UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June 30, 2019~~March 31, 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)

5300 Memorial Drive,

Suite 950

Houston

77007

(Address of principal executive offices)

(Zip Code)

713-300-5160

(Registrant’s telephone number, including area code)

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

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

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


Large accelerated filer ☐	Smaller reporting company ☒
Non-accelerated filer ☒		Emerging growth company ☒
Accelerated filer ☐

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

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

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


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

The registrant had ~~45,197,048~~60,403,164 shares of common stock outstanding at ~~August 8, 2019.~~May 6, 2020.

Moleculin Biotech, Inc.

~~INDEX~~Table of Contents


		Page ~~Number~~
	PART I – FINANCIAL INFORMATION	3
Item 1.
~~ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~Condensed Consolidated Financial Statements (unaudited)	3

~~ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Condensed Consolidated Balance Sheets as of March 31, 20 20 and December 31, 2019	213
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months ended March 3 1 , 20 20 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31 , 20 20 and 20 19	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31 , 20 20 and 20 19	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	32

~~ITEM 4. CONTROLS AND PROCEDURES~~	33

PART II – OTHER INFORMATION	3327
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered sales of Equity Securities and Uses of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	29

	~~ITEM 1. LEGAL PROCEEDINGS~~Signatures	34

~~ITEM 1A. RISK FACTORS~~	34

~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	34

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~	34

~~ITEM 4. MINE SAFETY DISCLOSURES~~	34

~~ITEM 5. OTHER INFORMATION~~	34

~~ITEM 6. EXHIBITS~~	35

~~SIGNATURES~~	3630

PART 1 FINANCIAL INFORMATION

Item 1. Financial Statements

Moleculin Biotech, Inc.

Condensed Consolidated Balance Sheets

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

(unaudited)


		June 30,		December 31,			March 31,		December 31,
		2019		2018			2020		2019
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	18,695	$	7,134	Cash and cash equivalents	$	11,649	$	10,735
Prepaid expenses and other		1,507		840
Prepaid expenses and other current assets						Prepaid expenses and other current assets	2,138		2,749
Total current assets	Total current assets	20,202		7,974		Total current assets	13,787		13,484
Furniture and equipment, net	Furniture and equipment, net	401		463		Furniture and equipment, net	271		316
Intangible assets	Intangible assets	11,148		11,148		Intangible assets	11,148		11,148
Operating lease right-of-use asset	Operating lease right-of-use asset	103		—		Operating lease right-of-use asset	266		287
Total assets	Total assets	$	31,854	$	19,585	Total assets	$	25,472	$	25,235

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	1,257	$	1,246	Accounts payable	$	1,206	$	2,153
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	1,390		2,452		Accrued expenses and other current liabilities	2,029		1,417
Warrant liability - current		6,944		180
Total current liabilities	Total current liabilities	9,591		3,878		Total current liabilities	3,235		3,570
Operating lease liability - long-term, net of current portion	Operating lease liability - long-term, net of current portion	171		—		Operating lease liability - long-term, net of current portion	248		276
Deferred rent - long-term		—		107
Warrant liability - long-term	Warrant liability - long-term	—		1,328		Warrant liability - long-term	6,697		5,818
Total liabilities	Total liabilities	9,762		5,313		Total liabilities	10,180		9,664
Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)					Commitments and contingencies (Note 7)
Stockholders' equity	Stockholders' equity					Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued or outstanding		—		—
Common stock, $0.001 par value; 100,000,000 and 75,000,000 shares authorized as of June 30, 2019 and December 31, 2018, 45,197,048 and 28,528,663 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively		45		29
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 March 31, 2020 and December 31, 2019, 53,227,700 and 45,727,700 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively						Common stock, $0.001 par value; 100,000,000 shares authorized as of March 31, 2020 and December 31, 2019, 53,227,700 and 45,727,700 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	53		46
Additional paid-in capital	Additional paid-in capital	53,643		40,564		Additional paid-in capital	56,011		55,055
Accumulated other comprehensive income		22		35
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(2)		31
Accumulated deficit	Accumulated deficit	(31,618)		(26,356)		Accumulated deficit	(40,770)		(39,561)
Total stockholders’ equity	Total stockholders’ equity	22,092		14,272		Total stockholders’ equity	15,292		15,571
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	31,854	$	19,585	Total liabilities and stockholders’ equity	$	25,472	$	25,235

See accompanying notes to unaudited condensed consolidated financial statements.

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2019		2018		2019		2018			2020		2019
Revenues	Revenues	$	—	$	—	$	—	$	—	Revenues	$	—	$	—

Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	2,099		4,231		5,031		5,469		Research and development	3,206		2,932
General and administrative	General and administrative	1,484		1,220		3,075		2,611		General and administrative	1,810		1,591
Depreciation and amortization	Depreciation and amortization	49		7		97		15		Depreciation and amortization	46		48
Total operating expenses	Total operating expenses	3,632		5,458		8,203		8,095		Total operating expenses	5,062		4,571
Loss from operations	Loss from operations	(3,632)		(5,458)		(8,203)		(8,095)		Loss from operations	(5,062)		(4,571)
Other income (expense):
Other income:										Other income:
Gain from change in fair value of warrant liability	Gain from change in fair value of warrant liability	2,407		331		2,936		1,040		Gain from change in fair value of warrant liability	3,845		529
Other expense		—		(1)		—		(1)
Other income, net										Other income, net	5		—
Interest income, net	Interest income, net	4		3		5		4		Interest income, net	3		1
Net loss	Net loss	$	(1,221)	$	(5,125)	$	(5,262)	$	(7,052)	Net loss	$	(1,209)	$	(4,041)

Net loss per common share - basic and diluted	Net loss per common share - basic and diluted	$	(0.03)	$	(0.20)	$	(0.15)	$	(0.29)	Net loss per common share - basic and diluted	$	(0.02)	$	(0.14)
Basic and diluted weighted average common shares outstanding		42,393,031		25,888,931		35,765,790		24,617,372
Weighted average common shares outstanding, basic and diluted										Weighted average common shares outstanding, basic and diluted	49,930,997		29,064,913

Net Loss	Net Loss	$	(1,221)	$	(5,125)	$	(5,262)	$	(7,052)	Net Loss	$	(1,209)	$	(4,041)
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation	Foreign currency translation	(2)		6		(13)		6		Foreign currency translation	(33)		(11)
Comprehensive loss	Comprehensive loss	$	(1,223)	$	(5,119)	$	(5,275)	$	(7,046)	Comprehensive loss	$	(1,242)	$	(4,052)

See accompanying notes to unaudited condensed consolidated financial statements.

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


		Six Months Ended June 30,							Three Months Ended March 31,
		2019		2018			2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(5,262)	$	(7,052)	Net loss	$	(1,209)	$	(4,041)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	97		15		Depreciation and amortization	46		48
Stock-based compensation	Stock-based compensation	666		581		Stock-based compensation	397		348
Gain from change in fair value of warrant liability	Gain from change in fair value of warrant liability	(2,936)		(1,040)		Gain from change in fair value of warrant liability	(3,845)		(529)
Operating lease, net		(6)		—
Loss on foreign currency transactions		—		1
Operating lease, net of sublease receipts						Operating lease, net of sublease receipts	99		—
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Prepaid expenses and other		(667)		(582)
Prepaid expenses and other current assets						Prepaid expenses and other current assets	611		9
Accounts payable	Accounts payable	11		866		Accounts payable	(947)		1,553
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	(1,097)		937		Accrued expenses and other current liabilities	506		(1,235)
Net cash used in operating activities	Net cash used in operating activities	(9,194)		(6,274)		Net cash used in operating activities	(4,342)		(3,847)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchase of fixed assets	Purchase of fixed assets	(34)		(8)		Purchase of fixed assets	(2)		(15)
Net cash used in investing activities	Net cash used in investing activities	(34)		(8)		Net cash used in investing activities	(2)		(15)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from exercise of stock options	Proceeds from exercise of stock options	5		—		Proceeds from exercise of stock options	—		5
Proceeds from exercise of warrants		1,557		15
Proceeds from sale of common stock, net		19,240		10,269
Proceeds from sale of common stock, net of issuance costs						Proceeds from sale of common stock, net of issuance costs	5,291		5,516
Net cash provided by financing activities	Net cash provided by financing activities	20,802		10,284		Net cash provided by financing activities	5,291		5,521
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(13)		$	6	Effect of exchange rate changes on cash and cash equivalents	(33)		$	(11)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	11,561		4,008		Net change in cash and cash equivalents	914		1,648
Cash and cash equivalents, at beginning of period	Cash and cash equivalents, at beginning of period	7,134		7,714		Cash and cash equivalents, at beginning of period	10,735		7,134
Cash and cash equivalents, at end of period	Cash and cash equivalents, at end of period	$	18,695	$	11,722	Cash and cash equivalents, at end of period	$	11,649	$	8,782

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for interest	Cash paid for interest	$	1	$	1	Cash paid for interest	$	—	$	1
Cash paid for taxes	Cash paid for taxes	$	11	$	15	Cash paid for taxes	$	6	$	2
Property and equipment in accrued liabilities		$	21	$	—
Non-cash investing and financing activities:						Non-cash investing and financing activities:
Purchases of property and equipment in accounts payable and accrued liabilities						Purchases of property and equipment in accounts payable and accrued liabilities	$	23	$	41

See accompanying notes to unaudited condensed consolidated financial statements.

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except for shares)

(unaudited)


														Three Months Ended March 31, 2020
														Common Stock									Accumulated Other Comprehensive Income (Loss)
														Shares	Par Value Amount		Additional Paid-In Capital		Accumulated Deficit						Stockholders' Equity
Balance, December 31, 2019													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													Issued for cash - sale of common stock, net of issuance costs of $709	7,500,000	7		559		—		—		566
Stock-based compensation													Stock-based compensation	—	—		397		—		—		397
Consolidated net loss													Consolidated net loss	—	—		—		(1,209)		—		(1,209)
Cumulative translation adjustment													Cumulative translation adjustment	—	—		—		—		(33)		(33)
Balance, March 31, 2020													Balance, March 31, 2020	53,227,700	$	53	$	56,011	$	(40,770)	$	(2)	$	15,292

														Three Months Ended March 31, 2019
														Common Stock									Accumulated Other Comprehensive Income (Loss)
		Common Stock					Additional				Accumulated Other				Shares		Par Value Amount		Additional Paid-In Capital		Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)	Stockholders' Equity
		Shares	Amount		Paid-In Capital		Accumulated Deficit		Comprehensive Income (Loss)		Stockholders' Equity
Balance, December 31, 2018	Balance, December 31, 2018	28,528,663	$	29	$	40,564	$	(26,356)	$	35	$	14,272	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	Issued for cash - sale of common stock, net of issuance costs of $617	5,250,000	5		3,221		—		—		3,226		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	Issued to Lincoln Park - sale of common stock	605,367	—		883		—		—		883		Issued to Lincoln Park - sale of common stock	605,367	—		883		—		—		883
Stock options exercised	Stock options exercised	25,000	—		5		—		—		5		Stock options exercised	25,000	—		5		—		—		5
Stock-based compensation	Stock-based compensation	—	—		348		—		—		348		Stock-based compensation	—	—		348		—		—		348
Consolidated net loss	Consolidated net loss	—	—		—		(4,041)		—		(4,041)		Consolidated net loss	—	—		—		(4,041)		—		(4,041)
Cumulative translation adjustment	Cumulative translation adjustment	—	—		—		—		(11)		(11)		Cumulative translation adjustment	—	—		—		—		(11)		(11)
Balance, March 31, 2019	Balance, March 31, 2019	34,409,030	$	34	$	45,021	$	(30,397)	$	24	$	14,682	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

Balance, December 31, 2017		21,469,109	$	21	$	31,577	$	(14,480)	$	—	$	17,118
Warrants exercised		9,752	—		15		—		—		15
Issued for cash - sale of common stock, net of issuance costs of $809		4,290,000	5		5,117		—		—		5,122
Stock-based compensation		—	—		242		—		—		242
Consolidated net loss		—	—		—		(1,927)		—		(1,927)
Balance, March 31, 2018		25,768,861	$	26	$	36,951	$	(16,407)	$	—	$	20,570
Issued for cash - sale of common stock, net of issuance costs of $232		1,092,636	1		957		—		—		958
Stock-based compensation		—	—		339		—		—		339
Consolidated net loss		—	—		—		(5,125)		—		(5,125)
Cumulative translation adjustment		—	—		—		—		6		6
Balance at June 30, 2018		26,861,497	$	27	$	38,247	$	(21,532)	$	6	$	16,748

See accompanying notes to 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" or "the Company", "we", "our", and "us" are used herein to refer to Moleculin Biotech, Inc. MBI is a clinical-stage pharmaceutical company, organized as a Delaware corporation in July 2015, with its focus on the treatment of highly resistant cancers via the development of its oncology drug candidates, 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~~wholly owned subsidiary in June 2018, to begin preclinical development in Australia for WP1732, an analog of WP1066. This ~~may enable~~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")~~(ALI), where the Company has granted a sublicense to ALI to research, develop, make, have made, use, offer to sell, sell, export or import and commercialize certain licensed products for non-human use and share development data. ALI issued to the Company a 10% interest in ALI. ALI converted into a corporation and became Animal Life Sciences, Inc.

Core Technologies - MBI has ~~three~~3 core technologies with ~~six~~6 drug candidates, 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 Metabolism/Glycosylation Inhibitor ~~portfolio.~~portfolio, WP1122. The Company’s clinical stage drugs are Annamycin, an anthracycline ~~being studied~~which is in two Phase 1/2 studies for the treatment of relapsed or refractory acute myeloid leukemia, ~~or AML and~~(AML), WP1066, an Immune/Transcription Modulator, ~~targeting brain tumors, pancreatic cancer~~which is in a Phase 1 clinical trial in the United States of America (US) for the treatment in glioblastoma, and ~~AML.~~ WP1220, ~~an analog~~a member of the WP1066 ~~had its Clinical Trial Application ("CTA")~~portfolio of drugs, which has completed a Phase 1 proof-of-concept clinical trial for the topical treatment of cutaneous T-cell lymphoma ~~("CTCL")~~(CTCL), a form of skin cancer, approved by Polish regulators in January 2019 with the first patients enrolled in March 2019. MBI is also engaged in preclinical development of additional drug candidates, including other Immune/Transcription Modulators, as well as Metabolism/Glycosylation Inhibitors. With the approval of the Polish clinicalcancer. A fifth Phase 1 trial ~~in January 2019 for WP1220~~ for the treatment of ~~CTCL,~~pediatric brain tumors at Emory University has been approved by the ~~Company now has three drugs~~US Food and Drug Administration (FDA) and began recruiting patients in ~~four clinical trials.~~2020.

