SEC Filing - MediciNova, Inc.

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mnov-10q_20200930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED September 30, 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: 001-33185

MEDICINOVA, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0927979
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

4275 Executive Square, Suite 300 La Jolla, CA		92037
(Address of Principal Executive Offices)		(Zip Code)

(858) 373-1500

(Registrant’s Telephone Number, Including Area Code)

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


Common Stock, $0.001 par value	MNOV	The Nasdaq Stock Market LLC
(Title of each class)	(Trading symbol(s))	(Name of each exchange on which registered)

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 Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company ☐

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

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

As of October 22, 2020, the registrant had 44,927,560 shares of Common Stock ($0.001 par value) outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q, in particular "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the information incorporated by reference herein contains “forward-looking statements”. The forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this report. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as "believe," "may," "will," "estimate," "continue," "anticipate," "design," "intend," "expect," "could," "plan," "potential," "predict," "seek," "should," "would" or the negative version of these words and similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in "Risk Factors" and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. Considering the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:


	•	The widespread outbreak of an illness or any other communicable disease, such as COVID-19, or any other public health crisis, could adversely affect our business, results of operations and financial condition;
	•	Inability to raise additional capital if needed;
	•	Inability to generate revenues from product sales to continue business operations;
	•	Inability to develop and commercialize our product candidates;
	•	Failure or delay in completing clinical trials or obtaining Food and Drug Administration or foreign regulatory approval for our product candidates in a timely manner;
	•	Unsuccessful clinical trials stemming from clinical trial designs, failure to enroll a sufficient number of patients, undesirable side effects and other safety concerns;
	•	Inability to demonstrate sufficient efficacy of product candidates;
	•	Reliance on the success of our MN-166 (ibudilast) and MN-001 (tipelukast) product candidates;
	•	Delays in commencement or completion of clinical trials or suspension or termination of clinical trials;
	•	Loss of our licensed rights to develop and commercialize a product candidate as a result of the termination of the underlying licensing agreement;
	•	Competitors may develop products rendering our product candidates obsolete and noncompetitive;
	•	Inability to successfully attract partners and enter into collaborations on acceptable terms;
	•	Dependence on third parties to conduct clinical trials and to manufacture product candidates;
	•	Dependence on third parties to market and distribute products;
	•	Our product candidates, if approved, may not gain market acceptance or obtain adequate coverage for third party reimbursement;
	•	Disputes or other developments concerning our intellectual property rights;
	•	Actual and anticipated fluctuations in our quarterly or annual operating results;
	•	Price and volume fluctuations in the overall stock markets;
	•	Litigation or public concern about the safety of our potential products;
	•	International trade or foreign exchange restrictions, increased tariffs, foreign currency exchange;
	•	High quality material for our products may become difficult to obtain or expensive;


	•	Strict government regulations on our business;
	•	Regulations governing the production or marketing of our product candidates;
	•	Loss of, or inability to attract, key personnel; and
	•	Economic, political, foreign exchange and other risks associated with international operations.

MEDICINOVA, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		6

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
ITEM 4.	CONTROLS AND PROCEDURES	20

PART II. OTHER INFORMATION		21

ITEM 1.	LEGAL PROCEEDINGS	21
ITEM 1A.	RISK FACTORS	21
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4.	MINE SAFETY DISCLOSURES	21
ITEM 5.	OTHER INFORMATION	21
ITEM 6.	EXHIBITS	22

SIGNATURES		23

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS.

MEDICINOVA, INC.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2020			2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	61,661,341		$	63,792,657
Prepaid expenses and other current assets		893,843			511,916
Total current assets		62,555,184			64,304,573
Goodwill		9,600,240			9,600,240
In-process research and development		4,800,000			4,800,000
Property and equipment, net		28,857			40,550
Other non-current assets		309,112			459,811
Total assets	$	77,293,393		$	79,205,174
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	376,271		$	451,326
Accrued expenses and other liabilities		1,428,003			1,776,912
Total current liabilities		1,804,274			2,228,238
Long-term deferred revenue		1,694,163			1,694,163
Deferred tax liability		201,792			201,792
Other non-current liabilities		39,891			186,358
Total liabilities		3,740,120			4,310,551
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized at September 30, 2020 and December 31, 2019; 44,927,560 and 43,908,065 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		44,928			43,908
Additional paid-in capital		453,539,933			444,016,341
Accumulated other comprehensive loss		(90,035	)		(92,681	)
Accumulated deficit		(379,941,553	)		(369,072,945	)
Total stockholders’ equity		73,553,273			74,894,623
Total liabilities and stockholders' equity	$	77,293,393		$	79,205,174

See accompanying notes.

