement are made subject to the rights of the U.S. government to the extent that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S.

government. The agreement, as amended, has the following the milestone payments: (i) commencement of Phase III Study for first licensed drug/product within the United States, Europe, China or Japan - $150,000; (ii) submission of the first NDA within the United States - $500,000; and (iii) receipt of first marketing approval for sale of a license product in the United States - $600,000.

MBI entered into an out-licensing agreement with Houston Pharmaceuticals, Inc. (“HPI”), pursuant to which we have granted certain intellectual property rights to HPI, including rights covering the potential drug candidate, WP1066 (“HPI Out-Licensing Agreement”). Under the HPI Out-Licensing Agreement we must make quarterly payments totaling $0.75 million for the first twelve quarters following the effective date of May 2, 2016, of the HPI Out-Licensing Agreement in consideration for the right to development data related to the development of licensed products. Notwithstanding our obligation to make the foregoing payments, the HPI Out-Licensing Agreement does not obligate HPI to conduct any research or to meet any milestones. Upon payment in the amount of $1.0 million to HPI within three years of the effective date of the HPI Out-Licensing Agreement we will regain all rights to the licensed subject matter and rights to any and all development data and any regulatory submissions including any IND, NDA or ANDA related to the licensed subject matter and can end the license without any other obligation other than the aforementioned quarterly payments. In the event that we do not exercise our right to regain our rights to the licensed subject matter within three years of the effective date of the HPI Out-Licensing Agreement, the license granted to HPI shall convert to an exclusive license upon HPI’s written notice and we shall be obligated to transfer all existing data relating to licensed subject matter including any development data and any IND to HPI.

~~On January 9, 2017, the Company amended its~~a Sponsored Laboratory Study Agreement with MD Anderson ~~whereby the Company would pay $302,500~~expiring in ~~2017, which had been fully paid as of July 31, 2017, and the~~October 2021. The expenses recognized under this MD Anderson agreement ~~was extended to October 31, 2018.~~

~~Annamycin~~

As of August 2015, we obtained the rights and obligations of Annamed under a June 2012 Patent and Technology Development and License Agreement by and between Annamed and Dermin (the “Annamed Agreement”). Therefore, certain intellectual property rights, including rights, if any, covering the potential drug product, Annamycin have been licensed to Dermin and Dermin has been granted a royalty-bearing, exclusive license to manufacture, have manufactured, use, import, offer to sell and/or sell products in the field of human therapeutics under the licensed intellectual property in the countries of Poland, Ukraine, Czech Republic, Hungary, Romania, Slovakia, Belarus, Lithuania, Latvia, Estonia, Netherlands, Turkey, Belgium, Switzerland, Austria, Sweden, Greece, Portugal, Norway, Denmark, Ireland, Finland, Luxembourg, Iceland, Kazakhstan, Russian Federation, Uzbekistan, Georgia, Armenia, Azerbaijan and Germany (“Annamed licensed territories”). MBI is obligated to develop and provide a dossier containing data relatedwith regards to the ~~licensed subject matter to Dermin. In consideration, Dermin will pay a royalty~~Sponsored Laboratory Study Agreement were $212,000 and $95,000 for the ~~sale of any licensed product in~~three months ended June 30, 2020 and 2019, respectively, and $358,000 and $189,000 for the ~~Annamed licensed territories~~six months ended June 30, 2020 and pay all out-of-pocket expenses incurred by MBI in filing, prosecuting and maintaining the licensed patents for which the license has been granted. Dermin also agrees to provide a percentage of certain consideration that Dermin receives pursuant to sublicense agreements.2019, respectively.

8. Subsequent Events

~~Subsequent~~In addition to ~~September~~the subsequent events discussed elsewhere in these notes, see below for a discussion of our subsequent events occurring after June 30, 2017 and through the date of filing of these financial statements, approximately 25,000 additional Series A warrants related to our February 2017 public offering of common stock have been exercised, leaving approximately 420,000 Series A and Broker warrants outstanding. 2020.

2020 ATM Agreement - As ~~a result of this exercise,~~previously reported, in July 2020, the Company ~~received approximately $0.04 million.~~

~~Additionally, under the~~entered into an At Market Issuance Sales Agreement ~~mentioned in Note 5 and subsequent~~(Agreement) with Oppenheimer & Co. Inc. (2020 ATM Agreement). Pursuant to ~~September 30, 2017,~~the terms of the Agreement, the Company ~~sold approximately 345,000 shares with gross proceeds of approximately $0.8 million.~~

~~On October 3, 2017, the Board of Directors, after researching comparable companies and using a leading industry survey, approved the issuance of 10-year options, with 4-year vesting,~~may sell from time to purchase 590,000 shares, in the aggregate, of the Company’s common stock, under the Company’s 2015 Stock Plan, to its executive officers and other employees. The options had an exercise price of $2.49 per share.

On October 31, 2017, the Company added Sandra Silberman, M.D., PH.D., as Chief Medical Officer - New Products. The Board of Directors approved the issuance of 10-year options, with 4-year vesting, to purchase 75,000time through Oppenheimer shares of the Company’s common stock with an aggregate sales price of up to $15.0 million. As of the date of this report, there have been 0 issuances under the ~~Company’s 2015 Stock Plan~~2020 ATM Agreement.

2019 ATM Agreement - As previously reported, in July 2019, the Company entered into an At Market Issuance Sales Agreement (Agreement) with Oppenheimer & Co. Inc. (Oppenheimer) (2019 ATM Agreement). Pursuant to ~~Dr. Silberman. The options had~~the terms of the Agreement, the Company may offer and sell, from time to time, Company common stock having an ~~exercise~~aggregate offering price of ~~$1.92~~up to $15.0 million through Oppenheimer. In July 2020, the Company issued 1,301,126 shares of common stock at an average price of $1.47 per ~~share.~~

~~On November 1, 2017,~~share through the ~~Board~~2019 ATM Agreement, resulting in net proceeds to the Company of ~~Directors approved the issuance of 10-year options, with 4-year vesting,~~$1.9 million. The Company paid a commission to ~~purchase 10,000 shares, each,~~Oppenheimer equal to 3.0% of the ~~Company’s~~gross proceeds from the sale of its common stock under the Company’s 2015 Stock Plan to two potential new members of the Science Advisory Board, subject to the approval process of their respective institutions. The options had an exercise price of $1.95 per share.2019 ATM Agreement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~(“MD&A”)~~ contains certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements.

Forward-looking statements include, but are not limited to, statements about:

•The impact the recent Coronavirus outbreak will have on our ability to continue our operations including our clinical trials and our ability to raise future financing;

•Our ability to continue our relationship with MD Anderson, including our ability to license future intellectual property resulting from our sponsored research agreements with MD Anderson;

•Our ability to obtain additional funding to commence or continue our clinical trials, fund operations and develop our product candidates;

~~The need~~•Our ability to ~~obtain regulatory approval~~satisfy any requirements imposed by the FDA (or its foreign equivalents) as a condition of our ~~product candidates;~~clinical trials proceeding or beginning as planned;

•The success, including the ability to recruit patients, of our clinical trials through all phases of clinical development;

•The need to obtain and retain regulatory approval of our drug candidates, both in the United States, in Poland, and in countries deemed necessary for future trials;

•Our ability to complete our clinical trials in a timely fashion and within our expected ~~budget;~~budget and resources;

•Compliance with obligations under intellectual property licenses with third parties;

•Any delays in regulatory review and approval of ~~product~~drug candidates in clinical development;

•Our ability to commercialize our ~~product~~drug candidates;

•Market acceptance of our ~~product~~drug candidates;

•Competition from existing ~~products~~therapies or new ~~products~~therapies that may emerge;

•Potential product liability claims;

•Our dependency on third-party manufacturers to successfully, and timely, supply or manufacture our ~~product candidates;~~drug candidates for our preclinical work and our clinical trials;

•Our ability to establish or maintain collaborations, licensing or other arrangements;

•The ability of our sublicense partners to successfully develop our product candidates in accordance with our sublicense agreements;

•The effects of future government shutdowns on our ability to raise financing;

•Our ability and third parties’ abilities to protect intellectual property rights;

•Our ability to adequately support future growth; and

•Our ability to attract and retain key personnel to manage our business effectively.

We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

~~Highlights~~Overview

~~We are a clinical-stage pharmaceutical development company organized as~~Moleculin Biotech, Inc., a Delaware corporation, is a clinical stage pharmaceutical company focused on the treatment of highly resistant cancers and viruses. We have three core technologies, all of which are based on discoveries made at M.D. Anderson Cancer Center (MD Anderson). We have three drug candidates that are active in ~~July 2015~~clinical trials. In 2019, those three drug candidates were active in five clinical trials in the US and Europe. Of these five clinical trials, two are primarily externally funded. For two of our internally funded trials, we successfully concluded the Phase 1 portion recently and are conducting follow-up observations. We anticipate pursuing pre-clinical work in 2020 for two additional Phase 1 trials expected to begin in 2021 sponsored by us and two to three other Phase 1 trials we expect to be externally sponsored.

