Financial Data and Key Metrics Changes - The company ended the quarter with approximately $90 million in cash and cash equivalents, down from $97 million at December 31, 2019 [28] - The net loss for the quarter was $11.5 million, or $0.15 per share [28] - Research and Development expenses increased to $5.9 million from $3.3 million in the same quarter last year, primarily due to activities related to CG-806 [28][29] Business Line Data and Key Metrics Changes - The company is developing two main clinical candidates: CG-806, a treatment for hematologic cancers, and APTO-253, a MYC inhibitor for AML and MDS [7][25] - CG-806 is in a Phase I clinical trial for B-cell malignancies, with ongoing patient enrollment and dose escalation [11][19] - APTO-253 is also in a Phase Ia/b trial, with completed dosing in the first three cohorts and ongoing enrollment [25][26] Market Data and Key Metrics Changes - The market for AML appears competitive, with several recently approved drugs, but none offer cures, indicating a potential opportunity for CG-806 [20] - The company is focusing on enrolling patients from specialty regional cancer centers rather than large hospitals to mitigate COVID-19 risks [10][11] Company Strategy and Development Direction - The company aims to continue the development of CG-806 and APTO-253, with a focus on addressing unmet needs in hematologic cancers [7][25] - There is a strategic pivot to enroll patients from regional cancer centers to ensure safety and maintain trial progress during the pandemic [10][11] - The company plans to submit a new IND for CG-806 in AML patients, consolidating all preclinical and clinical data gathered to date [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that COVID-19 has not significantly impacted the company's timelines, referring to challenges as "crosswinds" rather than headwinds [55] - The company anticipates presenting additional data at the ASH conference later in the year, with hopes of demonstrating responses in patients with AML [48][50] Other Important Information - The company entered into a new At-The-Market agreement for $75 million, providing strategic flexibility for funding operations and R&D [29][30] - Management emphasized the importance of safety and tolerability in ongoing trials, with all dose levels thus far being well-tolerated [22][26] Q&A Session Summary Question: Clarification on CG-806 dose level three plasma exposure - Management confirmed that plasma exposure levels were around one micromolar and consistent among patients [32] Question: Expectations for EHA data presentation - Management indicated that safety, pharmacokinetic, and pharmacodynamic data from Cohorts 1 through 4 would be presented at EHA [40] Question: Concerns about BTK inhibition and clinical activity - Management acknowledged the skepticism and explained that while BTK inhibition is crucial, it is not solely responsible for killing CLL cells; other pathways must also be targeted [68]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number: 1-35447 APTOSE BIOSCIENCES INC. (Exact Name of Registrant as Specified in Its Charter) Canada (State or other jurisdiction of incorporation or ...

Financial Data and Key Metrics Changes - The company ended the quarter with approximately $97.6 million in cash, cash equivalents, and investments, compared to $15.7 million at December 31, 2018, and $30.2 million at September 30, 2019 [37] - The net loss was $7.7 million for the quarter and $26.3 million or $0.52 per share for the year [38] Business Line Data and Key Metrics Changes - Research and development expenses were $5.3 million for the quarter and $16.8 million for the year, while general and administrative expenses were $2.6 million for the quarter and $10 million for the year [38] Market Data and Key Metrics Changes - The company has opened 18 U.S. clinical sites for screening and enrolling patients for the ongoing clinical trials [22] Company Strategy and Development Direction - The company is focused on advancing its two hematology compounds, CG-806 and APTO-253, into clinical trials, with CG-806 being positioned as a mutation-agnostic agent targeting multiple oncogenic signaling pathways [15][16] - The company plans to submit documents to the FDA for a new AML trial during the first half of the year, focusing on relapsed and refractory AML patients [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ongoing clinical trials and the potential of CG-806 to benefit patients who have