The Company believes Annamycin is a "Next Generation Anthracycline" since it is designed to avoid the multidrug resistance mechanisms that typically defeat currently approved anthracyclines, ~~and~~as well as to ~~produce little to no cardiotoxicity,~~be non-cardiotoxic, which is the dose limiting toxicity of all currently approved anthracyclines. Annamycin is currently in two Phase ~~I/II~~1/2 clinical trials, and preliminary clinical data suggests that it may have the potential to become the first therapy suitable for the majority of relapsed or refractory AML ~~patients.~~patients regardless of gene mutations. During 2019, these trials have so far demonstrated the safety, including no cardiotoxicity, and has begun to show some initial efficacy. 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.

WP1066 is one of several Immune/Transcription Modulators that appear capable of stimulating immune response to tumors by inhibiting the errant activity of Regulatory T-Cells ~~("TRegs")~~(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 preparations to file a Phase 2 IND or its equivalent have begun.

The Company is also developing new prodrugs to exploit the potential uses of 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 as compared with healthy cells. New research also points to the potential for the glucose decoy ~~("2-DG")~~(2-DG) within WP1122 to be capable of enhancing the usefulness of checkpoint ~~inhibitors.~~inhibitors and inhibiting glycosylation and glycolysis in virally infected cells. In March 2020, we entered into an agreement with an outside research center who will conduct research on WP1122 for antiviral properties against a range of viruses, including Coronavirus. Additional research with other contractors has started.

Drug Candidates - Within the Company's core technologies, it currently has ~~six~~6 drug candidates representing ~~three~~3 substantially different approaches to treating cancer. Annamycin is a chemotherapy designed to inhibit the replication of DNA of rapidly dividing cells and is the Company's most mature drug candidate. Annamycin had been in clinical trials pursuant to an investigational new drug application or IND that had been filed with the U.S. Food and Drug Administration, or FDA. Due to a lack of development activity by a prior drug developer, this IND was terminated. To permit the renewed investigation of Annamycin, the Company resubmitted a new IND for a Phase I/II trial for the treatment of relapsed or refractory AML in August 2017, which the FDA allowed to go into effect in September 2017. The Company has trials open in the US and Poland. The US Phase 1 portion of the Phase 1/2 trial reached key safety end points in early 2020 and the Company plans to discuss next steps with the FDA. The Phase 1/2 trial in Poland continues its dose escalation and is ~~actively recruiting~~ in its fifth cohort. So far both ~~countries.~~trials have proven Annamycin, to date, is safe and is non-cardiotoxic. The trials have demonstrated initial efficacy as well.

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

•WP1066 has an approved physician-sponsored clinical trial open for enrollment and dosing patients for the treatment of brain tumors and ~~is also being evaluated~~a second physician-sponsored Phase 1 trial for the potential treatment of pediatric brain tumors ~~as well as AML and pancreatic cancer,~~has begun recruitment.

•WP1220 is an analog of WP1066 for which Polish authorities approved the ~~Company filed a~~Company's Clinical Trial Application ~~("CTA")~~(CTA) in ~~Poland~~2019 for a Phase 1 "proof-of-concept" clinical trial to study the topical treatment of ~~CTCL, which~~CTCL. This trial was ~~approved in January 2019,~~completed and ~~for~~the Company believes it demonstrated sufficient efficacy to justify a Phase 2 trial, which the ~~first patients were enrolled~~Company expects to prepare for in ~~March 2019,~~the near future.

•~~WP1732,~~WP1066 along with another analog, ~~of WP1066 that the Company believes is particularly well suited for intravenous administration, is~~WP1732, are being evaluated for the potential treatment of AML, pancreatic and other ~~cancers, and~~cancers. MBI has begun pre-clinical work that it expects to generate sufficient data for an IND ~~filing in 2019,~~for an intravenous formulation of one of its STAT3 inhibitors, which filing is expected to be submitted in ~~2020, and~~2021.

•WP1122 and WP1234 are being evaluated for their potential to treat brain tumors and pancreatic cancer via their ability to inhibit glycolysis. The Company has begun preclinical work supporting WP1122 as a treatment for cancers and some viruses, including the Coronavirus which the Company believes may support an IND or its equivalent.

Clinical Trials - The Company ~~believes that patient recruitment for~~has concluded the initial Phase 1 portion of its ~~Annamycin clinical~~Phase 1/2 trial in the US ~~has been slow~~ due to ~~the high number of competitive clinical trials, combined with~~ 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 clinical trial in Poland ~~has been~~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 trial is in its fifth cohort in the dose ranging Phase 1 portion of the trial. In ~~May~~September 2018, the Company engaged another contract research organization ("CRO") to evaluate additional countries for the expansion of its AML clinical trial, specifically Australia and several Western European countries to provide additional clinical sites to improve access to patients for MBI's trial. This evaluation is ongoing.

~~In July 2018, the physician-sponsored~~physician sponsored WP1066 Phase I clinical trial for the treatment of glioblastoma and melanoma metastasized to the brain, which opened for recruitment ~~and~~in July 2018, began treating ~~patients in September 2018.~~

patients. In ~~September 2017,~~April 2020, a second Phase 1 trial for another physician-sponsored clinical trial for the potential treatment of pediatric brain tumors began recruitment of patients. In August 2019, the Company ~~engaged a CRO to prepare for a~~completed its proof-of-concept Phase 1 clinical trial in Poland to study ~~its drug candidate~~ WP1220, a part of the WP1066 portfolio, for the treatment of CTCL. ~~The Company subsequently filed a CTA in Poland for this use, which was approved subsequent to December 31, 2018,~~This trial demonstrated the safety of WP1220 and ~~gave~~also demonstrated, the Company ~~its third drug~~believes, initial efficacy sufficient for a Phase 2 trial, which the Company expects to prepare for in ~~its fourth clinical trial. This trial began enrolling patients in March 2019.~~the near future.

Licenses - The Company has been granted royalty-bearing, worldwide, exclusive licenses for the patent and technology rights related to all of MBI's drug technologies, as these intellectual property rights are owned in part or entirely by MD Anderson. The Annamycin drug substance is no longer covered by any existing patent protection, however, the Company filed new patent applications in July 2019 for formulation, synthetic process and reconstitution related to MBI's Annamycin drug product candidate, although there is no assurance that the Company will be successful in obtaining such patent protection. Such technology is also licensed from MD Anderson. Independently from potential patent protection, MBI has received Orphan Drug designation ~~("ODD")~~(ODD) from the FDA for Annamycin for the treatment of AML and for WP1066 for the treatment of glioblastoma. ODD may provide tax and other benefits during product development, and if either product is approved, may lead to a grant of ~~seven-year~~seven-year market exclusivity. Under that exclusivity, which runs from the date of the approval of the New Drug Application ~~("NDA")~~(NDA) in the ~~United States,~~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")~~(EU) where market exclusivity could extend to 10 years from the date of Marketing Authorization Application ~~("MAA")~~(MAA) approval. Separately, the FDA may also grant market exclusivity of 5 years for newly approved new chemical entities (which the Company believes Annamycin would be one), which would preclude approval of any other annamycin product, but there can be no assurance that such exclusivity will be granted. In April 2019, FDA approved the Company's request for Fast Track Designation for Annamycin for the treatment of relapsed or refractory AML. Fast Track Designation, the purpose of which is to expedite drug development and approval, is granted to drugs intended to treat serious conditions and where data demonstrate the potential to address an unmet medical need.

~~Moleculin, LLC -~~COVID 19 ~~Prior~~- In March 2020, the World Health Organization declared the outbreak of a novel Coronavirus (COVID-19) as a pandemic, which continues to ~~MBI's initial public offering,~~spread throughout the US. The spread of COVID-19 has caused significant volatility in US and international markets, including Poland, where the Company ~~acquired Moleculin, LLC~~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 ~~was merged with~~for now has not materially slowed the progress of our trials. This could change at any time. Furthermore, there is significant uncertainty around the breadth and ~~into MBI. Moleculin, LLC was the holder~~

duration of ~~a license agreement with MD Anderson covering technology referred~~business disruptions related to COVID-19, as ~~the WP1066 Portfolio, which is focused~~well as its impact on the ~~modulation~~US and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations.

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

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

Basis of Presentation – Unaudited Interim Condensed Consolidated Financial Information - The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with 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, ~~2018~~2019 and December 31, ~~2017~~2018 and notes thereto contained in the Form 10-K filed with the SEC on ~~February 21, 2019.~~March 19, 2020.

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

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

Going Concern - These condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As of ~~June 30, 2019,~~March 31, 2020, the Company has incurred an accumulated deficit of ~~$31.6~~$40.8 million since inception and had not yet generated any revenue from operations. Additionally, management anticipates that its cash on hand as of ~~June 30, 2019,~~March 31, 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 SEC pursuant to Section 12(k) of the Securities Exchange Act of 1934, as amended, ordered the temporary suspension of trading in the securities of the Company because of questions regarding the accuracy and adequacy of information in the marketplace about the Company and its securities. Pursuant to the suspension order, the suspension

commenced on May 4, 2020 and terminates on May 15, 2020. As of the date of this report, the Company has submitted a petition to terminate the suspension, but there is no assurance that the Company will be successful. The Company believes it will be able to demonstrate the accuracy and adequacy of its public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the information in the marketplace about the Company and its securities is accurate and adequate.

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):


	March 31, 2020		December 31, 2019
Vendor prepayments and deposits	$	1,372	$	1,857
Prepaid insurance	150		352
Non-trade receivables	1		1
Related party receivables	—		10
Other current assets	615		529
Total prepaid expenses and other current assets	$	2,138	$	2,749

Vendor prepayments at March 31, 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~~Assets - Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. ~~If an~~Acquired intangible ~~asset is~~assets identified as an in-process research &and development ~~("IPR&D") asset, then no amortization will occur~~(IPR&D) assets, are considered indefinite lived until the completion or abandonment of the associated research and development ~~is complete.~~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, ~~if any,~~ the IPR&D assets will be amortized over their estimated useful lives.

The Company evaluates the recoverability of intangible assets periodically and ~~takes~~take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. ~~No material~~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 ~~the Company believes~~ 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 ~~$0.2~~$0.3 million at ~~June 30, 2019,~~March 31, 2020, and ~~$0.1 million at~~ December 31, ~~2018.~~2019, respectively.

~~Leases~~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 ~~will~~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")~~(ROU), accrued expenses and other current liabilities, and operating lease liability - long-term in the Company's condensed consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Refer to Note 7 - Commitments and Contingencies - Lease Obligations Payable for additional information related to the Company’s operating leases.

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

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

The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy in accordance with U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).

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

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

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

Level 3 – Unobservable inputs for the asset or liability.

The Company’s financial assets and liabilities recorded at fair value on a recurring basis include the fair value of warrant liability discussed in Note 4. In the accompanying interim condensed consolidated financial statements as of June 30, 2019, the fair value of this warrant liability is included in current liabilities for the February 2017 Issuance of Warrants, the February 2018 Issuance of Warrants, the June 2018 Issuance of Warrants, the March 2019 Issuance of Warrants, and the April 2019 Issuance of Warrants. Warrant liabilities will be shown as a current liability on the balance sheet when it is deemed more probable than not by management to be exercised within one year.

The following table provides assets and liabilities reported at fair value and measured on a recurring basis at ~~June 30, 2019~~March 31, 2020 and at December 31, ~~2018~~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, 2019: $ 6,944 $ — $ — $ 6,944
Fair value of warrant liability as of December 31, 2018: $ 1,508 $ — $ — $ 1,508


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 March 31, 2020:	$	6,697	$	—	$	—	$	6,697
Fair value of warrant liability as of December 31, 2019:	$	5,818	$	—	$	—	$	5,818

The table below (in thousands) of Level 3 liabilities begins with the valuation as of the beginning of the ~~second~~first quarter and then is adjusted for the issuances and exercises that occurred during the ~~second~~first quarter of ~~2019~~2020 and adjusts for balances for changes in fair value that occurred during the current quarter. ~~The ending balance of the Level 3 financial instrument presented~~

~~above represents our best estimates and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.~~

Three months ended June 30, 2019 Warrant Liability – Current Warrant Liability –Long-Term Warrant Liability –Total
Balance, March 31, 2019 $ 2,386 $ — $ 2,386
Reclass of liability from long-term to current — — —
Exercise of warrants (3,174) — (3,174)
Issuances of warrants 10,139 — 10,139
Change in fair value - net (2,407) — (2,407)
Balance, June 30, 2019 $ 6,944 $ — $ 6,944

The table below (in thousands) of Level 3 liabilities begins with the valuation as of December 31, 2018 and then is adjusted for the issuances and exercises, and changes in fair value that occurred during the six months ended June 30, 2019. 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, 2019 Warrant Liability – Current
Warrant
Liability –
Long-Term
Warrant
Liability –
Total
Balance, December 31, 2018 $ 180 $ 1,328 $ 1,508
Reclass of liability from long-term to current 1,328 (1,328) —
Exercise of warrants (3,174) — (3,174)
Issuances of warrants 11,546 — 11,546
Change in fair value - net (2,936) — (2,936)
Balance, June 30, 2019 $ 6,944 $ — $ 6,944


Three Months Ended March 31, 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
Change in fair value - net	—		(3,845)		(3,845)
Balance, March 31, 2020	$	—	$	6,697	$	6,697

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. The Company’s potentially dilutive securities, which were not included in the calculation of net loss per share as inclusion of these securities would have been anti-dilutive are summarized in the table below:

June 30,
2019 2018
Warrants 2,814,000 3,784,515
Stock options 10,613,998 2,754,000
Total Common Stock Equivalents 13,427,998 6,538,515

~~Reclassifications -~~ A reclassification was made to the prior period financial statements to conform to the 2019 presentation. Such reclassification did not affect net loss as previously reported. Historically, "Deferred compensation - related party" was a separate line item on the balance sheet. Management believes that this balance is best shown included in "accrued expenses and other current liabilities," and, as such, a reclassification was made to the balance sheet for the period ended December 31, 2018 to include "deferred compensation - related party" in with "accrued liabilities and other current liabilities." Additionally, interim disclosures pertaining to stockholders' equity are shown for current and comparative year-to-date periods, with subtotals for each interim period.

equivalents, because their inclusion would be antidilutive. For the three months ended March 31, 2020 and 2019, approximately 18.4 million and approximately 6.7 million, respectively, of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their antidilutive effect.