MEDICINOVA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2020			2019			2020			2019
Operating expenses:
Research, development and patents	$	2,237,877		$	1,150,815		$	5,687,658		$	4,250,205
General and administrative		1,492,139			1,494,750			5,477,223			7,556,740
Total operating expenses		3,730,016			2,645,565			11,164,881			11,806,945
Operating loss		(3,730,016	)		(2,645,565	)		(11,164,881	)		(11,806,945	)
Interest income		37,204			288,643			324,175			900,462
Other expense		(11,008	)		(21,582	)		(27,902	)		(51,087	)
Net loss applicable to common stockholders	$	(3,703,820	)	$	(2,378,504	)	$	(10,868,608	)	$	(10,957,570	)
Basic and diluted net loss per common share	$	(0.08	)	$	(0.05	)	$	(0.25	)	$	(0.26	)
Shares used to compute basic and diluted net loss per common share		44,643,736			43,343,329			44,229,715			42,963,287
Net loss applicable to common stockholders	$	(3,703,820	)	$	(2,378,504	)	$	(10,868,608	)	$	(10,957,570	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		2,761			(782	)		2,646			792
Comprehensive loss	$	(3,701,059	)	$	(2,379,286	)	$	(10,865,962	)	$	(10,956,778	)

See accompanying notes.

MEDICINOVA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Nine Months Ended September 30, 2020
	Common stock				Additional paid-in		Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Amount		capital		income (loss)			deficit			equity
Balance at December 31, 2019		43,908,065	$	43,908	$	444,016,341	$	(92,681	)	$	(369,072,945	)	$	74,894,623
Share-based compensation	—		—			596,378	—			—				596,378
Issuance of shares under an employee stock purchase plan (ESPP)		1,979		2		6,252	—			—				6,254
Issuance of common stock under at-the-market equity distribution and sales agreements, net of offering costs		68,952		69		412,623		—			—			412,692
Net loss	—		—		—		—				(2,713,559	)		(2,713,559	)
Foreign currency translation adjustments	—		—		—			(120	)	—				(120	)
Balance at March 31, 2020		43,978,996		43,979		445,031,594		(92,801	)		(371,786,504	)		73,196,268
Share-based compensation		—		—		1,147,154		—			—			1,147,154
Issuance of common stock for option exercises		143,863		144		438,118	—			—				438,262
Issuance of common stock under at-the-market equity distribution and sales agreements, net of offering costs		140,719		141		762,342		—			—			762,483
Net loss		—		—		—		—			(4,451,229	)		(4,451,229	)
Foreign currency translation adjustments		—		—		—		5			—			5
Balance at June 30, 2020		44,263,578		44,264		447,379,208		(92,796	)		(376,237,733	)		71,092,943
Share-based compensation		—		—		1,033,971		—			—			1,033,971
Issuance of common stock for option exercises		60,000		60		187,990	—			—				188,050
Issuance of shares under an employee stock purchase plan (ESPP)		1,855		2		5,452		—			—			5,454
Issuance of common stock under at-the-market equity distribution and sales agreements, net of offering costs		602,127		602		4,933,312		—			—			4,933,914
Net loss		—		—		—		—			(3,703,820	)		(3,703,820	)
Foreign currency translation adjustments		—		—		—		2,761			—			2,761
Balance at September 30, 2020		44,927,560	$	44,928	$	453,539,933	$	(90,035	)	$	(379,941,553	)	$	73,553,273

	Nine Months Ended September 30, 2019
	Common stock				Additional paid-in			Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Amount		capital			income (loss)			deficit			equity
Balance at December 31, 2018		42,081,306	$	42,081	$	429,289,968		$	(93,150	)	$	(356,131,287	)	$	73,107,612
Share-based compensation		—		—		2,699,500			—			—			2,699,500
Issuance of shares under an employee stock purchase plan		2,401		2		16,901			—			—			16,903
Issuance of common stock under at-the-market equity distribution and sales agreements, net of offering costs		—		—		(8,532	)		—			—			(8,532	)
Issuance of common stock for option exercises		977,454		978		3,919,757			—			—			3,920,735
Net loss		—		—		—			—			(4,697,190	)		(4,697,190	)
Foreign currency translation adjustments		—		—		—			(1,781	)		—			(1,781	)
Balance at March 31, 2019		43,061,161		43,061		435,917,594			(94,931	)		(360,828,477	)		75,037,247
Share-based compensation		—		—		1,842,514			—			—			1,842,514
Issuance of common stock for option exercises		38,000		38		180,332			—			—			180,370
Net loss		—		—		—			—			(3,881,876	)		(3,881,876	)
Foreign currency translation adjustments		—		—		—			3,355			—			3,355
Balance at June 30, 2019		43,099,161		43,099		437,940,440			(91,576	)		(364,710,353	)		73,181,610
Share-based compensation		—		—		373,844			—			—			373,844
Issuance of shares under an employee stock purchase plan (ESPP)		1,541		2		10,415			—			—			10,417
Issuance of common stock, net of offering costs		347,902		348		3,164,107			—			—			3,164,455
Net loss		—		—		—			—			(2,378,504	)		(2,378,504	)
Foreign currency translation adjustments		—		—		—			(782	)		—			(782	)
Balance at September 30, 2019		43,448,604	$	43,449	$	441,488,806		$	(92,358	)	$	(367,088,857	)	$	74,351,040

See accompanying notes.