failed other therapies, highlighting the urgent need for new treatments in AML [30] - The management is closely monitoring the impact of COVID-19 on operations but currently does not foresee any delays in clinical trials or manufacturing [39][56] Other Important Information - The company has strengthened its management team with the addition of key personnel in clinical operations and business development [13][14] - A $200 million shelf registration statement was filed in late December, which was declared effective in early January [38] Q&A Session Summary Question: Update on the second patient at the 300 mg BID dose cohort - The patient was taken off the study due to extensive bone marrow involvement, but the drug was well tolerated, and lymphocytosis was observed [44][46] Question: Safety and pharmacokinetics for the next cohort - Safety is the primary focus, and pharmacokinetics data is being analyzed to ensure minimal variability and effective drug levels [50][52] Question: Impact of COVID-19 on clinical trials - No direct impact has been observed on clinical operations, but the situation is being monitored closely [58][59] Question: Appetite for AML side of 806's potential - The company is aggressive in pursuing both CLL and AML opportunities, aiming to demonstrate activity in both patient populations [61][62] Question: Responses in CLL and imaging requirements - Responses in CLL can take time, and imaging is typically evaluated every two cycles to confirm responses [70][72] Question: Criteria for determining active dose in AML - The company is looking for safety, pharmacokinetics around one micromolar, and pharmacodynamic responses to recommend moving into AML trials [75][76]

[FORM 10-K Filing Information](index=1&type=section&id=FORM%2010-K) Aptose Biosciences Inc. filed its 2019 Form 10-K, classified as a smaller reporting and emerging growth company, with a **$143.4 million** market value of non-affiliate equity [Filing Status and Market Value](index=1&type=section&id=Filing%20Status%20and%20Market%20Value) Aptose Biosciences Inc. filed its annual report on Form 10-K for the fiscal year ended December 31, 2019, classified as a 'smaller reporting company' and an 'emerging growth company', with a market value of voting and nonvoting common equity held by non-affiliates of **$143.4 million** as of June 30, 2019 - Aptose Biosciences Inc. filed its annual report on Form 10-K for the fiscal year ended December 31, 2019[1](index=1&type=chunk) - The company is classified as a 'smaller reporting company' and an 'emerging growth company'[2](index=2&type=chunk) Market Value and Shares Outstanding | Metric | Value | | :------------------------------------------------------------------ | :------------- | | Aggregate market value of voting and nonvoting common equity (June 30, 2019) | $143,417,295 | | Common stock outstanding (March 10, 2020) | 76,269,806 shares | [Table of Contents](index=2&type=section&id=TABLE%20OF%20CONTENTS) This section provides an organized listing of all chapters and sections within the Form 10-K report [PART I. Company Information](index=4&type=section&id=PART%20I.) This part details the company's business, risk factors, properties, legal proceedings, and mine safety disclosures [ITEM 1. Business Overview](index=4&type=section&id=ITEM%201.%20BUSINESS) Aptose Biosciences Inc. is a biotechnology company developing targeted cancer therapies with two clinical-stage programs, relying on third parties for development and subject to extensive regulation - Aptose is a science-driven biotechnology company advancing highly differentiated agents to treat unmet medical needs in life-threatening cancers, such as acute myeloid leukemia ("AML"), certain B-cell malignancies, high-risk myelodysplastic syndrome ("MDS") and other hematologic malignancies[8](index=8&type=chunk) - Aptose has two clinical-stage programs (CG-806 and APTO-253) and a third discovery-stage program (APL-581) partnered with Ohm Oncology[11](index=11&type=chunk)[12](index=12&type=chunk)[13](index=13&type=chunk) - The company relies on Contract Manufacturing Organizations (CMOs) for product candidate manufacturing and Contract Research Organizations (CROs) for preclinical and clinical development activities[48](index=48&type=chunk)[49](index=49&type=chunk) - Aptose's business is subject to extensive government regulation in the United States, Canada, and the European Union, covering preclinical studies, clinical trials, and marketing of therapeutic