Stock-based Compensation - Stock-based compensation expense includes the estimated fair value of equity awards vested or expected to vest during the reporting period. The Company accounts for its stock-based compensation awards in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, restricted stock units, and modifications to existing stock options, to be recognized in the consolidated statements of operations based on their fair values. The grant date fair value of stock options is determined using the Black-Scholes option pricing model and the grant date fair value of restricted stock awards is determined using the closing price of the Company’s common stock on the date of grant. The awards are subject to service vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term, net of forfeitures which are recognized as they occur. Compensation expense related to awards to non-employees with service-based vesting conditions is recognized based on the then-current fair value at each financial reporting date prior to the measurement date over the associated service period of the award, which is generally the vesting term. Effective January 1, 2020, the Company began using the volatility of its own stock since it now has sufficient historic data in its stock price.

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

Recent Accounting Pronouncements

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. In July 2018, the FASB issued ASU No. 2018-11, Leases Targeted Improvements ("ASU 2018-11"). In March 2019, the FASB issued ASU. No. 2019-01, Leases ("ASU 2019-01"). ASU 2019-01 and 2018-11 assists stakeholders with implementation questions and issues as organizations prepare to adopt the new leases standard. The Company adopted this standard on January 1, 2019 and used the effective date of initial application using the modified retrospective transition method. Upon adoption there was no cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2019. Therefore, prior period financial information has not been adjusted and continues to be reflected in accordance with the Company's historical accounting policy. The standard establishes a ROU asset model that requires the lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. (see Note 7. Commitments and Contingencies - Lease Obligations Payable).

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718) Improvements to Non-employee Share-Based Payment Accounting ("ASU 2018-07"). ASU 2018-07 affects all entities that enter into share-based payment transactions for acquiring goods and services from non-employees. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption permitted, but no earlier than an entity's adoption date of Topic 606. The adoption of this pronouncement did not have a material impact on the Company's condensed consolidated financial statements.

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

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

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

3. Accrued Expenses and Other Current Liabilities

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


		June 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Accrued payroll and bonuses	Accrued payroll and bonuses	$	678	$	492	Accrued payroll and bonuses	$	623	$	436
Accrued legal and professional fees						Accrued legal and professional fees	302		272
Accrued clinical testing	Accrued clinical testing	420		95		Accrued clinical testing	262		93
Accrued legal and professional fees		116		91
Related party payable						Related party payable	225		99
Accrued drug manufacturing costs						Accrued drug manufacturing costs	219		49
Accrued license fees and sponsored research agreements						Accrued license fees and sponsored research agreements	212		201
Operating lease liability - current	Operating lease liability - current	35		—		Operating lease liability - current	107		103
Accrued license fees and sponsored research agreements		31		1,147
Accrued drug manufacturing costs		18		400
Accrued other	Accrued other	92		227		Accrued other	79		164
Total accrued expenses and other current liabilities	Total accrued expenses and other current liabilities	$	1,390	$	2,452	Total accrued expenses and other current liabilities	$	2,029	$	1,417

4. Warrants

At March 31, 2020, and December 31, 2019, respectively, the Company has the following warrants outstanding,


	Number of Shares Under Outstanding Warrants at March 31, 2020	Number of Shares Under Outstanding Warrants at December 31, 2019	Weighted Average Exercise Price at March 31, 2020		Remaining Contractual Life at March 31, 2020 (No. Years)
Liability Classified Warrants ⁽¹⁾
Issued February 2017	404,002	404,002	$	1.50	1.9
Issued February 2018	2,273,700	2,273,700	$	2.80	3.4
Issued June 2018 ⁽²⁾	742,991	742,991	$	2.03	3.7
Issued March 2019	1,585,500	1,585,500	$	1.10	4.0
Issued April 2019	5,250,000	5,250,000	$	1.75	4.1
Issued February 2020	6,150,000	—	$	1.05	5.3
	16,406,193	10,256,193	$	1.58
Equity Classified Warrants
Issued May 2016 - Bonwick	107,802	107,802	$	7.50	1.1
Issued July 2017 - Consulting ⁽³⁾	150,000	150,000	$	2.61	2.3
Issued April 2018 - Consulting	100,000	100,000	$	3.00	1.0
Issued August 2019 - Consulting	150,000	150,000	$	1.64	2.4
	507,802	507,802	$	3.44
Balance outstanding	16,913,995	10,763,995	$	1.63

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

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

1213

~~4. Warrant Liability~~

As of June 30, 2019, the Company had 10,256,193 warrants outstanding consisting of 5,250,000 warrants issued in April 2019; 1,585,500 warrants issued in March 2019; 742,991 warrants issued in June 2018; 2,273,700 warrants issued in February 2018; and 404,002 warrants issued in February 2017.

⁽³⁾

~~A summary of the Company's warrant activity during the six months ended June 30, 2019 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, 2019 3,426,711 $ 1.50 $ 2.80 $ 2.48 4.53
Granted 8,242,500 $ 1.10 $ 1.75 $ 1.51 —
Exercised (1,413,018) $ 1.10 $ 1.50 $ 1.10 —
Expired — $ — $ — $ — —
Balance at June 30, 2019 10,256,193 $ 1.10 $ 2.80 $ 1.89 4.54
Vested and Exercisable at June 30, 2019 10,256,193 $ 1.10 $ 2.80 $ 1.89 4.54

~~As discussed in Note 5, in connection with the offering that closed on April 25, 2019, the Company issued~~ Includes warrants to purchase ~~4,687,500~~100,000 shares ~~of its Common Stock (each a "Warrant"). The warrants are immediately exercisable~~ at a price of $1.75 per share and expire five years from the date of issuance. In connection with the offering, the Company issued Oppenheimer & Co. Inc. a warrant (the "Underwriter Warrant") to purchase up to 562,500 shares of its Common Stock with an exercise price of ~~$1.75 per share. The Underwriter Warrant expires on April 23, 2024.~~

~~As discussed in Note 5, in connection with the offering that closed on March 29, 2019, the Company issued~~$2.41 and warrants to purchase ~~2,625,000~~50,000 shares ~~of its Common Stock (each a “Warrant”). The warrants are immediately exercisable~~ at a price of $1.10 per share, subject to adjustment in certain circumstances, and expire five years from the date of issuance. In connection with the offering, the Company issued Oppenheimer & Co. Inc. a warrant (the “Underwriter Warrant”) to purchase up to 367,500 shares of its Common Stock with an exercise price of ~~$1.10 per share. The Underwriter Warrant expires on March 27, 2024.~~$3.00.

The basis of value of the warrant liability 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”. Liability Classified Warrants

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

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

Estimated volatility is a measure of the amount by which the Company's stock price is expected to fluctuate each year during the expected life of the warrants. ~~Where appropriate,~~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 ~~combined with the Company's~~ due to the lack of sufficient historical data of ~~its~~our stock ~~price during the years 2017 to 2019.~~price.

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


		Six Months Ended June 30, 2019								Year Ended December 31, 2018									March 31, 2020					December 31, 2019
Risk-free interest rate	Risk-free interest rate	1.73	%	to	2.39	%	2.46	%	to	2.51	%	Risk-free interest rate	0.2	%	to	1.5		%	1.6	%	to	1.7	%
Volatility	Volatility	75.00	%	to	85.00	%	75.00	%	to	80.00	%	Volatility	111.4	%	to	120.6		%	97.5	%	to	107.5	%
Expected life (years)	Expected life (years)	2.62		to	5.01		3.12		to	4.98		Expected life (years)	1.9		to	5.5			2.1		to	4.3
Dividend yield	Dividend yield	—%								—%							Dividend yield		—%					—%

A summary of the Company's liability classified warrant activity during the three months ended March 31, 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	5.3
Exercised	—	$	—	$	—	$	—	—
Expired	—	$	—	$	—	$	—	—
Balance at March 31, 2020	16,406,193	$	1.05	$	2.80	$	1.58	4.4

Vested and Exercisable at March 31, 2020	10,256,193	$	1.10	$	2.80	$	1.89	3.8

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

For a summary of the changes in fair value associated with our warrant liability for the three months ended March 31, 2020, see Note 2. Basis of presentation, principles of consolidation and significant accounting policies - Fair Value of Financial Instruments.

Equity Classified Warrants

The Company recorded stock compensation expense for the non-employee consulting agreement of 0 and $2,000 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, there was 0 unrecognized stock compensation expense related to the Company's equity-classified warrants.

5. Equity

~~The Company is authorized to issue 105,000,000 shares of which 5,000,000 shares of preferred stock are authorized and 100,000,000 shares of common stock are authorized.~~

~~Preferred~~February 2020 Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock. Its 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 June 30, 2019, there was no preferred stock issued. Offering

~~Common Stock~~

~~Lincoln Park Transaction~~

~~On October 4, 2018,~~In February 2020, the Company entered into ~~a purchase agreement (the "Purchase Agreement") and a registration rights agreement (the "Registration Rights Agreement")~~subscription agreements with ~~Lincoln Park Capital Fund, LLC ("Lincoln Park"). Pursuant to~~certain institutional investors for the ~~terms~~sale by the Company of the Purchase Agreement, Lincoln Park has agreed to purchase from us up to $20.0 million of our common stock (subject to certain limitations) from time to time during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, we filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement. Pursuant to the terms of the Purchase Agreement, at the time we signed the Purchase Agreement and the Registration Rights Agreement, we issued 243,013 shares of common stock to Lincoln Park as consideration for its commitment to purchase7,500,000 shares of our common stock ~~under the Purchase Agreement~~ and ~~may issue an additional 121,507 commitment~~warrants to purchase 5,625,000 shares pro-rata when and if Lincoln Park purchases (at the Company's discretion) the $20.0 million aggregate commitment. The commitment shares were valued at $337,788, recorded as an addition to equity for the issuance of common stock at a combined public offering price of $0.80 per share and ~~treated as a reduction to~~related warrant. The Company received total proceeds of $6.0 million, net of $0.7 million in transaction expenses. See Note 4. Warrants for equity ~~as a cost of capital to be raised under the Purchase Agreement. During~~classified warrants granted during the three months ended ~~December~~March 31, 2018, the Company issued 1,399,153 shares to Lincoln Park which included 10,918 commitment shares for $1.8 million. During the first quarter of 2019, the Company issued 605,367 shares, which included 5,367 commitment shares for $0.9 million. No shares were issued to Lincoln Park during the second quarter of 2019.2020.

~~At Market Issuance Sales Agreements ("ATM")~~Stock-based Compensation and Outstanding Awards

During September 2017, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Roth Capital Partners, LLC ("Roth") and National Securities Corporation ("National") (collectively, the “Agents”). Pursuant to

Under the terms of the ~~ATM Agreement, the Company was permitted to sell from time to time through the Agents~~Company’s 2015 Stock Plan, as amended, and approved by its stockholders on June 6, 2018, 4.5 million shares of the Company’s common stock with an aggregate sales price of up to $13 million. 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 also provided the Agents with customary indemnification rights. During the six months ended June 30, 2019, the Company did not sell any shares under this ATM Agreement. In June 2019, the Company canceled the ATM Agreement.

Subsequent to canceling the ATM Agreement with Roth and National, the Company entered into an At Market Issuance Sales Agreement (the “Opco Agreement”) with Oppenheimer & Co. Inc. (the “Agent”) on July 23, 2019. Pursuant to the terms of the Opco Agreement, the Company may sell from time to time through the Agent shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), with an aggregate sales price of up to $15 million (the “Shares”). Any sales of Shares pursuant to the Opco Agreement will be made under the Company’s effective “shelf” registration statement (the “Registration Statement”) on Form S-3 (File No. 333-219434), which became effective on August 21, 2017 and the related prospectus supplement and the accompanying prospectus, as filed with the Securities and Exchange Commission (the “SEC”). Under the Opco Agreement, the Company may sell Shares through the Agent by any method that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Sales of the Shares, if any, 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 Agent, 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 $15 million, or sooner if either the Company or the Agent terminate the Agreement pursuant to its terms. The Company will pay a commission to the Agent of 3.0% of the gross proceeds

of the sale of the Shares sold under the Agreement and reimburse the Agent for certain expenses. The Company has also provided the Agent with customary indemnification rights. The Company has not sold any shares under the Opco Agreement.

~~Adoption of 2015 Stock Plan~~

In 2015, the Board of Directors of the Company approved the Company’s 2015 Stock Plan, which was amended in 2017 and 2018. The expiration date of the plan is December 5, 2025 and the total number of underlying shares of the Company’s common stockwere available for grant to employees, non-employee directors and ~~consultants under the plan is currently 4,500,000 shares.~~consultants. The ~~awards under the~~ 2015 Stock Plan ~~can be in~~provides for the ~~form~~grant of stock options, stock awards, stock unit awards, or stock appreciation rights.

~~The following is a summary~~ As of ~~option activities for~~March 31, 2020, there were 297,093 shares remaining to be issued under the ~~six months ended June 30, 2019:~~

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, 2018 2,794,000 $ 1.78 $ 2.61 9.43 $ 21,200
Granted 45,000 $ 0.80 $ 1.15
Exercised (25,000) $ 0.13 $ 0.20
Outstanding, June 30, 2019 2,814,000 $ 1.80 $ 2.63 8.42 $ 6,800
Exercisable, June 30, 2019 839,333 $ 2.11 $ 3.15 8.15 $ 6,800

~~During March 2019, 25,000 stock options were exercised at $0.20 per share with the Company receiving $5,000 in gross proceeds.~~

~~The fair value of the option grants has been estimated, with the following weighted-average assumptions:~~

Six Months Ended June 30,
2019 2018
Risk-free interest rate 0.95% to 2.24 % 0.95% to 2.24 %
Volatility 70.18% to 89.11 % 70.18% to 89.11 %
Expected life (years) 5 to 6.25 5 to 6.25
Expected dividend yield —% —%

2015 Stock Plan.

Stock-based compensation for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ are as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
General and administrative $ 271 $ 293 $ 573 $ 502
Research and development 47 46 93 79
Total $ 318 $ 339 $ 666 $ 581


	Three Months Ended March 31,
	2020		2019
General and administrative	$	334	$	302
Research and development	63		46
Total	$	397	$	348

There were 45,000 options granted during the six months ended June 30, 2019. Options granted during 2019 have an aggregated fair value of $0.04 million that was calculated using the Black-Scholes option-pricing model. As of June 30, 2019, total compensation cost not yet recognized was $2.6 million and the weighted average period over which this amount is expected to be recognized is 2.28 years.