We recently announced collaborations with outside entities to assist us in developing potential treatments for diseases like COVID-19. The preclinical work to evaluate the potential of molecules within the WP1122 portfolio of antimetabolites (which include inhibitors of glycolysis and glycosylation) against the viruses is mostly similar to the preclinical work we originally planned for 2020 to develop WP1122 for cancer indications. Accordingly, we believe the preclinical work under way

for WP1122 will support an IND application or its equivalent for either cancer-related or virus-related clinical trials (or both) in 2020. We consider the access to in vivo testing as the critical path of staying on this timeline.

Based on our positive pre-clinical and clinical activity thus far, we have narrowed our development focus to our nearest term opportunities, including Annamycin and the WP1122 portfolio, while relying on external funding, to the extent available, for other projects. In addition, the opportunity related to COVID-19 has pushed the development of ~~anti-cancer drug candidates. We currently~~the WP1122 portfolio to the forefront. Notwithstanding the emphasis on the WP1122 portfolio, we believe our overall narrowing of focus will allow us to limit our cash needs to the essential opportunities until we reach a significant value inflection point, although we will continue to require additional external capital during this period. In addition, institutional support for our technologies has increased and we believe such support may provide outside funding to help support future cash needs. Such expectations assume some form of government funding for WP1122 if it is successful in advancing from preclinical to clinical activity for the treatment of viruses in 2020, although we have ~~four~~no commitments at this time for such funding and can provide no assurances that such funding can be obtained.

Of our three clinical stage drug candidates, ~~representing three substantially different approaches to treating cancer. Liposomal Annamycin, which we refer to as~~ Annamycin is a chemotherapy designed to destroy the DNA of rapidly replicating tumor cells. WP1122 is an inhibitor of glycolysis intended to cut of the fuel supply of tumor cells, which are often overly dependent on glycolysis as compared to healthy cells. And, finally, WP1066 and WP1220, have shown capability, in ~~in vivo~~ ~~testing, of altering the cell signaling associated with tumors.~~

~~Annamycin is an anthracycline~~ being studied for the treatment of relapsed ~~or refractory~~ acute myeloid leukemia (AML) and cancers metastasized to the lungs. WP1066, an Immune/Transcription Modulator (p-STAT3 inhibitor) is intended to target a wide range of tumors, including brain tumors such as glioblastoma (GBM) and pediatric brain tumors (like DIPG and medulloblastoma), as well as pancreatic cancer. We began and completed a "proof-of-concept" Phase 1 clinical trial in 2019 in Poland for a third drug, WP1220 (a molecule similar to WP1066), for the topical treatment of cutaneous T-cell lymphoma (CTCL). We intend to file a Phase 2 IND or ~~AML. In August 2015,~~its equivalent or to attempt to join efforts with a strategic partner in 2020 for the ~~Company acquired~~continued development of WP1220 as a topical therapy for CTCL. We are also engaged in preclinical development of additional drug candidates, including additional Immune/Transcription Modulators, as well as antimetabolites, including Metabolism/Glycosylation Inhibitors.

We consider Annamycin to be a "next generation" anthracycline, unlike any currently approved anthracyclines, as it is designed to avoid multidrug resistance mechanisms with little to no cardiotoxicity (two problems common to all currently approved anthracyclines). We recently received an independent expert cardiology assessment confirming the ~~rights~~absence of cardiotoxicity in the first 14 patients treated with Annamycin in both our US and ~~prior development data regarding~~European Phase 1 clinical trials, validating Annamycin's lack of cardiotoxicity. Annamycin ~~and the prior Annamycin investigative new drug application (“IND”)~~is currently in one Phase 1/2 clinical trial in Europe with the ~~U.S. Food and Drug Administration (“FDA”), including all trade secrets, know-how, confidential information and other intellectual property rights. Annamycin had~~Phase 1 portion of another Phase 1/2 AML trial having been recently concluded in ~~clinical trials pursuant~~the US, subject to ~~an IND filed~~continued patient observations. The US trial met its primary endpoint of safety. As a result of discussions with the FDA, the Company will focus on establishing a recommended Phase 2 dose (RP2D) in its trial in Europe and generating additional safety and efficacy data as requested by the FDA.

In 2019, preclinical work on Annamycin demonstrated activity against certain cancers metastasized to the lungs. With this new data, we are planning to file in 2020 an IND or its equivalent for a ~~prior~~clinical trial for the treatment of cancer metastasized to the lungs with Annamycin, although no assurances can be given that such trial will begin.

WP1066 is one of several Immune/Transcription Modulators designed to stimulate the immune response to tumors by inhibiting the errant activity of Regulatory TCells (TRegs) while also inhibiting key oncogenic transcription factors, including p-STAT3, c-Myc and HIF-1α. These transcription factors are widely sought targets that may also play a role in the inability of immune checkpoint inhibitors to affect more resistant tumors. WP1066 is currently in two US physician-sponsored Phase 1 clinical trials, one at MD Anderson for the treatment of glioblastoma ("GBM") in adults and another at Emory University for the treatment of pediatric brain tumors. The Emory trial has now treated three patients. Another physician-sponsored Phase 1 trial is being considered for the treatment of GBM with WP1066 in combination with radiation, although no assurances can be given that such trial will begin.

We are also developing new compounds within the WP1122 portfolio of antimetabolites, some of which are designed to exploit the potential uses of inhibitors of glycolysis such as 2-Deoxy-D-glucose (2-DG), which we believe may provide an opportunity to limit the energy available to tumors and virus host-cells by taking advantage of their high level of dependence on glucose in comparison to healthy cells. A key drawback to 2-DG is its lack of drug-like properties, including a short circulation time and poor tissue/organ distribution characteristics. Our lead Metabolism/Glycosylation Inhibitor, WP1122, is a prodrug of 2-DG that appears to improve the drug-like properties of 2-DG by increasing its plasma concentration and improving tissue/organ distribution. New research also points to the potential for 2-DG to be capable of enhancing the usefulness of checkpoint inhibitors and also its potential against viruses like the Coronavirus. Considering that 2-DG lacks sufficient drug-like properties to be practical in a clinical setting, we believe WP1122 has the potential to become an important drug, ~~developer, which was terminated when~~either as a single agent or to potentiate existing therapies, including checkpoint inhibitors and antiviral treatments. In March 2020, we entered into agreements with several outside research laboratories that ~~developer ceased activity~~ are conducting research on molecules within the WP1122 portfolio

for ~~financial reasons. Our~~antiviral properties against a range of viruses, including the Coronavirus. We have also added experts to our Science Advisory Board to support our anti-viral efforts.

The FDA has created a special emergency program for possible therapies, the Coronavirus Treatment Acceleration Program (CTAP). FDA comments that it uses every available method to move new treatments to patients as quickly as possible, while at the same time finding out whether they are helpful or harmful. As cited by the FDA on their CTAP website:

•“Immediately upon receipt, triaged requests from developers and scientists seeking to develop or evaluate new drug and biologic therapies …FDA will generally respond within a day.

•Provided ultra-rapid, interactive input on most development plans. Interactions have generally been prioritized based on a product’s scientific merits, stage of development, and identification as a possible priority product in consensus USG documents.

•Provided ultra-rapid protocol review – within 24 hours of submission, in some cases.

•Completed review of single patient expanded access requests around-the-clock – and generally within 3 hours.

•Worked closely with applicants and other regulatory agencies to expedite quality assessments for products to treat COVID-19 patients and to transfer manufacturing to alternative or new sites to avoid supply disruption.”

Comparing the intended turnaround times of the FDA above to its normal 60-day turnaround time for a pre-IND meeting request and 30 days for an IND review, these are expedited timelines. We plan on utilizing these aspects, which may shorten the various FDA review periods in connection with a potential IND for WP1122, although we can provide no assurance that ~~prior~~the FDA will shorten its review period or eventually approve any IND application.

Although WP1122 is a prodrug of 2-DG, the WP1122 Portfolio includes other antimetabolites comprising prodrugs of alternate sugar structures that may also prove useful as antiviral and/or anticancer therapies.The Company is currently evaluating some of these other antimetabolite molecules for potential translational development.

Recent Business Developments

Below are recent business developments.