products[62](index=62&type=chunk)[63](index=63&type=chunk) [Company Overview and Strategy](index=4&type=section&id=Overview) Aptose Biosciences Inc. is a publicly listed Canadian biotechnology company focused on developing novel and targeted oncology therapies - Aptose Biosciences Inc. is a publicly listed Canadian biotechnology company, incorporated in 1986, focused on developing novel and targeted oncology therapies for hematologic malignancies and solid tumors[8](index=8&type=chunk)[9](index=9&type=chunk)[10](index=10&type=chunk) - The company's strategy is to optimize efficacy by simultaneously targeting key drivers of disease in cancer cells while minimizing side effects, aiming for first-in-class or best-in-class agents[9](index=9&type=chunk)[10](index=10&type=chunk) [Product Pipeline and Development Programs](index=4&type=section&id=Aptose%20Programs) Aptose has three programs: two clinical-stage (CG-806, APTO-253) and one discovery-stage partnered program (APL-581) - Aptose has three programs: two clinical-stage (CG-806, APTO-253) and one discovery-stage partnered program (APL-581)[11](index=11&type=chunk) - CG-806 is a mutation-agnostic FLT3/BTK inhibitor in Phase Ia/b for B-cell malignancies and planned for R/R AML[12](index=12&type=chunk) - APTO-253 is a small molecule MYC oncogene inhibitor in Phase Ib for R/R blood cancers, including AML and high-risk MDS[13](index=13&type=chunk) - APL-581 is a dual BET protein and kinase inhibitor program partnered with Ohm Oncology[13](index=13&type=chunk) [CG-806 Program Details](index=5&type=section&id=CG-806%20Program) Aptose acquired exclusive worldwide rights (excluding Korea) to CG-806, a potent, orally bioavailable non-covalent FLT3/BTK inhibitor - Aptose acquired exclusive worldwide rights (excluding Korea) to CG-806, a highly potent, orally bioavailable non-covalent FLT3/BTK inhibitor, through a **$2.0 million** option exercise and a **$3.0 million** upfront payment for China rights[18](index=18&type=chunk) - CG-806 shows picomolar IC50 against FLT3-ITD and nanomolar IC50 against BTK and its C481S mutant, making it a mutation-agnostic FLT3/BTK inhibitor[19](index=19&type=chunk) - Preclinical studies demonstrated CG-806's efficacy in murine xenograft models of human AML (FLT3-ITD) with tumor elimination and no measurable toxicity, and potent activity against ibrutinib-resistant B-cell malignancy cells[20](index=20&type=chunk)[21](index=21&type=chunk)[26](index=26&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [APTO-253 Program Details](index=9&type=section&id=APTO-253%20Program) APTO-253 is a novel small molecule that inhibits MYC oncogene expression, leading to cell cycle arrest and apoptosis in cancer cells - APTO-253 is a novel small molecule that inhibits MYC oncogene expression, leading to cell cycle arrest and apoptosis in cancer cells without general myelosuppression[31](index=31&type=chunk) - The Phase Ib clinical trial for APTO-253 in R/R hematologic malignancies was placed on clinical hold in November 2015 due to a formulation issue, which was lifted by the FDA on June 28, 2018, after chemistry and manufacturing modifications[32](index=32&type=chunk) - Patients in the re-initiated Phase Ib trial showed meaningful reductions in MYC expression and good tolerability at initial dose levels[33](index=33&type=chunk) - Previous Phase I studies in solid tumors demonstrated a favorable safety profile and encouraging signs of antitumor activity, with **41% of evaluable patients achieving stable disease**[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) [APL-581 Program Details](index=10&type=section&id=APL-581%20Program) APL-581 is a dual BET protein and kinase inhibitor program out-licensed to Ohm Oncology, with potential for significant milestone payments - APL-581 is a dual BET protein and kinase inhibitor program that Aptose out-licensed to Ohm Oncology (an affiliate of Laxai Avanti Life Sciences) on March 7, 2018[41](index=41&type=chunk)[42](index=42&type=chunk) - Aptose is eligible to receive up to **$125 million** in development, regulatory, and sales milestones, plus significant royalties on future sales, but has not yet received any payments[42](index=42&type=chunk) [Competitive Landscape](index=10&type=section&id=Competitive%20Conditions) The biotechnology and pharmaceutical industries are highly competitive, with numerous companies possessing greater financial, technical, and marketing resources - The biotechnology and pharmaceutical industries