The ~~fair value of each stock option is estimated on the date of~~Company did not grant using the Black-Scholes option valuation model that uses the assumptions noted in the above paragraph and table. The expected term of the options was computed using the "plain vanilla" method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin 107 because the

Company does not have sufficient data regarding employee exercise behavior to estimate the expected term. The volatility was determined by referring to the average historical volatility of a peer group of public companies combined with the Company's due to the lack of sufficient historical 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.

~~Consulting Agreement~~

~~In 2017, the Company entered into a consulting agreement for its investor relations operations. The consulting agreement initially covered a period of~~ ~~twelve~~ months from the commencement date of July 29, 2017, was extended in April 2018 until March 31, 2019. Pursuant to the original consulting agreement, in exchange for the consulting services, the Company issued 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. Each of the Warrants vested over a 12-month period in equal monthly installments starting July 29, 2017, provided that the consultant was 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 $0.00 million and $0.04 million for~~any stock-based awards during the three months ended June 30, 2019 and 2018, respectively, and $0.002 million and $0.1 million during the six months ended June 30, 2019 and 2018, respectively. In connection with the first extension of the consulting agreement, the Company issued the consultant a 3-year warrant to purchase 100,000 shares of common stock at an exercise price of $3.00 per share vesting in four quarterly installments. In addition, the Company paid $20,000 to the consultant per quarter pursuant to the first amendment to the consulting agreement.ending March 31, 2020.

~~On July 8, 2019, the Company amended the existing consulting agreement for additional cash payments, with a right to cease cash payments by issuing the consultant a fully vested~~ ~~three~~-year warrant to purchase 150,000 shares of Company common stock, subject to NASDAQ listing of additional shares approval. The consultant is an accredited investor. The Company believes the issuance would be 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 August 8, 2019, the Company elected to issue such warrant with an exercise price of $1.64.

~~$9 million Registered Direct Offering~~

In February 2018, the Company entered into a Securities Purchase Agreement with certain institutional investors for the sale of 4,290,000 shares of MBI's common stock, at a purchase price of $2.10 per share. Concurrently with the sale of the common stock, pursuant to the Purchase Agreement, the Company also sold warrants to purchase 2,145,000 shares of common stock. The Company sold the common stock and warrants for aggregate gross proceeds of approximately $9.0 million. The net proceeds from the transactions was approximately $8.2 million after deducting certain fees due to the placement agent and transaction expenses. Subject to certain beneficial ownership limitations, the warrants became exercisable on the ~~six~~-month anniversary of the issuance date at an exercise price equal to $2.80 per share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for ~~five~~ ~~years from the initial exercise date. The closing of the sales of these securities under the Purchase Agreement occurred on February 21, 2018.~~

~~$2.3 million Registered Direct Offering~~

In June 2018, the Company entered into a definitive agreement with institutional investors for a registered direct offering of securities with gross proceeds of approximately $2.3 million. In connection with the offering, the Company issued 1,092,636 registered shares of common stock at a purchase price of $2.105 per share. Concurrently in a private placement, for each share of common stock purchased by an investor, such investor received from the Company an unregistered warrant to purchase 0.65 of a share of common stock. The warrants have an exercise price of $2.02 per share, became exercisable six months from the date of issuance, and will expire five years from the initial exercise date. Roth Capital Partners LLC served as sole placement agent for the offering.

~~$5.25 million Registered Direct Offering~~

In March 2019, the Company entered into an Underwriting Agreement (the "Underwriting Agreement") with Oppenheimer & Co. Inc. (the "Underwriter") relating to an underwritten offering (the "Offering") of 5,250,000 units (each a "Unit"), each unit consisting of (i) one share of the Company's common stock, and (ii) 0.5 of a warrant to purchase one share of common stock (each a "Warrant"). The public offering price of the Units was $1.00 per Unit, and the Underwriter agreed to purchase the Units from the Company pursuant to the Underwriting Agreement at a price of $0.93 per Unit. The Warrants included in the Units are immediately exercisable at a price of $1.10 per share, subject to adjustments in certain circumstances,

and will expire five years from the date of issuance. The net proceeds from the transaction was approximately $4.7 million after deducting the underwriting discount and estimated offering expenses payable by the Company.

~~$15 million Registered Direct Offering~~

In April 2019, the Company entered into subscription agreements (each a "Subscription Agreement") with certain institutional investors (the "Investors") for the sale by the Company of 9,375,000 units (each a "Unit"), each Unit consisting of (i) one share of the Company's common stock, and (ii) 0.5 of a warrant to purchase one share of common stock (each a "Warrant"). The public offering price of the Units was $1.60 per Unit. The Warrants included in the Units will be immediately exercisable at a price of $1.75 per share and will expire five years from the date of issuance. The net proceeds from the transaction was approximately $14.0 million after deducting the placement agent fees and estimated offering expenses payable by the Company.

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. The Company does not expect to pay any significant federal, state, or foreign income taxes in ~~2019~~2020 as a result of the losses recorded during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and the additional losses expected for the remainder of ~~2019~~2020 and cumulative net operating loss 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 ~~June 30, 2019,~~March 31, 2020, the Company maintained a full valuation allowance for all deferred tax assets.

The Company recorded no0 income tax provision for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018.~~respectively. The effective tax rate for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018 was~~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 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 our condensed consolidated financial statements for the three months ended March 31, 2020. We continue to monitor any effects that may result from the CARES Act.

7. Commitments and Contingencies

In addition to the commitments and contingencies described elsewhere in these notes, see below for a discussion of our commitments and contingencies as of ~~June 30, 2019.~~March 31, 2020.

Lease Obligations Payable

~~Effective January 1, 2019,~~During the three months ended March 31, 2020, the Company ~~adopted ASC 842, which requires recognition of a right-of use asset and a~~did not enter into any lease liability for all leases at the commencement date based on the present value of the lease payment over the lease term. On March 22, 2018, the Company entered into a Lease Agreement (the “Lease”) with IPX Memorial Drive Investors, LLC (the “Landlord”) for the lease of 2,333 rentable square feet “RSF”, which it uses for its corporate office space and headquarters. The term of the Lease began in August 2018 and will continue for an initial term of 66 months, which mayarrangements requiring any additional right-of-use assets or liabilities to be renewed for an additional 5 years. The Company is required to remit base monthly rent of approximately $4,300 which will increase at an average approximate rate of 3% each year. The Company is also required to pay additional rent in the form of its pro-rata share of certain specified operating expenses of the Landlord. The leased space is located in Houston, Texas. The corporate office lease is classified as an operating lease.recorded.

~~The~~During the three months ended March 31, 2020, the Company ~~recorded~~recognized $29,000 of lease costs, $4,000 of ~~$0.01 million and $0.02 million for the three and six months ended June 30, 2019, respectively. The Company made an accounting policy election not to apply the recognition requirements~~expenses related to short-term ~~leases. The Company recognizes the lease payments for short-term~~ leases ~~in profit or loss on a straight-line basis over the lease term,~~ and ~~variable lease payments in the period in which the obligation for those payments is incurred. The Company recorded total expenses for its short-term leases~~$7,000 of ~~$0.01 million and $0.03 million for the three and six months ended June 30, 2019, respectively. The Company recorded~~ lease costs for variable lease ~~payments~~payments. During the three months ended March 31, 2019, the Company recognized $8,000 of ~~$0.01 million~~lease costs, $14,000 of expenses related to short-term leases and ~~$0.01 million~~$5,000 of lease costs for variable lease payments. The Company recorded approximately $10,000 in sublease income from a related party for the three ~~and six~~ months ended ~~June 30, 2019, respectively.~~March 31, 2020. Sublease income is recorded as other income, net on the Company's condensed consolidated statement of operations and comprehensive loss.

~~The minimum lease payments are expected to be~~At March 31, 2020, the cash paid for the Company's operating leases and right-of-use assets was as follows (in thousands):

Years Ending December 31, Minimum Lease Payments
2019 (remaining six months) $ 26
2020 53
2021 54
2022 55
2023 55
Thereafter 10
Total lease payments 253
Less: imputed interest (47)
Present value of operating lease liabilities $ 206


	Three Months Ended March 31,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	33	$	8
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	—	$	110

At ~~December~~March 31, ~~2018,~~2020, future minimum ~~lease payments~~liabilities under ~~long-term leases~~ASC 842 for the ~~five years ending December 31, 2019 through 2023 and thereafter are~~Company's operating leases were as follows (in thousands): ~~$48, $53, $54, $55, $56, and $5, respectively.~~


Maturity of lease liabilities	As of March 31, 2020
2020 (remaining nine months)	$	101
2021	138
2022	105
2023	56
2024	10
2025 and thereafter	—
Total lease payments	410
Less: imputed interest	(55)
Present value of operating lease liabilities	$	355

As of June 30, 2019, the weighted average remaining lease term is 4.7 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 amount equal to the lease payments in a similar economic environment. During the six months ended June 30, 2019, other than the initial adoption of the lease standard that required right of use assets and lease liabilities to be recorded, there were no right of use assets recorded arising from new lease liabilities.Licenses

MD Anderson

Under agreements associated with Annamycin, the WP1122 Portfolio, and the WP1066 Portfolio, which includes WP1732, all described below, the Company is responsible for certain license, milestone and royalty payments over the course of the agreements. Annual license fees can cost as high as $0.1 million depending upon the anniversary. Milestone payments for the commencement of phase II and phase III clinical trials can cost as high as $0.5 million. Other milestone payments for submission of an NDATotal expenses related to the ~~FDA~~Company's license agreements with MD Anderson were $61,000 and receipt of first marketing approval for sale of a license product can be as high as $0.6 million. Royalty payments can range in the single digits as a percent of net sales on drug products or flat fees as high as $0.6 million, depending upon certain terms and conditions. Not all of these payments are applicable to every drug. Total expenses under these agreements were $0.1 million and $0.1 million$60,000 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $0.1 million and $0.2 million during the six months ended June 30, 2019 and 2018,~~ respectively.

HPI - On ~~June 29, 2017,~~March 16, 2020, the Company entered into an2 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 ~~MD Anderson licensing certain technology related to~~HPI on the ~~method of preparing Liposomal Annamycin.~~

~~WP1122 Portfolio~~

~~The rights~~Company's licensed molecules and obligations to an April 2012 Patent and Technology License Agreement entered into by and between IntertechBio and 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.

~~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 royaltyrequires payments for ~~sales of products developed under~~$43,500 per quarter to HPI. The second agreement, which can be cancelled with sixty days' notice by either party, allows 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 studyCompany's employees access to laboratory equipment owned by HPI for a ~~licensed product within the United States,~~

~~Europe, China or Japan; upon submission~~payment 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 the Company has obtained pursuant$15,000 per quarter 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.

MBI entered into an out-licensing agreement with Houston Pharmaceuticals, Inc. (“HPI”), pursuant to which it 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 the Company was required to make quarterly sponsored research payments totaling $0.75 million for the first twelve quarters following the effective date, of the HPI Out-Licensing Agreement, or May 2, 2016, in consideration for the right to development data related to the development of licensed products. Notwithstanding the Company's obligation to make the foregoing payments, the HPI Out-Licensing Agreement did 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 ("HPI Option Repurchase Payment") MBI regained 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 sponsored research payments. The option repurchase payment was paid on April 30, 2019 for $1.0 million and, accordingly, the HPI Out-Licensing Agreement was terminated. The $1.0 million payment was accrued and expensed under "Research and development" in the second quarter of 2018.HPI. Total expenses related to the Company's agreements with HPI were ~~$0.0 million~~$207,500 and ~~$1.1 million~~$75,000 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $0.1 million and $1.2 million for the six months ended June 30, 2019 and 2018,~~ respectively.

In February 2018, MBI entered into a license agreement with MD Anderson covering a new group of molecules recently discovered in connection with research it has been sponsoring there called WP1732, a part of the WP1066 Portfolio.

Sponsored Research Agreements with MD Anderson

~~On January 9, 2017,~~ MBI ~~amended its~~entered into a Sponsored Laboratory Study Agreement with MD Anderson ~~whereby it paid $0.3 million~~expiring in ~~2017, and the agreement was extended to~~ October 31, 2018. On December 4, 2017, MBI extended this Agreement until October 31, 2019 for total payment amount of $0.35 million spread over that period of time. Of this amount, $0.24 million was paid in the first quarter of 2018 and the final payment of $0.11 million was paid in the third quarter of 2018. On September 25, 2018, the Company extended this Agreement until October 31, 2020 for total payment amount of $0.4 million spread over that period of time. Of this amount, $0.27 million was paid in the fourth quarter of 2018, and the final payment of $0.13 million was paid in the first quarter of 2019. On June 25, 2019, the Company amended the Agreement to support the continuation of the project for total payment amount of $0.4 million. Of this amount, $0.2 million was paid in the second quarter of 2019, $0.1 million is due in the third quarter of 2019, and the remaining $0.1 million is due in the first quarter of 2020.2021. The expenses recognized under ~~the~~this MD Anderson agreement with regards to the Sponsored Laboratory Study Agreement were ~~$0.1 million~~$179,000 and ~~$0.1 million~~$95,000 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $0.2 million and $0.2 million, for the six months ended June 30, 2019 and 2018,~~ respectively.

~~Other Licenses~~

~~Dermin~~

In 2015, the Company obtained the rights and obligations for certain patent and technology development and license agreements with Dermin Sp. Zoo (“Dermin”). In connection with such agreements, certain intellectual property rights related to Annamycin, our WP1122 portfolio, and the Company's WP1066 portfolio were licensed to Dermin and Dermin was 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. With respect to Annamycin, the license is limited to 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; provided that the Company has the right to remove Germany from the list of covered territories with a $0.5 million payment. With respect to WP1122, the license is limited to the countries of Belarus, Russia, Kazakhstan, Uzbekistan, Turkmenistan, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Ukraine. With respect to WP1066, the license is limited to the countries of Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Ukraine. In each case, Dermin agreed to pay a royalty for the sale of any licensed product in the licensed territories and agreed to pay all out-of-pocket expenses incurred in filing, prosecuting and maintaining the licensed patents for which the license has been granted in the licensed territories. Dermin also agreed to provide a percentage of certain consideration that Dermin receives pursuant to

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~~sublicense agreements.~~ In July 2019, Dermin assigned its rights under the foregoing license agreements to an affiliated entity, Exploration Invest Pte Ltd. (“Exploration”). On July 30, 2019, the Company and Exploration entered into a License Modification Agreement pursuant to which the Company agreed to issue Exploration shares of Company common stock valued at $0.5 million (based on the greater of the closing price of the common stock on the date of the agreement or the 10-day average closing price prior to the date of the agreement) in exchange for the modifying the license agreements to: (i) limit the licensed territory solely to Poland; and (ii) limit the patent rights and technology rights licensed to Exploration to the patent rights and technology rights that existed on the date the original license agreements were entered into with Dermin.