Annamycin

Update on Annamycin Clinical Development

On July 2, 2020, we announced an update to our clinical ~~data leads us to believe that Annamycin may~~development plan for Annamycin. After consultation with both US and European regulatory agencies, we have ~~greater potential~~mapped out a course for ~~efficacy and safety in relapsed or refractory AML patients than currently available therapies.~~

~~Because the prior developer~~development of Annamycin ~~allowed their IND to lapse, we were required to submit a new IND~~ for ~~continued clinical trials~~the treatment of relapsed AML. In our End of Phase 1 meeting with ~~Annamycin, which~~ the FDA ~~allowed~~we agreed to ~~proceed on September 22, 2017.~~expand our protocol-mandated testing for cardiotoxicity throughout the remainder of our European Phase 1 trial. The ~~Company~~expansion of testing will provide additional safety data, including the continued development and evaluation of evidence supporting Annamycin's lack of cardiotoxicity, and efficacy data that both US and European regulators may consider as we prepare to transition to a Phase 2 clinical trial, which we believe will also be conducted in Europe.

Preclinical Data Confirms Efficacy of Annamycin in Lung Metastases

On June 25, 2020, we announced a presentation at the American Association of Cancer Research (AACR) Annual Meeting held from June 22nd-24th, 2020, illustrating a unique approach to creating drugs capable of reaching tumors hiding in organs where existing anticancer drugs cannot accumulate in therapeutic concentrations. A poster presentation entitled, "Targeting Cancer Sanctuary Sites: A Novel Approach to the Treatment of Lung Localized Tumors," provided an overview of data demonstrating that uniquely high uptake and retention of Annamycin in the lungs results in consistently high in vivo activity against wide range of lung-localized tumors in mice.

Submission to Expand Clinical Sites in European AML Trial

We announced on ~~October 3, 2017~~June 4, 2020, that it had signed an agreement with a hospital in Poland to participate in this trial, which will be our first clinical site, assuming the receipt of regulatory approval in Poland. The data presented in our successful IND submission to FDA werewe submitted requests to Polish regulatory authorities ~~on October 23, 2017 in support~~for approval to open two additional clinical sites for our Phase 1/2 clinical study of our request for Clinical Trial Authorization (“CTA”) in that country. Depending on the timing of the CTA approval, we could begin treating patients in a Phase I/II clinical trial as early as late December of 2017. The Phase I dose-ranging portion of this trial is designed to establish a new Recommended Phase 2 Dosage, or RP2D, which we believe was not adequately explored in previous trials.

~~synthetic process and reconstitution related to our Annamycin drug product candidate, although there is no assurance that we will be successful in obtaining such patent protection.~~

~~On March 21, 2017, we received notice that the FDA had granted us Orphan Drug designation for~~ Annamycin for the treatment of AML. ~~Orphan Drug~~We subsequently received approval for the opening of these sites.

Approved to Accelerate European Clinical Trial

We announced on April 28, 2020, that we are now authorized by the Polish Department of Registration of Medicinal Products known as URPL to accelerate the Phase 1 dose escalation portion of our clinical trial of Annamycin for the treatment of AML. The URPL has allowed an amendment to the Annamycin clinical trial protocol, which among other things, includes an increase in the dose escalation increment between cohorts from 30 mg/m² to 60 mg/m². The clinical trial is currently recruiting for the 240 mg/m² cohort, so this amendment allows the next cohort to increase to 300 mg/m², assuming all requirements for safety are met with the 240 mg/m² cohort.

Positive Safety Data in EU AML Trial

On April 2, 2020, we announced that we completed the latest (210 mg/m²) cohort in our European open label, single arm Phase 1/2 clinical trial of Annamycin for the treatment of relapsed AML. A total of 19 patients have been treated in the US and Europe, and all results continue to show Annamycin to be safe, and, especially, all have shown Annamycin to be free of cardiotoxicity. Of those patients, 10 have been treated at or above the FDA lifetime maximum anthracycline exposure.

WP1122

Independent Research Further Supports Glucose Metabolism as Important COVID-19 Target

On July 29, 2020, we announced that a recent publication by an independent research team at the University of Campinas in São Paulo, Brazil demonstrated that SARS-CoV-2 infection is supported by elevated glucose levels and that inhibition of glycolysis with 2-DG effectively eliminated viral load in vitro.

Independent In Vitro Testing Confirms Antiviral Activity of WP1122 in Coronavirus

On July 21, 2020, we announced that a second round of independent laboratory testing has confirmed the antiviral activity of WP1122 against coronavirus. We contracted with IIT Research Institute (an affiliate of the Illinois Institute of Technology, "IITR") for additional in vitro testing of our drug candidate, WP1122, in development as a possible treatment for COVID-19. The testing involved a cell viability assay in the VERO E6 cell line infected with SARS-CoV-2 and compared the therapeutic effects of 2-DG (the active ingredient in WP1122) alone with those of WP1122, a 2-DG prodrug. Importantly, the growth medium in this assay was carefully chosen to reflect the levels of glucose normally found in humans rather than the artificially high levels of glucose often used to accelerate in vitro testing.

Agreement to Produce WP1122 for Expanded Development

On July 15, 2020, we announced that we have entered into an agreement with Sterling Pharma USA LLC for US production of WP1122 to support our expanded development efforts in preparation for submitting a request to the FDA for IND status ~~could entitle us to market exclusivity~~for WP1122 for the potential treatment of ~~up to 7~~COVID-19.

Confirmatory In Vitro Analysis of WP1122 & Feedback from FDA on Pre-IND Meeting

On June 16, 2020, we announced that a repeat of previous in vitro testing has corroborated the antiviral potential of WP1122. Although developing in vitro data is an initial step and ~~10 years~~the data may not necessarily reflect the antiviral effects in vivo, the results of this repeated round of in vitro testing received on June 1, 2020, confirm that WP1122 has an antiviral effect on Human Coronavirus 229E ("HCoV-229E"), a surrogate of SARS-CoV-2, the virus responsible for COVID-19. As previously announced, on May 1, 2020, we submitted a Pre-IND meeting request with the FDA regarding the clinical development of WP1122 for the treatment of COVID-19. On June 2, 2020, we received the FDA’s written response with guidance regarding application of the agency’s requirements for clinical development programs in this circumstance. Based on guidance from the ~~date of approval~~FDA, we will need additional studies to further assess WP1122's antiviral capability, and consistent with our previous guidance, we will continue to push forward with additional in vitro and in vivo testing with the goal of a ~~New Drug Application (“NDA”~~possible IND filing by the end of 2020, in preparation for beginning a human clinical trial thereafter. The guidance provided thus far by us has been that we expect to file our request for IND status to test WP1122 for the treatment of COVID-19 patients during the second half of 2020. The opportunity to shorten that time frame may depend on our ability to use non-GLP (studies not done in strict adherence to "Good Laboratory Practices") toxicology data for the IND submission and exploring this possibility was a part of our request for feedback in our Pre-IND submission to the ~~United States. If~~FDA. Based on the FDA's response, we ~~obtain similar designation in the European Union (“EU”), we could be entitled~~now plan to ~~10 years of market exclusivity there from the date of approval of a Marketing Authorization Application (“MAA”), in the United States and the European Union (“EU”), respectively. Separately,~~present our non-GLP toxicology, when available, to the FDA ~~may also grant market exclusivity of up to 5 years with the approval of an active moiety (a “new chemical entity,” which we anticipate Annamycin would be), but~~in a second Pre-IND meeting request. While there can be no assurance that ~~such exclusivity~~the FDA will ~~be granted.~~

~~Our other drug development projects relate~~allow our IND to ~~two distinct portfolios of small molecules, which we refer to as the WP1066 Portfolio, focused~~go into effect on the ~~modulation~~basis of ~~key oncogenic transcription factors involved~~non-GLP toxicology data, we believe the possibility is worth pursuing, because it could significantly reduce our timeline to begin clinical trials for WP1122.

FDA grants Pre-IND Meeting Request

On May 27, 2020, we announced that the FDA has granted our request for a Pre-IND Meeting to provide guidance regarding our plan to study our drug candidate, WP1122, in a clinical trial for patients with COVID-19 (the disease caused by the ~~progression~~SARS-CoV-2 coronavirus).

Head of ~~cancer,~~NIAID Antiviral Drug Discovery and Development Center Joins COVID-19 Drug Development Team

On April 22, 2020, we announced that we have retained Dr. Richard Whitley to our Science Advisory Board to guide our development strategy for the WP1122 Portfolio a suite of molecules targeting the metabolic processes involved in cancer in general, and glioblastoma (the most common form of brain tumor) and pancreatic cancer in particular. We have been granted royalty-bearing, worldwide, exclusive licenses for the ~~patent and technology rights related to our WP1066 Portfolio and WP1122 Portfolio drug technologies, as these patent rights are owned by MD Anderson.~~

During 2017, the Company announced the following progress on the WP1066 and WP1122 portfolios: 1) that it engaged a contract research organization (“CRO”) to prepare for a proof-of-concept trial in Poland to study the Company’s drug candidate WP1220 (part of the WP1066 portfolio described above) for thepotential treatment of ~~cutaneous T-cell lymphoma, 2) the Company entered into collaborative agreements with~~COVID-19 and other viral diseases. Richard Whitley, M.D., is a Distinguished Professor of Pediatrics, Professor of Microbiology, Medicine and Neurosurgery; Loeb Eminent Scholar Chair in Pediatrics; Co-Director, Division of Pediatric Infectious Diseases; Vice-Chair, Department of Pediatrics; Senior Scientist, Department of Gene Therapy; Scientist, Cancer Research and Training Center; Faculty, Gene Therapy Center; Associate Director for Drug Discovery and Development and Senior Leader, Pediatric Oncology Program, O'Neal Comprehensive Cancer Center at the University of ~~Bergen~~Alabama at Birmingham (UAB); and Co-Founder and Co-Director, Alabama Drug Discovery Alliance.