are highly competitive, with numerous companies possessing greater financial, technical, and marketing resources[43](index=43&type=chunk) - Competition for Aptose's potential products includes various therapeutic agents (chemotherapeutics, antibodies, small molecules, immunotherapies, vaccines) and other companies developing BTK and FLT3 inhibitors for B-cell malignancies and AML[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) [Manufacturing and Development Reliance](index=12&type=section&id=Manufacturers%2C%20Suppliers%20and%20Other%20Third%20Party%20Contractors) Aptose relies on Contract Manufacturing Organizations (CMOs) and Contract Research Organizations (CROs) for its drug product manufacturing and clinical development activities - Aptose relies on Contract Manufacturing Organizations (CMOs) for manufacturing, filling, packaging, storing, and shipping of drug product in compliance with cGMP regulations[48](index=48&type=chunk) - The company also relies on third-party Contract Research Organizations (CROs) for a significant portion of its preclinical and clinical development activities, including trial design, regulatory submissions, and data management[49](index=49&type=chunk) [Intellectual Property Protection](index=12&type=section&id=Intellectual%20Property) Aptose believes its issued patents and pending applications are crucial for maintaining a competitive position and protecting its drug candidates - Aptose believes its issued patents and pending applications are crucial for maintaining a competitive position[50](index=50&type=chunk) - CG-806 has patent protection until December 2033 in major geographies, including the US, Europe, Australia, China, and Japan[51](index=51&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - APTO-253 has patent protection for its composition of matter until February 2028 in the US and May 2026 in other countries, with 20 international patents covering the compound and related structures[57](index=57&type=chunk) [Environmental Compliance](index=13&type=section&id=Environmental%20Protection) Aptose's R&D activities involve hazardous materials, subjecting the company to federal, provincial, and local environmental laws - Aptose's R&D activities involve hazardous and radioactive materials, subjecting the company to federal, provincial, and local environmental laws in the US and Canada[58](index=58&type=chunk) - Compliance is not expected to significantly impact capital spending, profits, or competitive position, but future costs or adverse effects are possible[58](index=58&type=chunk) [Employee Information](index=13&type=section&id=Employees) As of December 31, 2019, Aptose employed 31 full-time and two part-time individuals with specialized skills in drug development - As of December 31, 2019, Aptose employed **31 full-time** and **two part-time** individuals in research, drug development, and administration[59](index=59&type=chunk) - The company's business requires specialized skills in oncology, chemistry, formulation, clinical, and regulatory expertise, which its trained scientists and personnel possess[61](index=61&type=chunk) [Government Regulation of Drugs](index=14&type=section&id=Government%20Regulation) Aptose's drug development and marketing are subject to extensive government regulations, involving lengthy and expensive approval processes - Aptose's regulatory strategy involves working with government departments like the FDA (US), Health Canada, and the European Medicines Agency, aiming for accelerated development and priority evaluation for rare/serious diseases[62](index=62&type=chunk) - The drug approval process is lengthy, expensive, and uncertain, requiring extensive preclinical and clinical testing (Phases I, II, III) to demonstrate safety and efficacy, followed by regulatory submission and approval[64](index=64&type=chunk)[65](index=65&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk)[75](index=75&type=chunk) - Post-marketing surveillance and Phase IV studies are required to monitor side effects and long-term effects, with potential for product withdrawal if serious safety issues arise[65](index=65&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) [Executive Leadership Team](index=16&type=section&id=Information%20About%20Our%20Executive%20Officers) Aptose's leadership team comprises experienced professionals in industry, finance, and clinical research, dedicated to building an anticancer drug pipeline - Aptose's leadership team includes Dr. William