~~WPD Pharmaceuticals~~

On February 19, 2019, the Company sublicensed certain intellectual property rights, including rights to Annamycin, its WP1122 portfolio, and its WP1066 portfolio to WPD Pharmaceuticals (“WPD”) (the “WPD Agreement”). WPD is affiliated with Dr. Waldemar Priebe, one of the Company's founders and largest shareholder. Under the WPD Agreement, the Company granted WPD a royalty-bearing, exclusive license to research, develop, 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 Germany, Poland, Estonia, Latvia, Lithuania, Belarus, Ukraine, Moldova, Romania, Armenia, Azerbaijan, Georgia, Slovakia, Czech Republic, Hungary, Uzbekistan, Kazakhstan, Greece, Austria, Russia, Netherlands, Turkey, Belgium, Switzerland, Sweden, Portugal, Norway, Denmark, Ireland, Finland, Luxembourg, Iceland (“licensed territories”), provided that the Company has the right to buyback Germany from the licensed territories by making a payment $0.5 million. ~~On July 30, 2019, the Company entered into an agreement that satisfied the foregoing buyback right, and as such, Germany is no longer considered part of the licensed territories.~~

In consideration for entering into the WPD Agreement, WPD agreed that it must use Commercially Reasonable Development Efforts to develop and commercialize products in the licensed territories. For purposes of the WPD Agreement, the term “Commercially Reasonable Development Efforts” means the expenditure by or on behalf of WPD or any of its affiliates of at least: (i) $2.0 million during the first two years of the agreement on the research, development and commercialization of products in the licensed territories; and (ii) $1.0 million annually for the two years thereafter on the research and development of products in the licensed territories. This license is subject to the terms in the prior agreements entered into by the Company with Dermin and MDA.

Prior to approval of the WPD Agreement, the Company's board of directors received a fairness opinion from Roth Capital Partners, LLC that stated that it was their opinion that the consideration the Company will receive from WPD pursuant to the WPD Agreement is fair, from a financial point of view, to the Company.

~~Animal Life Sciences~~

On February 19, 2019, the Company sublicensed certain intellectual property rights, including rights to Annamycin, its WP1122 portfolio, and its WP1066 portfolio in the field of non-human animals to ALI (the “ALI Agreement”). ALI is affiliated with Dr. Waldemar Priebe, one of its founders and its largest shareholder. Under the ALI Agreement, the Company granted ALI a worldwide royalty-bearing, exclusive license to research, develop, manufacture, have manufactured, use, import, offer to sell and/or sell products in the field of non-human animals under the licensed intellectual property. This license is subject to the terms in the prior agreements entered into by the Company and MDA. Under the ALI Agreement, the Company has the right to name an observer to ALI's board of directors. On August 8, 2019, the Company named its Chairman and CEO Walter V. Klemp to that position.

Since ALI and WPD are beginning the process to develop and commercialize products using the sublicensed intellectual property rights, the Company is currently unable to predict whether ALI and WPD will be successful in developing such products or when the Company may recognize royalty revenues related to such products.

~~Employment Agreements~~

The Company has agreements with seven employees to provide certain benefits in the event of termination where the base salary and certain other benefits would aggregate approximately $1.3 million using the rate of compensation in effect at June 30, 2019.

8. Subsequent Events

In addition to the subsequent events discussed elsewhere in these notes, ~~no other~~see below for a discussion of our subsequent events ~~occurred.~~occurring after March 31, 2020.

ATM Issuances Under the Oppenheimer Agreement - As previously reported, in July 2019, the Company entered into an At Market Issuance Sales Agreement (Agreement) with Oppenheimer & Co. Inc. (Oppenheimer). Pursuant to the terms of the Agreement, the Company may offer and sell, from time to time, Company 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. On July 24, 2019, pursuant to the ATM Offering, the Company filed a prospectus supplement pursuant to which the Company may offer and sell, from time to time, Company common stock having an aggregate offering price of up to $15.0 million through Oppenheimer (ATM Prospectus Supplement). From April 8, 2020 to April 16, 2020, the Company issued 7,170,964 shares of common stock at an average price of $1.44 per share through the ATM Prospectus Supplement, resulting in net proceeds to the Company of $10.0 million. The Company paid a commission to Oppenheimer equal to 3.0% of the gross proceeds from the sale of its common stock under the ATM Prospectus Supplement. After the completion of the foregoing issuances, the Company will have 60,403,164 shares of common stock outstanding.

Warrant Exercises - Subsequent to March 31, 2020 and through the date of filing of these financial statements 4,500 shares were issued due to the exercise of various liability warrants related to past public offerings. Gross proceeds received due to these exercises approximated $5,000.

Equity Warrants and Stock Options - Subsequent to March 31, 2020 and through the date of filing of these financial statements, 100,000 equity warrants were issued to a consultant with an exercise price of $1.08, with vesting contingent on certain conditions. In addition, 25,000 options were issued to a consultant with an exercise price of $1.26, a 5 year term and vesting over a one-year period in four equal quarterly installments under the 2015 Stock Plan. Lastly, 20,000 options were issued to a science advisory board member with a term of 10 years vesting in four equal quarterly installments and an exercise price of $1.47.

2017

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 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 obtain additional funding to commence or continue our clinical trials, fund operations and develop our ~~drug~~product candidates;

•~~The effects of future government shutdowns on our~~Our ability to ~~raise financing;~~satisfy any requirements imposed by the FDA (or its foreign equivalents) as a condition of our 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 ~~Poland;~~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 drug candidates in clinical development;

•Our ability to commercialize our drug candidates;

•Market acceptance of our drug candidates;

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

•Potential product liability claims;

•Our dependency on third-party manufacturers to successfully, and timely, supply or manufacture our 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.

Overview

Moleculin Biotech, Inc., a Delaware corporation, is a clinical stage pharmaceutical company focused on the treatment of highly resistant ~~cancers.~~cancers and viruses. We have three core technologies, all of which are based on discoveries made at M.D. Anderson Cancer Center ~~("MD Anderson")~~(MD Anderson). We have three ~~drugs~~drug candidates that are active in clinical trials. In 2019, those three drug candidates were active in four clinical trials in the US and ~~Poland. Our~~Europe with a fifth that began recruiting patients in April 2020. 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 preparing to potentially move into Phase 2 trials. We anticipate laying the groundwork in 2020 for two additional Phase 1 trials expected to begin in 2021 sponsored by us and two other Phase 1 trials we expect to be externally sponsored.

We recently announced a collaboration with a major Texas university institution to evaluate our drug candidate, WP1122, and now this has been followed by collaborations with additional entities who bring additional expertise in developing potential treatments for diseases like COVID-19. The preclinical work to evaluate WP1122's potential against the Coronavirus is similar to preclinical work originally planned for 2020 to develop against cancer indications, supporting a cancer-related Investigational New Drug (IND) application for clinical trials in 2021.

Based on our positive clinical activity thus far, we have narrowed our development focus to our nearest term opportunities, including Annamycin, WP1222 and WP1220, while relying on external funding for other projects. In addition, the opportunity related to COVID-19 has pushed the development of WP1122 to the forefront. Notwithstanding the emphasis on WP1122, we believe our overall narrowing of focus will allow us to reduce our cash needs 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 reduce future cash needs. Such expectations assume some form of government funding for WP1122 if it is successful in bridging from preclinical to clinical activity in 2020, although we have no commitments at this time for such funding and can provide no assurances that such funding can be obtained.

Of our three clinical stage ~~drugs are~~drug candidates, Annamycin ~~believed by management to be a “Next Generation” Anthracycline,~~is being studied ~~in the US and Poland~~ for the treatment of relapsed or refractory acute myeloid leukemia ~~or AML,~~(“AML”) and cancers metastasized to the lungs. WP1066, an Immune/Transcription Modulator ~~targeting~~(p-STAT3 inhibitor) is intended to target a wide range of tumors, including brain tumors and pancreatic ~~cancer~~cancer. We began and ~~AML. Additionally,~~completed a "proof-of-concept" Phase 1 clinical trial in 2019 in Poland for a third drug, WP1220 (a molecule similar to WP1066), ~~was approved for a clinical trial in January 2019 in Poland~~ for the topical treatment of cutaneous T-cell lymphoma (CTCL) and ~~for which patient treatments have begun.~~we are planning to expand development of this drug into a Moleculin Phase 2 trial. We are also engaged in preclinical development of additional drug candidates, including additional Immune/Transcription Modulators, as well as Metabolism/Glycosylation Inhibitors.

We ~~believe that our Next Generation Anthracycline,~~consider Annamycin isto 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) ~~— hence~~. We recently received an independent expert cardiology assessment confirming the ~~use~~absence of cardiotoxicity in the ~~term "Next Generation."~~first 14 patients treated with Annamycin in both our US and European Phase 1 clinical trials, validating Annamycin's lack of cardiotoxicity. Annamycin is currently in ~~two~~one Phase ~~I/II~~1/2 clinical ~~trials and preliminary clinical~~trial in Europe with the Phase 1 portion of another Phase 1/2 AML trial recently concluding in the US. Upon receipt of further data ~~suggests it may have~~from the ~~potential~~European Phase 1 trial, we plan to ~~become~~seek agreement with the ~~first successful therapy suitable~~FDA for accelerated approval of Annamycin based on a pivotal Phase 2 AML trial sponsored by us, although there is no assurance that the FDA will agree with our proposal.

In 2019, preclinical work on Annamycin demonstrated activity against certain cancers metastasized to the lungs. With this new data, we are planning to start a Moleculin-sponsored US Phase 1 trial at MD Anderson for the ~~majority~~treatment of ~~relapsed or refractory AML patients.~~cancer metastasized to the lungs with Annamycin, although no assurances can be given that such trial will begin.

WP1066 is one of several ~~STAT3~~ Immune/Transcription Modulators designed to stimulate the immune response to tumors by inhibiting the errant activity of Regulatory ~~T-Cells ("TRegs")~~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 ~~lack of efficacy~~inability of immune checkpoint inhibitors ~~in certain~~to affect more resistant tumors. WP1066 is currently in a US physician-sponsored Phase 1 trial for the treatment of glioblastoma ("GBM") and another institutionally sponsored Phase 1 trial has begun recruiting for the treatment of pediatric brain tumors. 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 designed to exploit the potential uses of inhibitors of glycolysis such as ~~2-deoxy-D-glucose (“2-DG”)~~2-Deoxy-D-glucose (2-DG), which we believe may provide an opportunity to ~~cut off~~limit the ~~fuel supply of~~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 circulation time 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.~~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 ~~may also~~has the potential to become an important drug, either as a single agent or to potentiate existing therapies, including checkpoint ~~inhibitors.~~

~~Mission~~inhibitors and ~~Strategy~~

Moleculin is focused on developing treatments for highly resistant cancers. These include AML, glioblastoma, cutaneous t-cell lymphoma, pancreatic cancer, and others. Our diverse pipeline of technologies was built around the recognition that many highly resistant tumors tend to have a common set of traits, including an increase in multidrug resistant mechanisms, an evasion of the natural immune system, a marked upregulation of certain key oncogenic transcription factors and an increased dependence on glycolysis for energy production. We believe each of these elements may be addressed by the unique and innovative mechanisms introduced by one or more of our three core technologies.

We believe this approach not only provides the opportunity to help the many patients in need of alternative therapies, but also to work in combination with numerous existing technologies that often fail as tumors present immediate or acquired resistance. We believe showing even modest improvements in highly resistant cancers may lead to accelerated approval pathways, potentially reducing the time and capital required to ultimately realize success.

~~Corporate Overview~~

We were founded in 2015 in order to combine and consolidate the development efforts involving several oncology technologies, 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,antiviral treatments. In March 2020, we entered into agreements with several outside research laboratories that will conduct research on WP1122 for antiviral properties against a ~~co-development agreement with Houston Pharmaceuticals, Inc., or HPI, which culminated with the merger~~range of ~~Moleculin, LLC into MBI coincident with~~viruses, including Coronavirus. We have also added experts to our ~~initial public offering allowing us~~Science Advisory Board 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. As a result of the merger, we issued the holders of Moleculin, LLC equity interests and convertible notes representing in the aggregate 999,931 shares ofsupport 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, as a result, incurred significant losses.

In June 2018, we formed Moleculin Australia Pty. Ltd., a wholly-owned subsidiary to oversee pre-clinical development in Australia. The Australian government provides an aggressive incentive for research and development carried out in their country. We believe having an Australian subsidiary could provide a great opportunity to speed up pre-clinical development and reduce the overall cost of our continued drug developmentanti-viral efforts.

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

~~Technology Overview~~

~~We have been granted royalty-bearing, worldwide, exclusive licenses for the patent and technology rights related to all of our drug technologies, as these patent rights are owned~~helpful or harmful. As cited by MD Anderson. The Annamycin drug substance is no longer covered by any existing patent protection, but on July 10, 2019, we submitted patent applications for formulation, synthetic process and reconstitution related to our Annamycin drug product candidate. If these patent applications are approved, of which we can provide no assurance, this would provide potentially 20 years of protection for our drug. Independently from potential patent protection, in 2018 we have received Orphan Drug designation (“ODD”) from the FDA ~~for Annamycin for the treatment of AML~~on their CTAP website:

•“Immediately upon receipt, triaged requests from developers and ~~in 2019 we received ODD for WP1066 for the treatment of glioblastoma. This may enable market exclusivity of 7 years from the date of approval of~~scientists seeking to develop or evaluate new drug and biologic therapies …..FDA will generally respond within a New Drug Application (“NDA”) in the United States. During that period FDA generally could not approve another product with the same active moiety for the same use. We also intend to apply for similar status inday.

2219

~~the European Union (“EU”) where market exclusivity extends~~•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 ~~10 years from the date of Marketing Authorization Application (“MAA”). Separately, the FDA may also grant market exclusivity of 5 years~~expedite quality assessments for ~~newly approved~~products to treat COVID-19 patients and to transfer manufacturing to alternative or new ~~chemical entities (of which Annamycin would be one), but there can be no assurance that such exclusivity will be granted.~~sites to avoid supply disruption.”