MEDICINOVA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended
	September 30,
	2020			2019
Operating activities:
Net loss	$	(10,868,608	)	$	(10,957,570	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash stock-based compensation		2,777,503			4,915,858
Depreciation and amortization		15,487			18,347
Changes in assets and liabilities:
Prepaid expenses and other assets		(225,543	)		(452,515	)
Accounts payable, accrued liabilities and other liabilities		(576,116	)		(244,725	)
Net cash used in operating activities		(8,877,277	)		(6,720,605	)
Investing activities:
Acquisition of property and equipment		(3,794	)		(4,013	)
Net cash used in investing activities		(3,794	)		(4,013	)
Financing activities:
Proceeds from issuance of common stock, exercise of common stock options and warrants, net of issuance costs		6,735,401			7,257,028
Proceeds from issuance of equity awards under ESPP		11,708			27,320
Net cash provided by financing activities		6,747,109			7,284,348
Effect of exchange rate changes on cash and cash equivalents		2,646			(241	)
Net change in cash and cash equivalents		(2,131,316	)		559,489
Cash and cash equivalents, beginning of period		63,792,657			62,313,418
Cash and cash equivalents, end of period	$	61,661,341		$	62,872,907

See accompanying notes.

MEDICINOVA, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1. Interim Financial Information

Organization and Business

MediciNova, Inc. (the “Company” or “MediciNova”) was incorporated in the state of Delaware in September 2000 and is a public company. The Company’s common stock is listed in both the United States and Japan and trades on the NASDAQ Global Market and the JASDAQ Market of the Tokyo Stock Exchange. MediciNova is a biopharmaceutical company focused on developing novel therapeutics for the treatment of serious diseases with unmet medical needs with a commercial focus on the United States market. The Company’s current strategy is to focus its development activities on BC-PIV vaccine for COVID-19 (Coronavirus Disease 2019), MN-166 (ibudilast) for neurological and other disorders such as progressive multiple sclerosis (MS), amyotrophic lateral sclerosis (ALS), chemotherapy-induced peripheral neuropathy, degenerative cervical myelopathy, glioblastoma, and substance dependence and addiction (e.g., methamphetamine dependence, opioid dependence and alcohol dependence), as well as for acute respiratory distress syndrome (ARDS), and MN-001 (tipelukast) for fibrotic diseases such as nonalcoholic steatohepatitis (NASH) and idiopathic pulmonary fibrosis (IPF). The Company’s pipeline also includes MN-221 (bedoradrine) for the treatment of acute exacerbation of asthma and MN-029 (denibulin) for solid tumor cancers.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions of the Securities and Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of MediciNova, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company operates in a single operating segment – the acquisition and development of therapeutics for the treatment of serious diseases with unmet medical needs.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and other highly liquid investments including money market accounts.

Research, Development and Patents

Research and development costs are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, facilities and depreciation, research and development supplies, licenses and outside services. Such research and development costs totaled $2.1 million and $1.1 million for the three months ended September 30, 2020 and 2019, respectively and $5.4 million and $4.0 million for the nine months ended September 30, 2020 and 2019, respectively.

Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. The Company includes all external costs related to the filing of patents on developments in Research, Development and Patents expenses. Such patent-related expenses totaled $0.1 million for each of the three months ended September 30, 2020 and 2019, respectively and $0.3 million for each of the nine months ended September 30, 2020 and 2019, respectively.

Clinical Trial Accruals and Prepaid Expenses

Costs for preclinical studies, clinical studies and manufacturing activities are recognized as research and development expenses based on an evaluation of the progress by Company vendors towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided to the Company by such vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services are performed. The Company determines accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of studies, or the services completed. The Company’s estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided.