G. Rice (Chairman, President, CEO), Gregory K. Chow (SVP, CFO), Dr. Jotin Marango (SVP, CBO), and Dr. Rafael Bejar (SVP, CMO, joined January 2020)[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - The team comprises experienced professionals in industry, finance, and clinical research, dedicated to building an anticancer drug pipeline[80](index=80&type=chunk) [Corporate Structure and Filings](index=17&type=section&id=Corporate%20Information) Aptose is incorporated under the Canada Business Corporations Act, with headquarters in Toronto and executive offices in San Diego - Aptose is incorporated under the Canada Business Corporations Act, with headquarters in Toronto, Canada, and executive offices in San Diego, California[85](index=85&type=chunk) - The company files annual, quarterly, and current reports with the SEC and is a reporting issuer in Ontario, Canada[86](index=86&type=chunk) - Effective December 31, 2018, Aptose ceased qualifying as a foreign private issuer and began filing reports with the SEC as a 'domestic issuer', switching from IFRS to US GAAP[6](index=6&type=chunk) [Forward-Looking Statements Disclaimer](index=17&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) The report contains forward-looking statements subject to significant risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements regarding future events, performance, and business prospects, identified by terms like 'may', 'expect', 'plan', 'intend', 'anticipate', 'believe', 'estimate', 'predict', 'potential', 'continue'[88](index=88&type=chunk)[89](index=89&type=chunk) - These statements are subject to significant risks and uncertainties that could cause actual results to differ materially, including capital needs, development risks, regulatory delays, and competition[90](index=90&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, as the company undertakes no obligation to update them except as required by law[93](index=93&type=chunk)[94](index=94&type=chunk) [ITEM 1A. Risk Factors](index=19&type=section&id=ITEM%201A.%20RISK%20FACTORS) Aptose faces significant risks from its early development stage, including capital needs, clinical trial failures, intense competition, regulatory hurdles, and common share volatility - Aptose is an early-stage development company with no significant product revenues and a history of operating losses, requiring substantial additional capital for future operations and product development[96](index=96&type=chunk)[99](index=99&type=chunk)[101](index=101&type=chunk) - Clinical trials are long, expensive, and uncertain, with risks of delays, failures to enroll sufficient patients, unacceptable toxicities, and potential non-approval by regulatory bodies like the FDA or Health Canada[117](index=117&type=chunk)[118](index=118&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) - The company faces intense competition from well-resourced pharmaceutical and biotechnology companies, and its products may not gain market acceptance or achieve profitability[146](index=146&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - Intellectual property protection is uncertain, with risks of inability to obtain patents, infringement by competitors, and substantial costs for enforcement or defense[154](index=154&type=chunk)[155](index=155&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk)[165](index=165&type=chunk) - Aptose is subject to extensive government regulation, healthcare laws, and potential product liability claims, which could lead to significant costs, penalties, or operational disruptions[170](index=170&type=chunk)[183](index=183&type=chunk)[186](index=186&type=chunk) - Risks related to common shares include high volatility, potential dilution from future sales, susceptibility to global economic stress, and adverse US federal tax consequences due to its likely classification as a 'passive foreign investment company' (PFIC)[197](index=197&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk) [ITEM 1B. Unresolved Staff Comments](index=43&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments to report [ITEM 2. Properties](index=43&type=section&id=ITEM%202.