~~Next Generation Anthracycline~~

~~Chemotherapy continues to be a cornerstone of cancer therapy. Despite~~Comparing the ~~progress made with immunotherapy and precision medicine, the first-line treatment for many cancers continues to include chemotherapy. And, in part because~~intended turnaround times of the ~~emphasis placed on alternatives~~FDA above to chemotherapy, we believe that not enough has been done to improve chemotherapeutic agents to make them safer and more effective. Anthracyclines are a class of chemotherapy drugs designed to destroy the DNA of targeted cancer cells. Acute leukemia is one of a number of cancers that are usually treated with anthracyclines. In the case of acute leukemia, anthracyclines are typically used in “induction therapy,” where the goal is to induce sufficient remission of patients’ blood-born tumor cells to allowits normal 60 day turnaround time for a ~~curative bone marrow transplant.~~

~~Two key factors limit the safety~~pre-IND meeting request and ~~effectiveness of anthracyclines: cardiotoxicity (potential to damage the heart) and multidrug resistance.~~30 days for an IND review, these are expedited timelines. We ~~believe Annamycin may overcome~~plan on utilizing these two factors; if preliminary data are borne out, Annamycin may ultimately provide clinically meaningful benefits over currently approved anthracyclines in treating certain cancers. Preliminary data from very early-stage clinical trials suggest acute leukemia as a potentially opportune indication in which to further study Annamycin.

One of the key dose-limiting toxicities associated with currently available anthracyclines (including the anthracycline in the recently approved drug, Vyxeos) is the propensity to induce life-threatening heart damage (also known as cardiotoxity). This is a particularly significant risk for pediatric leukemia patients, whose life spans can be severely shortened by the induction therapy intended to cure them of acute leukemia. In the animal model recommended by the FDA as an indicator of human cardiotoxicity, the non-liposomal (free) form of Annamycin has been shown to be significantly less likely than doxorubicin to create heart lesions in mice, and the liposomal formulation ("L-Annamycin") has been shown in these same models to have reduced cardiotoxicity to the point where it is unlikely to cause harm to human patients. If this characteristic is shown to be the same in humans, it may allow L-Annamycin to be used more aggressively to help patients achieve remission. This would be especially valuable in the case of pediatric acute leukemia (both AML and ALL) because of the potential impact of cardiotoxicity on long-term survival. In our current Phase I/II trial for Annamycin, we are collecting data to further validate the design intent of Annamycin to have little or no cardiotoxicity. Unless otherwise noted, all of our references to Annamycin refer to the liposomal form or L-Annamycin.

In addition, the effectiveness of currently approved anthracyclines is limited by their propensity for succumbing to “multidrug resistance.” This can occur where, as a natural defense mechanism, transmembrane proteins acting as transporters (one type of which is referred to as a “P-glycoprotein pump” or “ABCB1 transporter”) develop on the outer surface of cells to expel perceived threats like anthracyclines. In many instances, the likelihood of cardiotoxicity (and other serious side effects) prevents increasing the dosing of current therapies in order to overcome multidrug resistance. As a result, most patients cannot receive current anthracyclines in doses that are adequate to produce lasting remission and thereby qualify for a bone marrow transplant. A laboratory study has suggested that Annamycin may resist being expelled by P-glycoprotein pumps and similar multidrug resistance transporters,aspects, which may ~~mean~~shorten the ~~drug circumvents multidrug resistance. This characteristic has been shown~~various FDA review periods in ~~pre-clinical testing to allow for higher drug uptake in diseased cells, which we believe could allow for more effective induction therapy~~connection with ~~less risk to the patient.~~

~~STAT3 Immune/Transcription Modulators: Enabling Immune Response and Inhibiting p-STAT3 and other Oncogenic Transcription Factors –~~

We believe our WP1066 Portfolio (including lead drugs WP1066, WP1220 and WP1732) represents a novel class of agents capable of hitting multiple targets, including the activated form of a key oncogenic transcription factor, STAT3. A substantial body of published research has identified STAT3 as a master regulator of a wide range of tumors and has linked the activated form, p-STAT3, with the survival and progression of these tumors. For this reason, it is widely believed that targeted inhibition of p-STAT3 may be an effective way to reduce or eliminate the progression of these diseases.

The high level of anticancer activity demonstrated in multiple tumors in animal models by WP1066 and WP1732 is potentially related to their ability to also inhibit such important key oncogenic transcription factors like c-Myc and HIF-1α. In addition to direct anticancer effects not related to the function of the immune system, our lead drug WP1066 has also been shown to boost immune response in animals, in part by inhibiting activity of Regulatory T cells ("Tregs"), which are coopted by tumors to evade the immune system. We believe the dual effect of (1) directly inhibiting tumor growth and inducing tumor cell

death and (2) separately boosting and directing the natural immune response to tumors is therapeutically highly promising. If additional preclinical and clinical data validate the two avenues of apparent activity, this class of drugs may be well-suited to treat a wide range of tumors, both as single agents and as critical elements of successful combination therapies targeting even some of the most difficult-to-treat cancers.

The recent oncology drug landscape has been dominated by immunotherapy, specifically including checkpoint inhibitors. In just the last 5 years, checkpoint inhibitors (such as Opdivo and Keytruda) have reached over $10 billion in annual revenues. To summarize checkpoint blockade therapy, the T-Cells within an individual’s own immune systems should be capable of identifying tumor cells and destroying them before they destroy the individual. Unfortunately, tumors develop the ability to prevent this natural immune response by regulating the expression of certain receptors referred to as “immune checkpoints” that then bind to T-Cells and prevent them from attacking the tumor. Immune checkpoint inhibitors are antibodies that block these receptor mechanisms and allow the T-Cells to act normally and attack the tumor.

In certain types of tumors, like melanoma, checkpoint inhibitors work well, and the results can be impressive, creating durable suppression of tumors where no other therapy had succeeded. However, despite the outstanding results in select patients, checkpoint inhibitors benefit only a limited number of patients in certain cancers, and they are essentially not effective in what are called “non-responsive” tumors like glioblastoma and pancreatic cancer, among others. As a result, companies are now focusing heavily on combination therapies, combining immune checkpoint inhibitors with chemotherapy, as well as other agents. There appears to be tremendous demand and we believe there is a clear need for new chemotherapeutic agents that, by their specific mechanism of action, would produce potent combination effects with immune checkpoint inhibitors, and that additionally can boost immune system response on their own. In this regard, there is early nonclinical evidence that WP1066, as a single agent, has the ability to reverse immune tolerance in brain tumor patients (Cancer Res, 67(20), 9630, 2007), and preliminary data in animal models that suggests WP1066 may have a potential ~~for combination use with checkpoint inhibitors.~~

Recently published research papers have presented several findings that may point to major new opportunities for Moleculin’s WP1066 class of drugs. One such article suggested that our STAT3 inhibitor WP1066 abrogated PD-L1/2 expression in cancer cells and may be a useful agent in addition to checkpoint inhibitor immunotherapy in cancer patients (J Clin Exp Hematop, 57(1), 21-25, 2017). Other published results show that CTLA4-induced immune suppression occurs primarily via an intrinsic STAT3 pathway, suggesting that, through its inhibition of activated STAT3, WP1066 might work well in combination with this checkpoint inhibitor (Cancer Res, 77(18), 5118–28, 2017).

A separate paper presents selected key transcription factors as being responsible for the upregulation of an often-targeted checkpoint actor in tumors known as PD-L1. Some of the most important transcription factors identified were HIF-1α, c-Myc and STAT3, the very targets for which WP1066 was designed (Front Pharmacol, 2018 May 22, 9:536, doi: 10.3389/ fphar.2018.00536, eCollection 2018). In summary, although much of the data is nonclinical and all of it is preliminary, we are optimistic that administration of WP1066 could lead to improved treatment results in many patients receiving checkpoint inhibitor therapy.

~~Metabolism/Glycosylation Inhibitors: Using the Warburg Effect to Starve Tumor Cells to Death –~~

Science has recognized that many types of cancer cells have a unique metabolism, distinct from that of normal cells. Cancer cells’ dependence on glycolysis (a specific way of converting glucose into energy) to proliferate and metastasize has been described as the “sweet tooth of cancer” and is a classic example of how the metabolism of cancer cells and normal cells differ. Glycolysis is a glucose-intensive means of producing energy that is used by normal cells only if oxygen levels are low.

However, many types of tumor cells are essentially addicted to glycolysis even in the presence of abundant oxygen. This is known as the “Warburg Effect” after its discoverer, Dr. Otto Warburg, and such tumors are said to be highly “glycolytic.”

This phenomenon of tumors relying preferentially on glycolysis and the resulting dramatic increase of glucose uptake to fulfill their metabolic demands has already been utilized very effectively in cancer diagnostics. It is the Warburg Effect that enables imaging of actively growing tumors by positron emission tomography (“PET scans”). This diagnostic test uses a fluorine-18 radiolabeled glucose decoy called F18DG that accumulates disproportionately in tumors, using the same process that increases glucose uptake and retention in cancer cells.

The success of PET scanning points to the potential therapeutic benefit of the tumor-specific inhibition of glycolysis that would block energy (adenosine triphosphate (“ATP”)) production and could potentially “starve tumor cells to death” and/or make them sensitive to other existing therapies, including radiotherapy. Unsuccessful attempts to realize this therapeutic

potential have been made in the past, using a glucose decoy known as “2-deoxy-D-glucose” ("2-DG"). Those attempts to target the metabolism of tumor cells have failed, we believe, because of 2-DG’s lack of drug-like properties that include rapid metabolism, short half-life and limited tissue-organ distribution. Essentially, not enough 2-DG could be delivered to its intended target.

We have designed and are studying a novel and patented prodrug of 2-DG (WP1122). We believe WP1122 has the potential for developing into a technology platform for enabling increased cellular uptake, increased drug half-life and, importantly, enabling greater uptake and retention in organs where the most resistant and glycolytic tumors are localized, including the brain and pancreas.

~~Altering Glycosylation to Enhance Immune Checkpoint Therapy –~~

A recently published study (Am J Cancer Res, 8(9), 1837-1846, 2018) focused on the analysis of tumor resistance to immune checkpoint therapy. The study found that a process known as glycosylation plays an important role in the ability of checkpoint receptors to suppress immune activity and thereby protect tumors from attack. The researchers discovered that an alteration of the glycosylation of these receptor mechanisms could effectively prevent this evasion of the immune system. This study found that 2-deoxyglucose, or 2-DG, was capable of making this alteration. Although the data are preliminary, the findings suggest that 2-DG could act as an effective anticancer agent in combination with checkpoint inhibitors and potentially with other anticancer therapies.

Attempting to use 2-DG as a drug, however, faces the same problems discussed above. 2-DG’s short circulation time and lack of other drug-like properties mean the drug does not stay in the system long enough or concentrate sufficiently in targeted organs, which severely limits its effectiveness. This suggests a possible role for our patented drug candidate, WP1122. WP1122 is a prodrug of 2-DG, meaning it is a molecule that may be able to be converted into pharmacologically active 2-DG within the body of the patient. The design of WP1122 is intended to allow for a longer circulation time and improved organ distribution, which should provide it a greater opportunity to become an effective drug.

We intend to study WP1122 for both its ability to directly inhibit tumor activity and to potentiate existing therapies via an inhibition of tumor metabolism and to improve the performance of checkpoint inhibitors by reducing the effect of glycosylation and have begun the necessary preclinical work required to file an IND.

~~Clinical Activity~~

Annamycin had previously been in clinical trials with a prior drug developer pursuant to an application for Investigational New Drug status (“IND”) that had been filed with the FDA. Due to a lack of development activity by the prior drug developer, this IND was terminated. To permit the renewed investigation of Annamycin, we submitted a new IND for a Phase I/II trial for the treatment of relapsed or refractory AML in August 2017, which was subsequently allowed by the FDA in September 2017. Patient treatment began in the US in March 2018. In March 2019,WP1122, although we ~~announced that the first cohort in the US was completed and announced top-line results. We are now in the second cohort in our Phase I portion of the US trial.~~

With regard to additional Annamycin clinical activity, we received Polish National Office approval in June 2018 for a Clinical Trial authorization (“CTA”) in Poland, which enabled us to begin a Phase I/II clinical trial there to study Annamycin for the treatment of relapsed or refractory AML. During the first half of 2019, we began screening and treating patients in Poland. We have now completed the first two cohorts and are now treating patients in the third cohort.

~~We continue to recruit and contract with clinics both in the United States and Poland. We~~ can provide no assurance ~~of additional recruitment or~~ that ~~treatments will occur in the near term and on a timely basis, if at all.~~

~~A physician-sponsored IND for a Phase I trial of WP1066 in patients with recurrent malignant glioma and brain metastasis from melanoma was allowed by~~ the FDA ~~in December 2017. In July 2018, this trial opened for recruitment in the US. This trial is now in~~will shorten its ~~third cohort of the Phase I portion of the planned protocol. Because this trial is physician led, we are limited in our ability to manage the trial.~~

With regard to additional clinical activity on other drugs, we initiated a proof-of-concept clinical trial in Poland to study our drug candidate WP1220, a part of the WP1066 portfolio, for the topical treatment of cutaneous T-cell lymphoma (“CTCL”). In 2018, we filed a CTA in Poland for this trial, which was approved in January 2019, giving us a third drug in clinic and our fourth clinical trial. We began treating patients during the first quarter of 2019.

~~We have begun planning and performing the necessary pre-clinical work required to submit an~~review period or eventually approve any IND for WP1732 and WP1122. In June 2018, we entered into an agreement with The University of Iowa Pharmaceuticals for the development of a formulation for WP1732. This agreement marked the beginning of creating a preclinical package to submit to the FDA in order to request Investigational New Drug status. We have now completed initial formulation development, and our IND-enabling toxicology work will be progressing via our Australian subsidiary, Moleculin Australia. As a result of our toxicology work, we are investigating improvements to the formulation of WP1732. We now expect to submit an IND in the US in 2020.

~~We also continue to sponsor ongoing research at MD Anderson in order to improve and expand our drug development pipeline.~~application.

Recent Business Developments

Below are recent business developments.