Dr. Whitley is responsible for the National Institute of Allergy and Infectious Diseases Collaborative Antiviral Study Group whose role is to perform clinical trials of antiviral therapies directed against medically important viral diseases of children and adults including viruses considered as threats to human health. He participates in ~~Norway~~numerous Data Safety and Monitoring Boards for ongoing clinical studies. He is a past President of the Infectious Diseases Society of America and received the UAB President's Medal in 2007. In 2013, he was named as the inaugural recipient of the Distinguished Clinical Research Scholar and Educator in Residence at the NIH Clinical Center.

Agreement with ImQuest BioSciences to ~~test WP1122 in combination with another drug in the treatment of brain tumors and separately to conduct further analysis~~Expand Coronavirus Testing

We announced on ~~the capability of WP1066 to stimulate anti-tumor immune response, 3) the Company~~April 20, 2020, that we entered into an agreement with ~~the Mayo Clinic~~ImQuest BioSciences to ~~study WP1066~~expand in vitro and in vivo testing of WP1122, our lead drug candidate for the treatment of ~~rare pediatric brain tumors,~~COVID-19. ImQuest BioSciences is a preclinical CRO that provides expert services to evaluate the potential of new and ~~4) the Company agreed to assist MD Anderson in submitting an IND~~novel pharmaceutical products for the ~~study~~treatment and prevention of ~~WP1066~~viruses, bacteria, cancer and inflammatory diseases.

Leading Virologist Joins Development Team

On April 15, 2020, we announced that Dr. Dominique Schols of the Rega Institute has joined the Moleculin development team as a consultant and is now a member of our Science Advisory Board. The Rega Institute of Medical Research, Belgium, is one of the premier medical research institutes in ~~glioblastoma~~Europe. Dr. Dominique Schols is Professor and ~~melanoma~~Head of the Laboratory of Virology and Chemotherapy, Department of Microbiology and Immunology and Transplantation of the University of Leuven, Belgium.

Independent Research Finds Active Compound in WP1122 Reduces Coronavirus Replication in Vitro by 100%

On April 8, 2020, we announced that independent research found 2-DG to reduce replication of SARS-CoV-2, the virus that causes COVID-19, by 100% in in vitro testing. This cited research was a preprint, which is a preliminary report that has ~~metastasized~~not undergone peer review. Moleculin's drug candidate, WP1122, is referred to ~~the brain, which MD Anderson filed on November 1, 2017.~~

~~Overview~~

~~MBI was founded~~as a "prodrug" of 2-DG whereby chemical elements are added to 2-DG to improve its delivery in ~~2015 in order to combine~~vivo. Once administered, these added elements are removed by normal metabolic processes and consolidate the development efforts involving several anti-cancer technologies, some of which are based on license agreements with MD Anderson. This effort began with the acquisition of the Annamycin development project from AnnaMed, Inc., or AnnaMed, followed by the acquisition of the license rights to the WP1122 Portfolio from IntertechBio Corporation, or IntertechBio. Further, on behalf of Moleculin, LLC, we entered into a co-development agreement with Houston Pharmaceuticals, Inc., or HPI, which culminated with the merger of Moleculin, LLC into MBI coincident with our initial public offering allowing us to gain control of the WP1066 Portfolio.

~~Moleculin, LLC was formed in 2006 and was working to develop the WP1066 Portfolio it licensed from MD Anderson. On May 2, 2016, Moleculin, LLC was merged with and into MBI.~~what remains is 2-DG. As a result, 2-DG is the active compound in WP1122. In chemical terms, it is referred to as the active "moiety" (subpart) of WP1122.

Patent Filing to Cover New Coronavirus Drug Candidate

We announced on March 20, 2020, that a new patent application has been filed covering the ~~merger, we issued~~use of WP1122 and its analogs as therapies to limit the ~~holders~~ability of ~~Moleculin, LLC equity interests~~Coronavirus and convertible notes an aggregate of approximately 999,931 shares of our common stock. Since Moleculin, LLC commenced operations in 2006, substantially all of its efforts had been focused on research, development and the advancement of the WP1066 Portfolio. Moleculin, LLC did not generate any revenue from product sales and,other viruses to replicate. The patent application covers joint discoveries which came as a result ~~incurred significant losses.~~of an ongoing sponsored research agreement.

~~We do not have manufacturing facilities and all manufacturing activities are contracted out to third parties. Additionally, we do not have a sales organization.~~

~~Portfolio Status~~

~~Below are important milestones for each drug/portfolio of the Company.~~

~~Annamycin~~

~~Received Orphan Drug Status for Annamycin~~ ~~- On March 21, 2017, we received notice from the FDA that we had obtained Orphan Drug designation for Annamycin for the treatment of AML effective March 20, 2017.~~

WP1066

~~Possible Improvement in the Recommended Phase II Dose (“RP2D”) in Upcoming Phase I/IIa Clinical Trial~~ - In reviewing prior data, we determined that the prior developer may not have adequately explored the optimum dosing level for Annamycin in AML patients. Accordingly, we planned our clinical trial to begin with a Phase I to establish the RP2D with a follow-on Phase IIa. We believe this change in strategy will add several months to the timeline for eventual final approval

New Publication Combination of the drug, however, we believe that this extension of time to complete the trial will not prevent us from publicly announcing some, if not all, of the results from our Phase I/II clinical trial sometime in 2018.

WP1066 and Radiation

~~Received allowance for our IND for Annamycin~~ - On ~~September 26, 2017,~~July 1, 2020, we announced that a peer-reviewed article published in Clinical Cancer Research reported findings that our STAT3 inhibitor, WP1066, used in combination with traditional whole brain radiation therapy (WBRT) resulted in long-term survivors and enhanced median survival time relative to monotherapy in mice with implanted human brain tumors.

Emory University Clinical Trial of WP1066 Begins Enrollment

On June 2, 2020, we announced that recruiting had begun and the ~~FDA~~first patient had ~~allowed the Annamycin IND to go into effect, which allows the Company to move forward with its plans for its Phase I/IIa trial for Annamycin~~been enrolled in the treatment of relapsed or refractory AML, both here in the United States and, assuming the receipt of certain additional approvals, in Poland. We anticipate that the IRB (“Institutional Review Board”) approvals and site initiations of various clinical sites participating in ourEmory University Phase ~~I/II~~1 clinical trial of ~~Annamycin should begin occurring later in the fourth quarter of 2017.~~

~~The Company announced its first hospital contract for its Polish Annamycin Clinical Trial~~ - On October 3, 2017, the Company announced that it had signed an agreement with its first hospital in Poland to participate in this trial, subject to Polish regulatory approval to proceed with a clinical trial.

~~The Company filed its request for Clinical Trial Authorization (“CTA”) in Poland~~ - On October 23, 2017, the Company filed its CTA in Poland which, if granted, will enable a clinical trial to study Annamycin for the treatment of relapsed or refractory AML in Poland. The CTA process in Poland normally takes 60 days. In Poland, a hospital contract is required prior to filing a CTA.

~~Relationship with Dermin~~ - The Company has established relations with a company in a Poland - Dermin Sp. z o. o. (“Dermin”). The Company intends to utilize Dermin’s supply of active pharmaceutical ingredient (“API”) for Annamycin in the upcoming clinical Phase I/II clinical trial. Annamycin was previously licensed to Dermin within a limited region in Europe, enabling Dermin to deploy Polish grant funds toward producing Annamycin. We believe Dermin benefits from a data sharing arrangement giving it access to our clinical data necessary for the allowance of the Company's IND will require

~~the Company to manufacture, at an estimated cost of $0.2 million, additional drug product using the Dermin API in early 2018.~~

~~WP1066~~

~~Physician-Sponsored IND~~ ~~- A clinician at MD Anderson has advised us that MD Anderson has submitted to the FDA an IND for a physician-sponsored clinical trial involving~~ WP1066 for the treatment of brain ~~tumors. We are participating~~tumors in children. The study is being conducted at the Aflac Cancer and Blood Disorders Center of Children's Healthcare of Atlanta.