Impact of COVID-19 on the Company’s Business

The pandemic caused by an outbreak of a new strain of coronavirus (“COVID-19” or “the pandemic”) has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect the Company’s business. Although the pandemic resulted in a decrease in the number of patient visits at certain of the Company’s clinical trial sites, the Company expects this effect to be temporary. The Company has seen an increase in the number of patient visits compared to earlier in the pandemic and the Company continues to enroll patients in clinical trials. Throughout the pandemic, the Company has continued with routine clinical trial activities including executing new clinical trial agreements, negotiating budgets, institutional review board (IRB) approvals, site training, and other activities related to the initiation of new clinical trial sites. In addition, following the outbreak of the pandemic, the Company designed a clinical trial to evaluate MN-166 (ibudilast) for prevention of acute respiratory distress syndrome (ARDS) caused by COVID-19. Based on the Company’s current assessment, the Company does not expect a material negative impact on its clinical development plans, long-term development timeline or liquidity due to the worldwide spread of the COVID-19 virus. However, the Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, industry, and workforce.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements and requires that changes in unrealized gains and losses be included in other comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how weighted average is calculated for recurring and nonrecurring Level 3 fair value measurements. The amendment was effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year with early adoption permitted. The Company adopted ASU 2018-13 on January 1, 2020 with no material impact on its consolidated financial statements.

2. Revenue Recognition

Revenue Recognition Policy

Revenues consist mainly of research and development services performed under a contract with a customer. The Company evaluates the separate performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations over time or at a point in time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance (2) the vendor creates or enhances an asset controlled by

the customer (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and the vendor has an enforceable right to payment for performance completed to date.

Kissei Pharmaceutical Co., Ltd

In October 2011, the Company entered into a collaboration agreement with Kissei Pharmaceutical Co., Ltd., (“Kissei”), to perform research and development services relating to MN-221 (bedoradrine) in exchange for a non-refundable upfront payment of $2.5 million. Under the terms of the agreement, the Company is responsible for all costs to be incurred in the performance of these services. The Company assessed the services in accordance with the authoritative guidance and concluded that the two studies to be performed under the agreement represented two separate performance obligations. The transaction price was allocated among the two studies that were deemed separate performance obligations based on the expected costs to be incurred for each obligation. Revenue is recognized proportional to the total costs expected for each performance obligation as incurred over the service period. The first study was completed in 2013 and the timing of the second study is undetermined as of September 30, 2020. The amount received from Kissei and allocated, net of the amount recorded as revenue, is included on the balance sheet as long-term deferred revenue and will be recognized as revenue as the remaining performance obligation is satisfied. No revenue was recognized for the three and nine months ended September 30, 2020 and 2019 in connection with the collaboration agreement with Kissei.

3. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

Level 1:	Observable inputs such as quoted prices in active markets;

Level 2:	Inputs are quoted prices for similar items in active markets or quoted prices for identical or similar items in markets that are not active near the measurement date; and

Level 3:	Unobservable inputs due to little or no market data, which require the reporting entity to develop its own assumptions.

Cash equivalents, including money market accounts of $694,109 and $691,649 measured at fair value as of September 30, 2020 and December 31, 2019, respectively, are classified within Level 1.

4. Stock-based Compensation

Stock Incentive Plans

In June 2013, the Company adopted the 2013 Equity Incentive Plan, or 2013 Plan, under which the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company or its subsidiaries. The 2013 Plan is the successor to the Company’s Amended and Restated 2004 Stock Incentive Plan, or 2004 Plan. A total of 8,700,000 shares of common stock are reserved for issuance under the 2013 Plan. In addition, “returning shares” that may become available from time to time are added back to the plan. “Returning shares” are shares that are subject to outstanding awards granted under the 2004 Plan that expire or terminate prior to exercise or settlement, are forfeited because of the failure to vest, are repurchased, or are withheld to satisfy tax withholding or purchase price obligations in connection with such awards. Although the Company no longer grants equity awards under the 2004 Plan, all outstanding stock awards granted under the 2004 Plan will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the 2004 Plan. As of September 30, 2020, 2,872,135 shares remain available for future grants under the 2013 Plan.

The Company occasionally issues employee performance-based stock options, the vesting of which is based on a determination made by the board of directors as to the achievement of certain corporate objectives at the end of the performance period. The grant date of such awards is the date on which the board of directors makes its determination. For periods preceding the grant date, the expense related to these awards is measured based on their fair value at each reporting date.

Stock Options

Options granted under the 2013 Plan and the 2004 Plan have terms of ten years from the date of grant unless earlier terminated and generally vest over a three or four year period. The exercise price of all options granted through September 30, 2020 and in 2019, was equal to the market value of the Company’s common stock on the date of grant.

A summary of stock option activity and related information as of September 30, 2020 is as follows:

	Number of Option Shares			Weighted Average Exercise Price
Outstanding at December 31, 2019		6,802,093		$	5.61
Granted		1,367,000			6.69
Exercised		(203,863	)		3.07
Cancelled		(454,843	)		8.92