~~Completion of Lymphoma Trial Enrollment~~Annamycin

~~On August 13, 2019 we announced our proof of concept clinical trial~~Approved to evaluate our p-STAT3 inhibitor, WP1220, for the topical treatment of CTCL has reached full enrollment. This proof of concept, if successful, could be an important first demonstration of a therapeutic effect in humans from such a p-STAT3 inhibitor.We believe showing activity with one of our STAT3 inhibitors could be an indicator of both the value of p-STAT3 as a target and the potential for our drugs in other cancers where STAT3 is highly activated.Accelerate European Clinical Trial

~~WP1066 Potentially Capable~~We announced on April 28, 2020, that we are now authorized by the Polish Department of ~~Immune Reprogramming~~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 ~~Glioblastoma Animal Models~~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 ~~August 6, 2019,~~April 2, 2020, we announced that ~~a paper entitled "Immunological Reprogramming~~we completed the latest (210 mg/m2) cohort in the CNS Tumor Microenvironment and Therapeutic Efficacy of Radiotherapy with STAT3 Blockade" will be presented at the Inaugural Conference on Brain Metastases, in New York City, August 16-17, 2019. Dr. Martina Ott, of MD Anderson Cancer Center, will be presenting the findings of research she conducted in collaboration with Dr. Amy Heimberger (the Principle Investigator of the current investigator-initiated clinical trial of WP1066 for brain tumors) in combining WP1066 with radiation therapy in glioblastoma animal models. One of the findings of her research that is especially encouraging is that immune-competent mice treated with both radiation and WP1066 developed an immunological memory that enabled them to prevent regrowth of the tumor after these tumor cells were reintroduced. The result was the development of long-term survivors, leading to an increase in overall survival in these models. Of note was that mice with a compromised immune system did not show this effect. We believe that these findings will have a profound impact on understanding the role of STAT3 inhibition, as well as help focus our continued development of WP1066 in this disease. This study was also particularly interesting because it showed the most robust immunological responses were located in the CNS (Central Nervous System) tumor microenvironment rather than peripheral non-tumor tissue. Importantly, the study indicated that the combination of STAT3 inhibition with whole brain radiotherapy had the capacity to enhance the therapeutic effect against established tumors based on immunological competence. We plan to explore this potential in human clinical trials.

~~At Market Issuance Sales Agreement~~

We entered into an At Market Issuance Sales Agreement with Oppenheimer & Co. Inc. on July 23, 2019 (the "Opco Agreement"). Pursuant to the terms of the Opco Agreement, we may sell from time to time through the Agent shares of our common stock, par value $0.001 per share, with an aggregate sales price of up to $15 million. Any sales of shares pursuant to the Opco Agreement will be made under our effective “shelf” registration statement on Form S-3 (File No. 333-219434), which became effective on August 21, 2017 and the related prospectus supplement and the accompanying prospectus, as filed with the Securities and Exchange Commission. Under the Opco Agreement, we may sell Shares through the Agent by any method that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended. Sales of the shares, if any, 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 our Board of Directors or a duly authorized committee thereof. We or the Agent, 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 $15 million, or sooner if either we or the Agent terminate the Opco Agreement pursuant to its terms. We will pay a commission to the Agent of 3.0% of the gross proceeds of the sale of the shares sold under the Opco Agreement and reimburse the Agent for certain expenses. We have also provided the Agent with customary indemnification rights. We have not sold any shares under the Opco Agreement.

~~Annamycin in Acute Myeloid Leukemia in Poland Advances to 3rd Cohort~~

~~On July 18, 2019, we announced additional positive interim safety and efficacy data from our ongoing~~European open label, single arm Phase 1/2 ~~study~~clinical trial of Annamycin ~~in Poland. Three patients were treated at a dose level of 150 mg/m~~²with no drug-related adverse events, including no signs of cardiotoxicity. The results for all 3 patients were reviewed by the Drug Safety Review Committee, which determined that the trial could progress to the next higher dose level of 180 mg/m². To date in Poland, one patient experienced grade 2 mucositis (which resolved to grade 1 within 2 days) and no other adverse events related to Annamycin have been reported. One patient has completed treatment in the 120 mg/m² ~~(second) cohort in our parallel US clinical trial (the US trial started at a lower initial dose of 100 mg/m~~²).

~~New Patents for Annamycin After Receiving FDA Approval of Fast Track Designation~~

~~On July 10, 2019, we announced we have filed new patents covering the production and reconstitution of Annamycin, which is currently in two clinical trials~~ for the treatment of relapsed or refractory ~~acute myeloid leukemia ("AML"). If these patent applications are approved, this will potentially give us 20 years~~AML. A total of ~~protection for our drug.~~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, 10 have been treated at or above the FDA lifetime maximum anthracycline exposure.

~~Positive Interim Results in First Cohort of Phase 1/2 Clinical Studies of Annamycin in Europe~~WP1122

~~On May 7, 2019, we announced additional positive interim safety~~Head of NIAID Antiviral Drug Discovery and efficacy data from our ongoing open label, single arm Phase 1/2 study of Annamycin in Europe, specifically Poland. After receiving a single starting dose of 120 mg/m2 in the first cohort of the dose escalation phase of the trial, 2 of 3 patients treated responded sufficiently to qualify for a potentially curative bone marrow transplant. The results for all 3 patients were reviewed by the Safety Review Committee, which determined that no drug-related adverse events were observed that would prevent advancing the trial to the next higher dose level of 150 mg/m2. To date in the European trial, one patient experienced grade 2 mucositis (which resolved to grade 1 within 2 days) and no other adverse events related to Annamycin have been reported. No additional patient data have been developed in the our parallel US clinical trial, which is currently recruiting its second cohort to be given a dose level of 120 mg/m2. No signs of cardiotoxicity have been reported in either trial.

~~$15.0 Million Registered Direct Offering~~Development Center Joins COVID-19 Drug Development Team

On April 23, 2019, we entered into definitive agreements with institutional investors to purchase an aggregate of 9,375,000 units at a public offering price of $1.60 per unit in a registered direct offering. Each unit was comprised of one share of common stock and 0.5 of a warrant to purchase one share of common stock resulting in gross proceeds of $15.0 million. Each warrant has an exercise price of $1.75 per share and is exercisable immediately. The warrants will expire five years from the date of issuance. The offering closed on April 25, 2019.

~~FDA Approval of Fast Track Designation for Annamycin~~

~~On April 18, 2019, we announced that the FDA approved our request for Fast Track Designation for Annamycin for the treatment of AML.~~

~~Annamycin Found to be Active Against Metastatic Lung Cancer in Pre-Clinical Testing~~

On April 17, 2019, we announced that the ongoing sponsored research at the University of Texas MD Anderson Cancer Center has now demonstrated that Annamycin is able to significantly improve survival in an aggressive form of triple negative breast cancer metastasized to the lungs in animal models.

~~Agreement with Emory University to Conduct Pediatric Brain Tumor Trial~~

~~On April 11, 2019,~~22, 2020, we announced that we have ~~entered into an agreement with Emory University~~retained Dr. Richard Whitley to ~~conduct~~our Science Advisory Board to guide our development strategy for WP1122 for the potential treatment of COVID-19 and other viral diseases. Richard Whitley, M.D., is a ~~Phase 1 clinical trial~~Distinguished Professor of ~~WP1066~~Pediatrics, Professor of Microbiology, Medicine and Neurosurgery; Loeb Eminent Scholar Chair in ~~children with recurrent or refractory malignant brain tumors. The study will be conducted~~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 ~~Aflac Cancer & Blood Disorders Center~~University of Alabama at ~~Children's Healthcare of Atlanta.~~Birmingham (UAB); and Co-Founder and Co-Director, Alabama Drug Discovery Alliance.

~~Underwritten Public Offering~~

~~On March 29, 2019, we completed an underwritten public offering~~Dr. Whitley is responsible for the National Institute of ~~an aggregate~~Allergy and Infectious Diseases Collaborative Antiviral Study Group whose role is to perform clinical trials of ~~5,250,000 units at~~antiviral therapies directed against medically important viral diseases of children and adults including viruses considered as threats to human health. He participates in numerous Data Safety and Monitoring Boards for ongoing clinical studies. He is a public offering price of $1.00 per unit. Each unit is comprised of one share of common stock and 0.5 of a warrant to purchase one share of common stock for a total of 5,250,000 shares of common stock and warrants to purchase 2,625,000 shares of common

~~stock. Each warrant has an exercise price of $1.10 per share and is exercisable immediately. The warrants will expire five years from the date of issuance. The gross proceeds~~past President of the ~~offering were $5.25 million, prior to deducting~~Infectious Diseases Society of America and received the ~~underwriting discount~~UAB President's Medal in 2007. In 2013, he was named as the inaugural recipient of the Distinguished Clinical Research Scholar and ~~other estimated offering expenses.~~

~~Positive Interim Results~~Educator in ~~First Cohort of Phase 1/2~~Residence at the NIH Clinical ~~Studies of Annamycin in Acute Myeloid Leukemia in the US and in Europe~~

On March 26, 2019, we announced positive interim safety and efficacy data from two ongoing open label, single arm Phase 1/2 studies of Annamycin. In the first study, being conducted in the US, four patients have completed treatment at 100 mg/m² ~~with no significant adverse events related to Annamycin, and the study will now proceed to the next higher dose of 120 mg/m~~²~~. No signs of cardiotoxicity have been reported in either trial.~~

~~First Patients Enrolled in Lymphoma Clinical Trial~~

~~On March 19, 2019, we announced that the first two patients have been enrolled in our European clinical trial of WP1220 for the topical treatment of CTCL.~~

~~Memorial Sloan Kettering Chief of Leukemia Joins Science Advisory Board~~

~~On March 18, 2019, we announced that Dr. Martin Tallman, Chief of Leukemia for Memorial Sloan Kettering Cancer Center joined the Company's Science Advisory Board.~~

Center.

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Agreement with ImQuest Biosciences to Expand Coronavirus Testing

We announced on April 20, 2020, that we entered into an agreement with ImQuest Biosciences to expand in vitro and in vivo testing of WP1122, our lead drug candidate for the treatment of COVID-19. ImQuest BioSciences is a preclinical CRO that provides expert services to evaluate the potential of new and novel pharmaceutical products for the treatment and prevention of 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. The Rega Institute of Medical Research, Belgium, is one of the premier medical research institutes in Europe. Dr. Dominique Schols is Professor and 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 is a preprint, which is a preliminary report that has not undergone peer review. Moleculin's drug candidate, WP1122, is referred to as a "prodrug" of 2-DG whereby chemical elements are added to 2-DG to improve its delivery in vivo. Once administered, these added elements are removed by normal metabolic processes and 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 use of WP1122 and its analogs as therapies to limit the ability of Coronavirus and other viruses to replicate. The patent application covers joint discoveries which came as a result of an ongoing sponsored research agreement.

SEC matters

On May 1, 2020, the SEC pursuant to Section 12(k) of the Securities Exchange Act of 1934, as amended, ordered the temporary suspension of trading in the securities of Moleculin because of questions regarding the accuracy and adequacy of information in the marketplace about Moleculin and its securities. Pursuant to the suspension order, the suspension commenced at 9:30 a.m. EDT on May 4, 2020 and terminates at 11:59 p.m. EDT on May 15, 2020. As of the date of this report, we have submitted a petition to terminate the suspension, but there is no assurance that we will be successful. We believe we will be able to demonstrate the accuracy and adequacy of our public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the information in the marketplace about us and our securities is accurate and adequate.

Results of Operations

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

Moleculin Biotech, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Revenues $ — $ — $ — $ —
Operating expenses:
Research and development 2,099 4,231 5,031 5,469
General and administrative 1,484 1,220 3,075 2,611
Depreciation and amortization 49 7 97 15
Total operating expenses 3,632 5,458 8,203 8,095
Loss from operations (3,632) (5,458) (8,203) (8,095)
Other income (expense):
Gain from change in fair value of warrant liability 2,407 331 2,936 1,040
Other expense — (1) — (1)
Interest income, net 4 3 5 4
Net loss $ (1,221) $ (5,125) $ (5,262) $ (7,052)


	Three Months Ended March 31,
	2020		2019
Revenues	$	—	$	—

Operating expenses:
Research and development	3,206		2,932
General and administrative	1,810		1,591
Depreciation and amortization	46		48
Total operating expenses	5,062		4,571
Loss from operations	(5,062)		(4,571)
Other income (expense):
Gain from change in fair value of warrant liability	3,845		529
Other income	5		—
Interest income, net	3		1
Net loss	$	(1,209)	$	(4,041)

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

Research and Development Expense. Research and development ~~("R&D")~~(R&D) expense was ~~$2.1~~$3.2 million and ~~$4.2~~$2.9 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The ~~decrease~~increase of ~~$2.1~~$0.3 million is mainly related to increased clinical trial activity, increased license fees and sponsored research agreements, costs ~~incurred in 2018~~related to manufacturing of ~~producing~~ additional drug product ~~for our Annamycin clinical trials.~~and two additional employees in research and development headcount.

General and Administrative Expense. General and administrative expense was ~~$1.5~~$1.8 million and ~~$1.2~~$1.6 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The increase of ~~$0.3~~$0.2 million was mainly attributable to ~~increase in G&A related~~increased payroll ~~costs.~~costs for an additional finance employee, increased stock-based compensation expense for annual employee stock options, and increased costs for directors and officer's liability insurance.

Gain from Change in Fair Value of Warrant Liability. We recorded a net gain of ~~$2.4~~$3.8 million in the ~~second~~first quarter of ~~2019~~2020 as compared to a net gain of ~~$0.3~~$0.5 million in the ~~second~~first quarter of ~~2018,~~2019, for the change in fair value on revaluation of our warrant liability associated with our warrants issued in conjunction with our stock ~~offerings in April 2019, March 2019, June 2018, February 2018, and February 2017.~~offerings. We are required to revalue ~~certain of the~~our liability-classified warrants at the time of each warrant exercise, 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 calculated the fair value of the warrants outstanding using the Black-Scholes model. A gain results principally from a decline in our share price during the period and a loss results principally from an increase in our share price. During the quarter, our stock price fluctuated greatly.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~Research and Development Expense.~~ R&D expense was $5.0 million and $5.5 million for the six months ended June 30, 2019 and 2018, respectively. The decrease of $0.5 million is mainly related to costs incurred in 2018 of producing additional drug product for our Annamycin trials, offset by increased clinical activity in 2019 and an increase in R&D headcount over the prior period.

~~General and Administrative Expense.~~ General and administrative expense was $3.1 million and $2.6 million for the six months ended June 30, 2019 and 2018, respectively. The increase of $0.5 million was mainly attributable to increase in G&A related payroll costs, as well as increases in stock-based compensation costs attributable to new employees and new employee stock options.

~~Gain from Change in Fair Value of Warrant Liability.~~ We recorded a net gain of $2.9 million in the six months ended June 30, 2019 as compared to a net gain of $1.0 million in 2018, for the change in fair value on revaluation of our warrant liability associated with our warrants issued in conjunction with our stock offerings in April 2019, March 2019, June 2018, February 2018, and February 2017. We are required to revalue certain of the warrants at the time of each warrant exerciseif 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 calculated the fair value of the warrants outstanding using the Black-Scholes model. A gain results principally from a decline in our share price during the period and a loss results principally from an increase in our share price.