%20PROPERTIES) Aptose leases office and lab facilities in San Diego and Toronto, with current leases expiring between 2022 and 2023 - Aptose leases approximately **7,309 square feet** of office space and **2,168 square feet** of lab space in San Diego, California, with the office lease expiring March 31, 2023, and the lab lease renewed until February 28, 2022[230](index=230&type=chunk)[389](index=389&type=chunk) - The company also leases approximately **2,078 square feet** of office space in Toronto, Ontario, Canada, with the lease expiring June 30, 2023[230](index=230&type=chunk)[389](index=389&type=chunk) [ITEM 3. Legal Proceedings](index=43&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Aptose has no material pending legal proceedings but may face routine legal actions with uncertain outcomes - Aptose knows of no material pending legal proceedings to which the company or its subsidiaries are a party[231](index=231&type=chunk) - The company may be subject to various pending or threatened legal actions and proceedings in the ordinary course of business, with uncertain outcomes[231](index=231&type=chunk) [ITEM 4. Mine Safety Disclosures](index=43&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) There are no mine safety disclosures to report [PART II. Financial Information](index=44&type=section&id=PART%20II.) This part presents the company's selected financial data, management's discussion and analysis, and market risk disclosures [ITEM 5. Common Equity Market and Stockholder Matters](index=44&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Aptose Common Shares trade on Nasdaq and TSX, with no anticipated cash dividends or Q4 2019 equity repurchases - Aptose's Common Shares are traded on The Nasdaq Capital Market under the symbol 'APTO' and the Toronto Stock Exchange under the symbol 'APS'[234](index=234&type=chunk) - As of March 10, 2020, there were approximately **33 shareholders of record**[235](index=235&type=chunk) - The company intends to retain all future earnings for business operations and expansion, thus not anticipating cash dividends in the foreseeable future[236](index=236&type=chunk) - There were no repurchases of equity securities during the fourth quarter of 2019[236](index=236&type=chunk) [ITEM 6. Selected Financial Data](index=44&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) Aptose reported a **$26.3 million** net loss in 2019, an improvement from 2018, with total assets significantly increasing to **$100.5 million** Consolidated Statements of Loss and Comprehensive Loss (US thousands) | Metric | 2019 | 2018 | | :------------------------------------------------------------------ | :-------- | :-------- | | **REVENUE** | — | — | | **EXPENSES** | | | | Research and development | 16,835 | 18,733 | | General and administrative | 10,022 | 10,374 | | Operating expenses | 26,857 | 29,107 | | Interest Income | 574 | 283 | | Foreign exchange gains/(loss) | 6 | (44) | | Total other income | 580 | 239 | | **Net loss** | (26,277) | (28,868) | | Unrealized gain on securities available-for-sale | 18 | — | | **Total comprehensive loss** | (26,259) | (28,868) | | Basic and diluted loss per common share | (0.52) | (0.86) | | Weighted average number of Common Shares outstanding (in thousands) | 50,160 | 33,391 | | Total Assets | 100,476 | 16,870 | | Total non-current Liabilities | 1,011 | — | [ITEM 7. Management's Discussion and Analysis](index=45&type=section&id=ITEM%207%20-%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Aptose, a clinical-stage biotech, discusses its financial condition, ongoing losses, reliance on equity financing, reduced 2019 net loss, and adoption of new lease accounting standards - Aptose is a science-driven biotechnology company advancing first-in-class targeted agents to treat life-threatening cancers, with CG-806 and APTO-253 in Phase I clinical trials[242](index=242&type=chunk) - The company reported a net loss of **$26.3 million** in 2019, a decrease from **$28.9 million** in 2018, primarily due to lower license fees and stock option compensation, despite increased program expenditures[296](index=296&type=chunk) - Aptose's cash, cash equivalents, and investments totaled **$97.6 million** at December 31, 2019, up from **$15.7 million** in 2018, providing sufficient liquidity for at least 12 months[273](index=273&type=chunk)[274](index=274&type=chunk) - The company adopted FASB standard ASU No. 2016-02, 'Leases (Topic 842)', effective January 1, 2019, recognizing right-of-use assets and corresponding lease liabilities[312](index=312&type=chunk)[313](index=313&type=chunk)[361](index=361&type=chunk)[362](index=362&type=chunk) [MD&A Overview](index=45&type=section&id=OVERVIEW) Aptose Biosciences Inc. is a science-driven biotechnology company developing first-in-class targeted agents for life-threatening