SEC matters

On May 1, 2020, the Securities and Exchange Commission (“SEC”) announced a ~~support role, but have no influence on~~temporary suspension of trading in our securities due to questions regarding the ~~design or conduct~~accuracy and adequacy of ~~the clinical trial, or on the IND process. The clinician indicated that the IND was on hold pending further documentation that the WP1066 to be used~~information in the ~~trial was manufactured~~marketplace about us and our securities, related to, among other things, statements made by us and others, in ~~accordance with Good Manufacturing Practice or GMP production~~our Form 10-K filed March 19, 2020, in press releases on March 20, 2020 and April 8, 2020 and in other statements on March 19, 2020; March 20, 2020; and April 16, 2020 concerning the our business, including the status of ~~WP1066. The Company, on July 25, 2017, announced its intention~~development of WP1122 for potential application to provide support to help the clinician address the issue. MD Anderson re-submitted its IND to the FDA on November 1, 2017, with our assistance. We are hopeful that FDA will permit this IND to go into effect in time to allow the trial to begin in 2017, subject to allowance by the FDA,COVID-19, and ~~will produce useful clinical data in 2018. However, we are not in a position to influence the IND process and we can provide no assurance that such time frame will be achieved.~~

~~Preparing for a study for the treatment of Cutaneous T-cell Lymphoma -~~ The Company announced in September 2017 that it engaged a CRO to prepare for a proof-of-concept trial in Poland to study the Company's drug candidate WP1220 (part of the WP1066 portfolio described above) for the treatment of a form of cutaneous T-cell lymphoma.

~~WP1122~~

~~Advancement of Preclinical Testing for Brain Tumors with WP1122~~ - WP1122 is our unique inhibitor of glucose metabolism, which is thought to be an important driver of glycolytic brain tumor progression and survival. A similar chemical structure to that which turns morphine into heroine has been used to allow WP1122 to successfully cross the blood-brain barrier and increase circulation time as compared to conventional inhibitors of glycolysis. On October 25, 2016, we announced promising initial results of the preclinical toxicology work on WP1122. We believe moving forward with full preclinical toxicology testing is key to our ability to ~~generate a proof~~expedite regulatory approval of ~~concept in humans. We had previously announced the presentation of preclinical data in July 2016, supporting the potential for using WP1122 as a treatment for glioblastoma.~~

~~Collaborative Agreement - The Company entered into a collaborative agreement in September 2017 with the University of Bergen in Norway to test WP 1122 in combination with another drug in the treatment of brain tumors.~~

~~Recent Business Developments~~

~~Commitment to Supply WP1066 for a potentially grant funded study at the Mayo Clinic~~ - Physician-scientists at the Mayo Clinic have requested and Moleculin has agreed to supply them with WP1066 for testing in a potential grant-funded clinical trial for children with Diffuse Intrinsic Pontine Gliomas (DIPG), a rare and very aggressive form of brain tumor. Animal studies conducted at this center have suggested that DIPG may be particularly sensitiveany such treatment. Pursuant to the ~~inhibition of~~suspension order, the ~~activated form of~~trading halt was initiated at 9:30 a.m. EDT on May 4, 2020 and terminated at 11:59 p.m. EDT on May 15, 2020. Commencing May 18, 2020, the Nasdaq Stock Market placed a ~~cell-signaling protein called STAT3, a primary target of WP1066, and their studies have demonstrated significant anti-tumor activity of WP1066 in DIPG~~ ~~in vitro~~ ~~and~~ ~~in vivo~~ ~~tumor models.~~

~~Announced~~halt on the ~~Discovery of a Metabolic Inhibitor with the Potential to Treat Pancreatic Cancer~~ - The Company announced on June 21, 2017, that it has received attention from the scientific community for its glucose decoy technology (WP1122 Portfolio, Moleculin Presents Preclinical Data of Novel Inhibitor of Glycolysis at 28th EORTC-NCI-AACR Symposium on Molecular Targets and Cancer Therapeutics, December 13, 2016) as a potential means to starve tumors to death by exploiting their hyper-dependence on glycolysis for energy production. The Company has identified possible new properties of its compound WP1234, a modification to WP1122. In pre-clinical testing, WP1234 has shown improved drug characteristics when compared with WP1122 and a 20 to 50-fold greater ability to kill pancreatic cancer cell lines when compared with traditional inhibitors of glycolysis. The Company believes this discovery now makes WP1234 a promising drug candidate to be studied for the treatment of pancreatic cancer.

~~Moleculin Begins Clinical Testing Site Development Efforts in Poland -~~ On August 3, 2017, the Company announced it appointed Bioscience SA (“Bioscience”), a Polish contract research organization (“CRO”) to begin identifying and preparing clinical testing sites in Poland for its drug Annamycin for the treatment of relapsed or refractory AML. Furthermore, on October 18, 2017, the Company announced that 14 qualified cancer clinics (including sites in both the U.S. and Poland) have requested to participate in its clinical trial.

~~Closing of a Follow-On Public Offering -~~ ~~In February 2017, we completed a public offering~~trading of our common stock ~~and warrants, pursuant to~~pending the receipt of additional information, which we received $4.5 million in net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses. On March 24, 2017, warrants associated with this offering were exercised generating an additional $0.80 million in net proceeds. During the second quarter of 2017, warrants associated with this offering were exercised generating an additional $2.4 million. In the third quarter, approximately 500,000 warrants were exercised, generating an additional $0.7 million bringing the total net proceeds from this offering to above $3.8 million.

~~At Market Issuance Sales Agreement -~~ On September 15, 2017, the Company entered into an At Market Issuance Sales Agreement (the “Agreement”) with Roth Capital Partners, LLC and National Securities Corporation (collectively, the “Agents”). Pursuant to the terms of the Agreement, the Company may sell from time to time through the Agents shares of the Company’s common stock with an aggregate sales price of up to $13.0 million. As of September 30, 2017, the Company had sold 154,121 shares with gross proceeds of $0.4 million under this Agreement and, additionally, subsequent to September 30, 2017, the Company sold approximately 337,000 shares with gross proceeds of $0.8 million, bringing the total raised from the Agreement to $1.2 million in gross proceeds.

~~Announced Dr. Sandra Silberman as Chief Medical Officer: New Products -~~ On October 31st, the Company added Sandra Silberman, M.D., PH.D., as Chief Medical Officer - New Products. The Compensation Committee approved the issuance of 10-year options, with 4-year vesting, to purchase 75,000 shares of the Company’s common stock, under the Company’s 2015 Stock Plan to Dr. Silberman. The options had an exercise price of $1.92 per share. Dr. Silberman's role will be in addition to that of Dr. Robert Shepard, Moleculin's Chief Medical Officer - Annamycin. Dr. Silberman’s career in clinical development began at Pfizer, Inc., where she oversaw the initiation of Tarceva (TM) clinical trials. She then led the global development of Gleevec® at Novartis. Sandraprovided. This halt was the first Vice President and Global Therapeutic Area Head in Oncology at Eisai, a role in which she advanced five original compounds into Phases I through III, gaining the first approval for Eisai’s proprietary drug, Halavan®. Subsequently, she served as a senior advisor to a number of biopharmaceutical companies, including Bristol-Myers Squibb, AstraZeneca, Imclone, Roche, and numerous biotech companies as an independent industry consultant. She joined Quintiles in 2009~~as the Vice President of Oncology and Global Head of Translational Medicine~~lifted on May 28, 2020. We believe in the ~~newly formed Innovation division, overseeing drug development~~accuracy and ~~novel technologies for new partnerships with~~adequacy of our public disclosures but can provide no assurances that we will not encounter future similar actions, which may adversely affect the ~~pharmaceutical and biotechnology industries. Sandra earned her B.A., Sc.M. and Ph.D. from the Johns Hopkins University School~~holders of Arts and Sciences, School of Public Health and School of Medicine, respectively. Her major focus of investigation and doctoral thesis was in the burgeoning area of tumor immunology. She received her M.D. from Cornell University Medical College, completing a postdoctoral training and her fellowship in hematology/oncology at the Brigham & Women's and the Dana Farber Cancer Institute in Boston. She continued to do research in tumor immunology with a clinical investigator award from the NIH and became an Instructor in Medicine at Harvard Medical School. She then served as an attending physician at Yale University Hospital. Sandra has continued in clinical practice throughout her career in industry, and is currently an attending physician in the Hematology/Oncology clinic at the Duke VA in Durham, NC.our common stock.