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,
2019 2018
Net cash used in operating activities $ (9,194) $ (6,274)
Net cash used in investing activities (34) (8)
Net cash provided by financing activities 20,802 10,284
Effect of exchange rate changes on cash and cash equivalents (13) 6
Net increase in cash and cash equivalents $ 11,561 $ 4,008


	Three Months Ended March 31,
	2020		2019
Net cash used in operating activities	$	(4,342)	$	(3,847)
Net cash used in investing activities	(2)		(15)
Net cash provided by financing activities	5,291		5,521
Effect of exchange rate changes on cash and cash equivalents	(33)		(11)
Net increase in cash and cash equivalents	$	914	$	1,648

As of ~~June 30, 2019,~~March 31, 2020, there was no$0.3 million of cash on hand in ~~Australia however there was a local tax receivable which has been fully reserved on our financial statements.~~Australia. We do maintain a bank account in Australia and know of no related limitations impacting our liquidity there.

Cash used in operating activities

Cash used in operations was ~~$9.2~~$4.3 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. This ~~$2.9~~$0.5 million increase over the prior year period of ~~$6.3~~$3.8 million was ~~mainly~~primarily due to: 1) payments for developing, manufacturing and testing drug product as we 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 ~~G&A~~general and administrative support for our three core drug technologies.

Cash used in investing activities

Net cash used in investing activities was ~~$0.03 million~~$2,000 for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$0.01 million~~$15,000 for the ~~six~~three months ended ~~June 30, 2018. We purchased additional~~March 31, 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 ~~April 2019,~~February 2020, we ~~completed~~entered into subscription agreements with institutional investors to purchase ~~an aggregate~~ of ~~9,375,000 units~~7,500,000 shares of our common stock and warrants to purchase 5,625,000 shares of common stock at a combined public offering price of ~~$1.60~~$0.80 per ~~unit in a registered direct offering. Each unit is comprised of one~~ share ~~of common stock~~ and ~~0.5 of a~~related warrant ~~to purchase one share of common stock~~ resulting in gross proceeds of ~~$15.0~~$6.0 million. Each warrant has an exercise price of ~~$1.75~~$1.05 per share and iswill be exercisable ~~immediately. The warrants~~six months from the date of issuance and will expire five years from the date ~~of issuance.~~they are first exercisable.

~~Additionally, during~~During the ~~second quarter of 2019, 1,413,018 shares were issued due to the exercise of various warrants related to past public offerings. Gross proceeds received due to these exercises approximated $1.6 million.~~

Inthree months ended March 2019, we completed an underwritten offering of 5,250,000 ~~units, each unit consisting~~shares of ~~(i) one share~~our common stock and warrants to purchase 2,650,000 shares of common stock and (ii) 0.5 of a warrant to purchase one share of common stock. The public offering price of the units was $1.00 per unit, and the underwriter agreed to purchase the units from us at a price of $0.93 per Unit. The warrants included in the units are immediately exercisable at a price of $1.10 per share, subject to adjustments in certain circumstances, and will expire

~~five years from the date of issuance. The~~for net proceeds ~~from the transaction was~~of $4.7 million after deducting the underwriting discount and estimated offering ~~expenses.~~

~~In June 2018,~~expenses and we ~~entered into an agreement with institutional investors for a registered direct offering of securities for the sale by us of 1,092,636~~sold 605,367 shares of our common stock ~~at a purchase price of $2.105 per share. Concurrently with the sale of the common shares, we also sold warrants~~ to ~~purchase 710,212 shares of common stock. We sold the common shares and warrants~~Lincoln Park Capital Fund, LLC for net proceeds of $2.1 million after deducting certain fees due to the placement agent and transaction expenses. Subject to certain beneficial ownership limitations, the warrants will be initially exercisable on the six-month anniversary of the issuance date at an exercise price equal to $2.02 per share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the initial exercise date.

In February 2018, we entered into a securities purchase agreement with certain institutional investors for the sale by us of 4,290,000 shares of our common stock, at a purchase price of $2.10 per share. Concurrently with the sale of the common shares, we also sold warrants to purchase 2,145,000 shares of common stock. We sold the common shares and warrants for net proceeds of $8.2 million after deducting certain fees due to the placement agent and transaction expenses. Subject to certain beneficial ownership limitations, the warrants became exercisable on the six-month anniversary of the issuance date at an exercise price equal to $2.80 per share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the initial exercise date.$0.9 million.

We believe that our existing cash and cash equivalents as of ~~June 30, 2019,~~March 31, 2020 combined with the shares we sold in April 2020 through the At Market Issuance Sales Agreement will be sufficient to fund our planned operations into the ~~second~~first quarter of ~~2020,~~2021, without the issuance of additional equity for cash. ~~Such~~Any such issuances should extend the funding of our planned operations ~~significantly~~ beyond the ~~second~~first quarter of ~~2020.~~2021. Such plans are subject to our stock price, market conditions, changes in planned expenses depending on clinical enrollment progress, the use of drug product or a combination thereof. Based on the Company's current assessment, the Company does not expect any material impact on its long-term development timeline and 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.

Critical Accounting Policies and Significant Judgments and Estimates

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the 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 and Creation of a Subsidiary~~

We acquired Moleculin, LLC on May 2, 2016, and, since such date our consolidated 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. We obtained input from third-parties regarding our 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. In June 2018, MBI formed Moleculin Australia Pty. Ltd., ("MAPL"), a wholly-owned subsidiary, to begin preclinical development in Australia for WP1732. This may enable us 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 and share development data. ALI issued to the Company a 10% membership interest in ALI. In June 2019 ALI became Animal Life Sciences, Inc., incorporated in Nevada.

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~~conduct of pre-clinical and 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 statements 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, there have been no material differences from our accrued expenses to actual expenses.

Impairment of Long-Lived Assets

Management ~~reviews long-lived~~evaluates the recoverability of its property and equipment and amortizable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be ~~realizable~~recoverable or at a minimum annually during the fourth quarter of the year. ~~If an evaluation~~Recoverability of these assets is ~~required,~~measured by a comparison of the ~~estimated~~carrying amounts to the future undiscounted cash flows ~~associated with~~ the ~~asset~~assets are ~~compared~~expected to generate. If such review indicates that the ~~asset’s~~ carrying ~~value to determine if an impairment~~amount of property and equipment and amortizable intangible assets is not recoverable, the carrying amount of such asset is ~~necessary.~~reduced to fair value.

Acquired in-process research and development (IPR&D) assets are considered indefinite lived until the completion or abandonment of the associated research and development efforts. Management evaluates the recoverability of its IPR&D assets for possible impairment annually during the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of IPR&D assets is measured by a comparison of the carrying amounts to its fair value. If such review indicates that the carrying amount of IPR&D assets is not recoverable, the carrying amount of such asset is reduced to fair value.

Accounting for warrants

We have issued warrants to purchase shares of common stock related to equity transactions in 2017, 2018, 2019 and 2020. We account for our warrants issued in accordance with Accounting Standards Codification (ASC) Topic 480, Distinguishing Liabilities from Equity, ASC Topic 505, Equity, ASC Topic 815, Derivatives and Hedging, and ASC Topic 718, Compensation—Stock Compensation. Warrants are classified as liabilities when the Company may be required to settle a

warrant exercise in cash and classified as equity when the Company settles a warrant exercise in shares of its common stock. Based on this guidance, we determined that certain of our warrants to purchase shares of common stock related to equity transactions meet the criteria for classification as a liability. Accordingly, the warrants were classified as a warrant liability and are subject to fair value remeasurement at exercise and balance sheet date with the changes in fair value recognized in earnings.

Our financial instruments consist primarily of non-trade receivables, account payables, accrued expenses, and a warrant liability. The ~~effect~~carrying amount of ~~any impairment~~non-trade receivables, accounts payables, and accrued expenses approximates their fair value because of the short-term maturity of such.

We have categorized our assets and liabilities that are valued at fair value on a recurring basis into three-level fair value hierarchy in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to ~~expense~~transfer a liability (an exit price) in the ~~difference~~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.

Our financial assets and liabilities recorded at fair value on a recurring basis include the fair value of ~~such asset~~our warrant liability discussed above. The fair value of our liability classified warrants associated with the February 2017, February 2018, June 2018, March 2019, April 2019 and ~~its carrying value.~~February 2020 Offerings (Offerings) are included in long-term liabilities on the accompanying financial statements as of March 31, 2020 and December 31, 2019.

We estimated the fair value of the warrant liability of a liability classified warrants pursuant to ASC Topic 820 as of their issuance date for financial reporting purposes, when exercised and balance sheet date. We used the Black-Scholes option pricing model (BSM) to determine the fair value of the warrants which is an acceptable method 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 risk-free interest rate assumption is based upon observed interest rates on zero coupon US Treasury bonds whose maturity period is appropriate for the term of the warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date.

Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the warrants. Beginning in 2020, we use the volatility of our stock in the BSM as we now have sufficient historic data in our stock price. Prior to 2020, we used the historical volatility of peer entities combined with our own due to the lack of sufficient historical data of our stock price

Changes in the fair value of our liability classified warrants during the reporting period are reflected as a gain (loss) from change in fair value of warrant liability in other income (expense) in our condensed consolidated statement of operations and comprehensive loss.

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 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 ~~condensed~~ 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. ~~In 2018, management added two accounting positions,~~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 ~~fraud~~accounting and IT personnel in 2019 and implemented a new accounting software system, accounting policies, and banking controls. Management intends to further enhance its accounting staff and enhance the controls ~~with regards~~surrounding its system of financial accounting and reporting, as soon as economically feasible and sustainable, to ~~our banking systems, and replaced the accounting system with a more robust accounting system that should assist in mitigating~~further remediate this material weakness. ~~Along with these improvements, changes were made in our authorization processes to improve segregation of duties. Certain improvements in segregation of duties are currently being acted upon~~During 2020, we implemented the ERP system for electronic payments and ~~addressed, mainly as to the controls on information technology~~further updated roles, policies and procedures within those systems. ~~Management may further increase its accounting staff to remediate this material weakness.~~

We continuously seek to improve the efficiency and effectiveness of our internal controls. There has 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 three months ended March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ~~During~~Specifically, our employees are working remotely due to the ~~second quarter of 2019,~~COVID-19 pandemic but, we ~~began scoping and planning the implementation of required~~do not believe that our adjustments to how we work have materially impacted our internal controls ~~utilizing outside consultants.~~over financial reporting. We continue to monitor and access 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.

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PART II – OTHER INFORMATION

ITEM 1. 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, ~~2018.~~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, ~~2018~~2019 as filed with the SEC.

The SEC issued an order suspending the trading of our common stock.

With respect to the COVID-19 outbreak specifically, such outbreak could also potentially 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 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 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.

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

On April 23, 2019 we entered into definitive agreements with institutional investors to purchase an aggregate of 9,375,000 units at a public offering price of $1.60 per unit in 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 of $15.0 million. Pursuant to the Placement Agent Agreement we entered into in connection with the offering, we issued to Oppenheimer & Co. Inc. a five-year warrant to purchase up to 6% of the aggregate number of shares of common stock sold in the offering (the "Oppenheimer Warrant"). The exercise price of the Oppenheimer Warrant is $1.75 per share. The Oppenheimer Warrant has been deemed underwriting compensation by FINRA and therefore shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering, pursuant to Rule 5110(g)(1) of FINRA's Rules. The Oppenheimer Warrant was issued pursuant to Section 4(a)(2) of the Securities Act. None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION.

~~None.~~

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ITEM 6. EXHIBITS


Exhibit ~~Number~~ No.						Description

4.1						Form of Warrant Agreement issued in ~~April~~ ~~2019 Offering~~February 2020 offering (incorporated by reference to Exhibit 4.1 of the Form 8-K filed ~~April~~ 2 4 ~~, 2019)~~February 6, 2020)

4.2						Form of Placement Agent Warrant Agreement issued in ~~April~~ ~~2019 Offering~~February 2020 offering (incorporated by reference to Exhibit 4.2 of the Form 8-K filed February 6, 2020)
10.1						~~April~~ 2 4 Material Transfer Agreement between the Company and The University of Texas Medical Branch at Galveston, d/b/a UTMB Health (“UTMB”), ~~2019)~~a health institution of The University of Texas System dated February 23, 2020 (incorporated by reference to Exhibit 1.1 of the Form 8-K filed March 17, 2020)

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 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.

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.

Date: ~~August 16, 2019~~May 11, 2020	By:	/s/ Walter V. Klemp
		Walter V. Klemp,
		Chief Executive Officer and Chairman (Principal Executive Officer)

Date: ~~August 16, 2019~~May 11, 2020	By:	/s/ Jonathan P. Foster
		Jonathan P. Foster,
		Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)

3630


Three months ended June 30, 2019	Warrant Liability – Current		Warrant Liability –Long-Term		Warrant Liability –Total
Balance, March 31, 2019	$	2,386	$	—	$	2,386
Reclass of liability from long-term to current	—		—		—
Exercise of warrants	(3,174)		—		(3,174)
Issuances of warrants	10,139		—		10,139
Change in fair value - net	(2,407)		—		(2,407)
Balance, June 30, 2019	$	6,944	$	—	$	6,944


Six months ended June 30, 2019	Warrant Liability – Current		Warrant Liability – Long-Term		Warrant Liability – Total
Balance, December 31, 2018	$	180	$	1,328	$	1,508
Reclass of liability from long-term to current	1,328		(1,328)		—
Exercise of warrants	(3,174)		—		(3,174)
Issuances of warrants	11,546		—		11,546
Change in fair value - net	(2,936)		—		(2,936)
Balance, June 30, 2019	$	6,944	$	—	$	6,944


	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, 2018	2,794,000	$	1.78	$	2.61	9.43	$	21,200
Granted	45,000	$	0.80	$	1.15
Exercised	(25,000)	$	0.13	$	0.20
Outstanding, June 30, 2019	2,814,000	$	1.80	$	2.63	8.42	$	6,800

Exercisable, June 30, 2019	839,333	$	2.11	$	3.15	8.15	$	6,800


Years Ending December 31,	Minimum Lease Payments
2019 (remaining six months)	$	26
2020	53
2021	54
2022	55
2023	55
Thereafter	10
Total lease payments	253
Less: imputed interest	(47)
Present value of operating lease liabilities	$	206