Results of Operations

The following table sets forth, for the periods indicated, data derived from our statement of ~~operations:~~operations (in thousands) and such changes in the periods are discussed below in approximate amounts:

~~In thousands~~

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016				Three Months Ended June 30,						Six Months Ended June 30,
	(in thousands, except share and per share amounts)													2020		2019		2020		2019
Revenues	$	—		$	—		$	—		$	—		Revenues	$	—	$	—	$	—	$	—

Operating Expenses:
Operating expenses:													Operating expenses:
Research and development	1,061			497			2,260			616			Research and development	3,329		2,099		6,535		5,031
General and administrative	1,338			924			2,987			1,848			General and administrative	1,653		1,484		3,463		3,075
Depreciation	5			1			13			2
Depreciation and amortization													Depreciation and amortization	52		49		98		97
Total operating expenses	2,404			1,422			5,260			2,466			Total operating expenses	5,034		3,632		10,096		8,203

Loss from operations	(2,404		)	(1,422		)	(5,260		)	(2,466		)	Loss from operations	(5,034)		(3,632)		(10,096)		(8,203)

Other income (expense):
Loss from change in fair value of warrant liability	(470		)	—			(2,753		)	—
Gain from settlement of liability	—			—			149			—
Gain from expiration of warrants	—			—			1,238			—
Other income (loss):													Other income (loss):
Gain (loss) from change in fair value of warrant liability													Gain (loss) from change in fair value of warrant liability	(5,099)		2,407		(1,254)		2,936
Other income	9			—			8			—			Other income	17		—		22		—
Interest expense	(1		)	(10		)	(2		)	(37		)

Interest income, net													Interest income, net	4		4		7		5
Net loss	$	(2,866	)	$	(1,432	)	$	(6,620	)	$	(2,503	)	Net loss	$	(10,112)	$	(1,221)	$	(11,321)	$	(5,262)

Three Months Ended ~~September~~June 30, ~~2017 compared~~2020 Compared to ~~three months ended September~~Three Months Ended June 30, ~~2016~~2019

Research and Development Expense. Research and development (R&D) expense was ~~$1.1~~$3.3 million and ~~$0.5~~$2.1 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The increase of ~~approximately $0.6~~$1.2 million is mainly ~~represents an increase of approximately: $0.1 million~~ related to ~~an increase~~increased clinical trial activity, increased license fees and costs related to sponsored research agreements, costs related to manufacturing of additional drug product and two additional employees in R&D associated headcount costs: $0.1 million for sponsored research and related expenses; and, approximately $0.4 million associated with developing and testing drug product as we prepared our IND for Annamycin and for the related clinical trials.headcount.

General and Administrative Expense. General and administrative expense was ~~$1.3~~$1.7 million and ~~$0.9~~$1.5 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~expense~~ increase of ~~approximately $0.4~~$0.2 million was mainly attributable to ~~the increase in headcount~~increased stock-based compensation expense for annual employee stock options, and ~~associated payroll~~increased costs ~~of $0.2 million; $0.3 million of stock based compensation;~~for directors and ~~approximately $0.1 million in legal, accounting, consulting, and other professional expenses. This was offset by a reduction in public listing expenses of $0.2 million.~~officer's liability insurance.

~~Loss~~Gain (Loss) from Change in Fair Value of Warrant Liability. ~~The Company~~ We recorded a net loss of ~~$0.5~~$5.1 million in the ~~third~~second quarter of ~~2017~~2020 as compared to a net gain of $2.4 million in the second quarter of 2019, for the change in fair value on revaluation of ~~its~~our warrant liability associated with itour warrants issued in conjunction with ~~its~~our stock ~~offering in February 2017. The Company is~~offerings. We are required to revalue ~~certain of its 2017~~our liability-classified warrants at the time of each warrant exercise, if applicable, and at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred. We ~~calculate~~calculated the fair value of the warrants outstanding using the Black-Scholes ~~and Monte Carlo Simulation models.~~model. A gain results principally from a decline in ~~the Company’s~~our share price during the period and a loss results principally from an increase in ~~the Company’s~~our share price.

~~Net Loss.~~ The net loss for the three months ended September 30, 2017 was $2.9 million which included non-cash income of $0.5 million related to a gain recognized on the expiration of warrants. The net loss also included additional noncash charges for $0.5 million for stock based compensation and other stock based expenses.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017 compared~~2020 Compared to ~~nine months ended September~~Six Months Ended June 30, ~~2016~~2019

Research and Development Expense. R&D expense was ~~$2.3~~$6.5 million and ~~$0.6~~$5.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The increase of ~~approximately $1.7~~$1.5 million is mainly ~~represents an increase of approximately: $0.3 million~~ related to ~~an increase~~increased clinical trial activity, increased license fees and costs related to sponsored research agreements, costs related to manufacturing of additional drug product and two additional employees in R&D headcount and associated payroll costs: $0.3 million for sponsored research and related expenses; approximately $0.2 million associated with developing and testing drug product as we prepare for clinical trials: $0.4 million in clinical trial preparation and $0.5 million related to travel, legal, consultants, and other research costs associated in preparing our IND and Orphan Drug applications with the FDA.headcount.

General and Administrative Expense. General and administrative expense was ~~$3.0~~$3.5 million and ~~$1.8~~$3.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~expense~~ increase of ~~approximately $1.2~~$0.4 million was mainly attributable to ~~the increase in headcount and associated~~increased payroll costs ~~of $0.5 million; $0.5 million of~~for an additional finance employee, increased stock-based compensation expense for annual employee stock ~~based compensation; approximately $0.3 million in legal, accounting, consulting,~~options, and ~~other professional expenses; approximately $0.1 million in insurance expense;~~increased costs for directors and ~~$0.1 million in travel expenses. These costs were offset by a reduction in public listing expenses of $0.3 million.~~officer's liability insurance.

~~Loss~~Gain (Loss) from Change in Fair Value of Warrant Liability. ~~The Company~~ We recorded a net loss of ~~$2.8~~$1.3 million in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to a net gain of $2.9 million in 2019, for the change in fair value on revaluation of ~~its~~our warrant liability associated with ~~its~~our warrants issued in conjunction with ~~its~~our stock ~~offering in February 2017. The Company is~~offerings. We are required to revalue ~~certain of its 2017~~our liability-classified warrants at the time of each warrant exercise, if applicable, and at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred. We ~~calculate~~calculated the fair value of the warrants outstanding using the Black-Scholes ~~and Monte Carlo Simulation models.~~model. A gain results principally from a decline in ~~the Company’s~~our share price during the period and a loss results principally from an increase in ~~the Company’s~~our share price.

~~Gain from settlement of liability.~~ During the period, the Company settled a previously incurred expense utilizing shares of its common stock with an attributed value of $3 per share. The gain of roughly $0.2 million reflects the difference in the Company’s share price in the open market as of the settlement date and the $3 per share; which was recorded in the first quarter of 2017.

~~Gain from Expiration of Warrants.~~ ~~The Company recorded a gain during the second quarter of $1.2 million related to the expiration of warrants issued as part of the February 2017 stock offering.~~

~~Interest expense.~~ Interest expense included expense accrued on our convertible promissory notes issued in 2015 and 2016 bearing interest at the rate of 8% per annum. These convertible promissory notes were all converted into common stock during the second quarter of 2017.

~~Net Loss.~~ The net loss for the nine months ended September 30, 2017 was $6.6 million which included non-cash expenses of approximately $3.3 million which included $2.8 million for change in fair value of warrants liability and $0.5 million for stock based compensation and depreciation.

Liquidity and Capital Resources

The following table sets forth our primary sources and uses of cash for the period indicated (in thousands):


	Six Months Ended June 30,
	2020		2019
Net cash used in operating activities	$	(9,275)	$	(9,194)
Net cash used in investing activities	(20)		(34)
Net cash provided by financing activities	15,303		20,802
Effect of exchange rate changes on cash and cash equivalents	(9)		(13)
Net increase in cash and cash equivalents	$	5,999	$	11,561

As of ~~September~~June 30, ~~2017,~~2020, there was $0.3 million of cash on hand in Australia. We maintain a bank account in Australia and know of no related limitations impacting our liquidity in Australia.

Cash used in operating activities

Cash used in operations was $9.3 million for the six months ended June 30, 2020. This $0.1 million increase over the prior year period of $9.2 million was primarily due to: 1) payments for developing, manufacturing and testing drug product as we ~~had $8.7~~prepared for clinical trials; 2) an increase in R&D employee and contractor headcount and associated payroll costs; 3) an increase in paid sponsored research and related expenses; and 4) an increase in license fees. These are all a reflection of the ongoing clinical and pre-clinical activity and the associated increase in general and administrative support for our three core drug technologies.

Cash used in investing activities

Net cash used in investing activities was $20,000 for the six months ended June 30, 2020 compared to $34,000 for the six months ended June 30, 2019. The decrease relates to purchases in 2019 related to furniture and fixtures for our corporate apartment, as well as additional electronic equipment for employees and our corporate office.

Cash provided in financing activities

In July 2019, we entered into an At Market Issuance Sales Agreement (2019 ATM Agreement) with Oppenheimer & Co. Inc. (Oppenheimer). Pursuant to the terms of the 2019 ATM Agreement, we may offer and sell, from time to time, our common stock through Oppenheimer, acting as agent, through an "at the market offering" as defined in Rule 415(a)(4) (ATM Offering) promulgated under the Securities Act.

During the six months ended June 30, 2020, pursuant to the 2019 ATM Agreement, we issued 7,170,964 shares of common stock at an average price of $1.44 per share, resulting in net proceeds of $10.0 million. We paid a commission to Oppenheimer equal to 3.0% of the gross proceeds from the sale of our common stock under the 2019 ATM Agreement. Subsequent to the quarter ended June 30, 2020, we issued 1,301,126 shares of common stock at an average price of $1.47 per share resulting in net proceeds to the Company of $1.9 million in ~~cash and cash equivalents compared~~July 2020.

Subsequent to ~~$5.0 million at December 31, 2016.~~ the quarter ended June 30, 2020, the Company entered into a new At Market Issuance Sales Agreement with Oppenheimer & Co. Inc. (2020 ATM Agreement) in July 2020. Pursuant to the terms of the 2020 ATM Agreement, the Company may sell from time to time through Oppenheimer shares of the Company’s common stock with an aggregate sales price of up to $15.0 million. As of the date of this report, there have been no issuances under the 2020 ATM Agreement.

In February ~~2017,~~2020, we ~~completed a public offering~~entered into subscription agreements with institutional investors to purchase of 7,500,000 shares of our common stock and warrants ~~pursuant~~ to ~~which~~purchase 5,625,000 shares of common stock at a combined public offering price of $0.80 per share and related warrant resulting in gross proceeds of $6.0 million. Each warrant has an exercise price of $1.05 per share and will be exercisable six months from the date of issuance and will expire five years from the date they are first exercisable.

In April 2019, we ~~received approximately $4.5 million~~completed subscription agreements with institutional investors to purchase an aggregate of 9,375,000 units at a public offering price of $1.60 per unit in ~~net~~a registered direct offering. Each unit is comprised of one share of common stock and 0.5 of a warrant to purchase one share of common stock resulting in gross proceeds ~~after deducting underwriting discounts~~of $15.0 million. Each warrant has an exercise price of $1.75 per share and ~~commissions and estimated offering expenses.~~ is exercisable immediately. The warrants will expire five years from the date of issuance.

Additionally, ~~through September 30, 2017, $3.3 million in cash was received from~~during the second quarter of 2019, 1,413,018 shares were issued due to the exercise of various warrants ~~issued in~~related to past public offerings. Gross proceeds received due to these exercises approximated $1.6 million.

In March 2019, we completed an underwritten offering of 5,250,000 shares of our ~~February public offering~~common stock and ~~$0.4 million from the sale~~warrants to purchase 2,650,000 shares of common stock infor gross proceeds of $5.3 million. Additionally, we sold 605,367 shares of our ~~ATM offering. Cash used in operations was $4.9 million~~common stock to Lincoln Park Capital Fund, LLC for the nine months ended September 30, 2017. This increase over prior year of $2.3 million was mainly due to headcount and general company activity increases, as the Company prepared its IND for Annamycin and readies for the related, upcoming clinical trials during 2017. $0.9 million.

We believe that our existing cash and cash equivalents as of ~~September~~June 30, ~~2017 and~~2020 plus the cash ~~generated already in~~raised subsequent to the ~~fourth~~ quarter will be sufficient to fund our planned operations into the ~~third~~first quarter of ~~2018.~~2021, without the issuance of additional equity for cash. Any such issuances should extend the funding of our planned operations beyond the first quarter of 2021. Such plans are subject to ~~change~~our stock price, market conditions, changes in planned expenses depending on clinical enrollment progress, ~~and~~the use of drug ~~product.~~product or a combination thereof. Based on the Company's current assessment, the Company does not expect any material impact on its liquidity due to the worldwide spread of the COVID-19 virus.

We will not generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for and begin to commercialize one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital to fund our future operations. Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings and debt financings, and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations, which may cause dilution to our existing stockholders.

~~The following table sets forth our primary sources and uses of cash for the period indicated:~~

Nine Months Ended September 30,
2017 2016
Net cash used in operating activities $ (4,934 ) $ (2,596 )
Net cash used in investing activities (12 ) (110 )
Net cash provided by financing activities 8,675
8,862
Net increase in cash and cash equivalents $ 3,729
$ 6,156

~~Cash used in operating activities~~

Net cash used in operating activities was $4.9 million for the nine months ended September 30, 2017 compared to $2.6 million for the same period in 2016. This increase in use of cash for operations is due to our becoming operational post IPO in mid-2016. This mainly included payments made for R&D and services related to our becoming a publicly traded company and related filing fees, along with payments made to MD Anderson for license and maintenance fees.

~~Cash used in investing activities~~

~~Net cash used in investing activities was basically nil for the nine months ended September 30, 2017 compared to $0.1 for the nine months ended September 30, 2016.~~

~~Cash provided in financing activities~~

Net cash provided by financing activities was $8.7 million for the nine months ended September 30, 2017 compared to $8.9 million for the nine months ended September 30, 2016. The activity in 2016 is related to our initial public offering stock issuance which raised a net $8.5 million, issuance of common stock at $3 per share which raised $0.7 million, and issuance of convertible notes which raised $0.2 million. The activity in 2017 is related to the Company’s follow-on public offering of common stock and warrants. Of this latter amount, $3.8 million is related to the exercise of warrants post the follow-on offering.

Critical Accounting Policies and Significant Judgments and Estimates

The financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these 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 financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our 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 from these estimates under different assumptions or conditions.

We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

~~Acquisition~~

We acquired Moleculin, LLC on May 2, 2016, and, since such date our financial statements have included the operations of Moleculin, LLC. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of acquired in-process research and development (“IPR&D”) be recorded on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired will be recorded as goodwill. The Company obtained input from third-parties regarding its tangible and intangible assets and other information necessary to measure the fair value of the assets acquired and liabilities assumed in connection with the acquisition of Moleculin, LLC.

~~Research and Development Costs~~

We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conducting of pre-clinical studies and the preparation for clinical trials and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and we include these costs in accrued liabilities in the balance sheets and within research and development expense in the statement of operations. These costs are a significant component of our research and development expenses. We record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these third parties.

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. To date, thereThere have been no material ~~differences from our accrued expenses to actual expenses.~~

~~Impairment of Long-Lived Assets~~

~~Management reviews long-lived assets for impairment whenever events or~~ changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the ~~asset’s carrying value~~Company's critical accounting policies and use of estimates from those disclosed in the Company’s Form 10-K for the year ended December 31, 2019. For a discussion of our critical accounting policies and use of estimates, refer to ~~determine if an impairment~~Management’s Discussion and Analysis of ~~such asset is necessary. The effect~~Financial Condition and Results of ~~any impairment would be to expense~~Operations – Critical Accounting Policies and Significant Estimates in Part II, Item 7 of our Annual Report on Form 10-K for the ~~difference between the fair value of such asset and its carrying value.~~year ended December 31, 2019.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable to us, as we are a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures designed to ensure that material information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that material information is accumulated and communicated to our management, including our Chief Executive Officer ~~(“CEO”)~~(CEO) and Chief Financial Officer ~~(“CFO”)~~(CFO), as appropriate, to allow timely decisions regarding required disclosures. Our CEO and CFO have evaluated these disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q and have determined that such disclosure controls and procedures were not effective ~~as disclosed~~due to the material weakness in our internal control over financial reporting discussed below.

In light of the material weakness described below, we performed additional procedures during the quarter and additional analysis and procedures post-closing to ensure our unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the condensed consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board Auditing Standard 1305) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim condensed consolidated financial statements will not be prevented or detected.

During the last quarter of fiscal 2016, and as our operational activities increased, management determined that it does not have sufficient segregation of duties within its accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to maintain effective segregation of duties on our assessment of our internal control over financial reporting and has concluded that the control deficiency represents a material weakness. A number of the issues related to segregation of duties were remediated with new information technology systems and policies and procedures during 2019. Management added additional accounting and IT personnel in 2019 and implemented a ~~full-time controller during the quarter ended September 30, 2017~~new accounting software system, accounting policies, and banking controls. Management intends to further ~~increase~~enhance its accounting staff and enhance the controls surrounding its system of financial accounting and reporting, as soon as economically feasible and sustainable, to further remediate this material weakness. During 2020, we implemented an ERP system for electronic payments and further updated roles, policies and procedures within those systems.

We continuously seek to improve the efficiency and effectiveness of our internal controls. There ~~has~~have been no ~~change~~changes, except for items described above, in our internal control over financial reporting ~~during our most recent calendar quarter~~that occurred in the six months ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our employees are working remotely due to the COVID-19 pandemic, but we do not believe that our adjustments to how we work have materially impacted our internal controls over financial reporting. We continue to monitor and assess the potential impact of the COVID-19 pandemic, and the related shelter-in-place requirements, on our internal controls and strive to minimize the impact on our internal control design and operating effectiveness.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~We are not a party to any pending legal proceedings.~~None.

ITEM 1A. RISK FACTORS

For information regarding factors that could affect our results of operations, financial condition and liquidity, refer to the section entitled “Risk Factors” in Part I, Item 1A in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2019. Except as updated below, there have been no material changes from the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2019 as filed with the SEC.

In May 2020, the SEC issued an order suspending the trading of our common stock and Nasdaq issued a trading halt in our common stock.

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

The COVID-19 outbreak may affect the business of the FDA, EMA or other health authorities, which could result in delays in meetings related to planned clinical trials and ultimately of reviews and approvals of our product candidates.

The COVID-19 outbreak may delay the approvals of our product candidates due to its effect on the business of the FDA, EMA or other health authorities, which could result in delays in meetings related to planned clinical trials. The spread of COVID-19 may also slow potential enrollment of clinical trials and reduce the number of eligible patients for our clinical trials. The COVID-19 outbreak and mitigation measures also have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairing our ability to raise capital when needed. The extent to which the COVID-19 outbreak impacts our business and operations will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. We have relationships with contract research organizations to conduct certain pre-clinical programs and testing and other services in Europe and those business operations are subject to potential business interruptions arising from protective measures that may be taken by the governmental or other agencies or governing bodies. In addition, certain of our collaborative relationships with research facilities and academic research institutions in the United States, Europe and in Australia may be materially and adversely impacted by protective measures taken by those institutions or federal and state agencies and governing bodies to restrict access to, or suspend operations at, such facilities. Such protective measures, including quarantines, travel restrictions and business shutdowns, may also negatively affect our core operations.

If we breach any of the agreements under which we license patent rights or if we fail to meet certain development deadlines or exercise certain rights to technology, we could lose or fail to obtain license rights that are important to our business.

We license all of our technology from MD Anderson, and we must meet various payment and other obligations under our license agreements with MD Anderson. Our license agreements generally require that we meet various milestones by certain dates, each of which generally requires the payment of additional fees. To date, we have been able meet such milestones or have been able to enter into extensions with MD Anderson related to such milestones. However, our failure to meet any financial or other obligations under our license agreements in a timely manner could result in the loss of our rights to our core technologies.

We are a party to a number of license agreements with MD Anderson under which we are granted rights to intellectual property that are critical to our business and we expect that we will need to enter into additional license agreements in the future with MD Anderson based on development work we are pursuing under a sponsored research agreement. With respect to inventions arising from our sponsored research agreement, MD Anderson has provided us with an option to negotiate a royalty-bearing, exclusive license to any invention or discovery that is conceived or reduced to practice. However, regardless of such option to negotiate, we may be unable to negotiate a license within the specified time frame or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue a program based on that technology.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~On July 29, 2017,~~In April 2020, we ~~agreed to issue two warrants~~issued a five-year warrant to purchase 100,000 ~~and 50,000~~ shares of our common stock at exercise prices of ~~$2.41 and $3.00~~$1.14 per share ~~respectively,~~ to a ~~consultant, subject to approval by Nasdaq of a listing of additional shares application, which was received in August 2017.~~consultant. The consultant was an accredited investor.

We believe that the ~~issuances were~~issuance was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.

On May 31, 2016, we completed our initial public offering, which commenced on May 2, 2016, pursuant to which we sold 1,540,026 shares of our common stock at $6.00 per share with gross proceeds of $9,240,156 and net proceeds of $8,464,183 after deducting underwriting discounts and commissions and offering expenses payable by us. The offer and sale of all the shares in the offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-209323), which was declared effective by the SEC on May 2, 2016. Bonwick Capital Partners LLC and Network 1 Financial Securities, Inc. acted as underwriters for the offering.

There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on May 3, 2016 pursuant to Rule 424(b). No direct or indirect payments were made by us to any of our directors or officers or their associates, to persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and those payments disclosed in “Item 1. Business” of our Form 10-K for the fiscal year 2016 with regard to the license arrangements with HPI. Pending the uses described, we intend to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS


Exhibit No.		Description

~~Exhibit~~ ~~Number~~ 10.1+		~~Description~~
~~10.1~~	~~At Market Issuance Sales~~Amendment No. 3 to Patent and Technology License Agreement between the Parties dated ~~September 15, 2017, by and among~~April 2, 2012, dated May 20, 2020, entered into between the Company ~~Roth Capital Partners, LLC~~ and ~~National Securities Corporation (incorporated by reference to Exhibit 1.1~~the Board of ~~the Form 8-K filed September 15, 2017)~~Regents of The University of Texas System, on behalf of The University of Texas M.D. Anderson Cancer Center

31.1*		Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2*		Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*		Certification of Principal Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Principal Accounting and Financial Officer ~~Financial~~ Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

/* Filed herewith.

+ Pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated by the SEC, certain portions of this exhibit have been redacted. The Company hereby agrees to furnish supplementally to the SEC, upon its request, an unredacted copy of this exhibit.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


		MOLECULIN BIOTECH, INC.

		~~MOLECULIN BIOTECH, INC.~~

Date: ~~November 13, 2017~~August 12, 2020	By:		/s/ Walter V. Klemp
				Walter V. Klemp,
				Chief Executive Officer and Chairman (Principal Executive Officer)

Date: ~~November 13, 2017~~August 12, 2020		By:		/s/ Jonathan P. Foster
				Jonathan P. Foster,
				Executive VPVice President & Chief Financial Officer (Principal Financial and Accounting Officer)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues	$	—		$	—		$	—		$	—

Operating expenses:
Research and development	1,061			497			2,260			616
General and administrative	1,338			924			2,987			1,848
Depreciation	5			1			13			2
Total operating expenses	2,404			1,422			5,260			2,466

Loss from operations	(2,404		)	(1,422		)	(5,260		)	(2,466		)

Other income (expense):
Loss from change in fair value of warrant liability	(470		)	—			(2,753		)	—
Gain from settlement of liability	—			—			149			—
Gain from expiration of warrants	—			—			1,238			—
Other income	9			—			8			—
Interest expense	(1		)	(10		)	(2		)	(37		)

Net loss	$	(2,866	)	$	(1,432	)	$	(6,620	)	$	(2,503	)

Net loss per common share – basic and diluted	$	(0.14	)	$	(0.12	)	$	(0.37	)	$	(0.28	)
Weighted average common shares outstanding – basic and diluted	20,534,720			11,579,239			17,683,441			9,066,804



	Common Stock
	Number	Amount		Additional Paid-In-Capital		Accumulated Deficit			Stockholders' Equity
Balance at December 31, 2016	12,164,852	$	12	$	19,623	$	(4,675	)	$	14,960

Issued for cash – sale of units at $1.35 per unit, net of stock issuance costs of $550	3,710,000	4		313					317
Warrants exercised, net of issuance costs of $80	2,703,434	3		8,753					8,756
Issued for cash - sale of common stock in ATM offering, net of issuance costs of $47	154,121	—		360					360
Stock-based compensation				487					487
Issued for convertible debt	2,010,640	2		300					302
Issued for settlement of service	79,167	—		89					89
Net loss						(6,620		)	(6,620		)
Balance at September 30, 2017	20,822,214	$	21	$	29,925	$	(11,295	)	$	18,651



	Warrant Liability – Current			Warrant Liability – Long-Term		Warrant Liability – Total
Balance, June 30, 2017	$	1,185		$	—	$	1,185
Reclass of liability from long-term to current	—			—		—
Change in fair value - net	470			—		470
Expiration of warrants	—			—		—
Transfer in and out (exercise of warrants)	(912		)	—		(912		)

Balance, September 30, 2017	$	743		$	—	$	743



Description	Number of Shares Under Warrant		Range of Warrant Price per Share	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Balance at January 1, 2017	—		—	—		—
Granted	8,235,923		$1.35-$1.50	$	1.43	1.6
Exercised	(2,703,434	)	—	$	1.46	—
Expired	(5,087,717	)	—	$	1.40	—
Balance at September 30, 2017	444,772		—	$	1.46	4.63
Vested and Exercisable at September 30, 2017	444,772		$1.35-$1.50	$	1.46	4.63



	Number of Shares	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, December 31, 2016	510,000	$	3.40	$	5.28	9.29	$	275,500

Granted	160,000	$	1.52	$	2.14
Outstanding, September 30, 2017	670,000	$	2.12	$	1.78	8.85	$	144,900
Exercisable, September 30, 2017	85,000	$	1.66	$	1.79	7.15	$	117,300