hematologic malignancies - Aptose Biosciences Inc. is a science-driven biotechnology company developing first-in-class targeted agents for life-threatening hematologic malignancies like AML, MDS, and CLL[242](index=242&type=chunk) - The company's pipeline includes CG-806, a pan-FLT3/pan-BTK inhibitor, and APTO-253, a MYC oncogene inhibitor, both in Phase I clinical trials[242](index=242&type=chunk)[243](index=243&type=chunk) [Clinical Program Updates](index=46&type=section&id=PROGRAM%20UPDATES) Aptose provides updates on its clinical-stage programs, CG-806 and APTO-253, including trial progress and preclinical data - CG-806 is in a Phase Ia/b dose-escalation study for B-cell malignancies (CLL, SLL, NHL) and is planned for a separate Phase I study in R/R AML; it has received FDA orphan drug designation for AML[245](index=245&type=chunk)[246](index=246&type=chunk)[248](index=248&type=chunk) - Preclinical data for CG-806 demonstrated superior potency against primary bone marrow samples from hematologic malignancies, efficacy in PDX models for dual FLT3 mutant AML, and a clean safety profile[251](index=251&type=chunk)[253](index=253&type=chunk)[255](index=255&type=chunk) - APTO-253's Phase Ib trial for R/R AML and high-risk MDS was re-initiated after a clinical hold was lifted in June 2018, with patients showing meaningful reductions in MYC expression and good tolerability[259](index=259&type=chunk)[261](index=261&type=chunk)[266](index=266&type=chunk) - Preclinical studies confirmed APTO-253's mechanism of action, binding to and stabilizing a G-quadruplex DNA motif in the MYC oncogene promoter to inhibit its expression[267](index=267&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Aptose, an early-stage development company, relies on equity financing to fund R&D and has sufficient liquidity for at least 12 months - Aptose is an early-stage development company with no current revenues from drug candidates, relying on equity financing and strategic partners to fund R&D[271](index=271&type=chunk) Cash, Investments, and Working Capital (US thousands) | Metric | December 31, 2019 | December 31, 2018 | | :---------------- | :---------------- | :---------------- | | Cash and cash equivalents | $79,842 | $15,299 | | Investments | $17,758 | $440 | | **Total** | **$97,600** | **$15,739** | | Working capital | $93,227 | $13,697 | - Cash, cash equivalents, and investments are believed to be sufficient for at least 12 months from the financial statements' issuance date, but additional capital will be needed[274](index=274&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) Cash Flows Summary (US thousands) | Activity | 2019 | 2018 | | :------------------------------------------ | :---------- | :---------- | | Net cash provided by (used in): Operating activities | $(21,558) | $(23,207) | | Investing activities | $(17,370) | $12 | | Financing activities | $103,448 | $27,871 | | Effect of exchange rates changes | $23 | $(8) | | Net increase in cash and cash equivalents | $64,543 | $4,668 | - In 2019, Aptose raised approximately **$88.2 million** net from two public offerings and **$14.4 million** from Aspire Capital share purchase agreements[281](index=281&type=chunk)[354](index=354&type=chunk) Contractual Obligations (US thousands) | Obligation | Less than 1 year | 1 – 3 years | 3 – 5 years | Greater than 5 years | Total | | :--------------- | :--------------- | :---------- | :---------- | :------------------- | :------ | | Operating leases | $534 | $1,008 | $119 | $— | $1,661 | - The company has future development and regulatory milestone obligations totaling **$60 million** for CG-806 (excluding Korea and China) and **$26 million** for CG-806 in China, plus royalties on sales[294](index=294&type=chunk)[295](index=295&type=chunk) [Results of Operations](index=55&type=section&id=RESULTS%20OF%20OPERATIONS) Aptose's net loss decreased in 2019 due to lower license fees and stock-based compensation, despite increased program expenditures Summary of Results of Operations (US thousands) | Metric | Year ended 2019 | Year ended 2018 | | :--------------------------------------- | :-------------- | :-------------- | | Revenues | $— | $— | | Research and development expenses | 16,835 | 18,733 | | General and administrative expenses | 10,022 | 10,374 | | Net finance income | 580 | 239 | | Net loss | $(26,277) | $(28,868) | | Unrealized gain on securities available-for-sale | 18 | — | | Total comprehensive loss | $(26,259) | $(28,868) | | Basic and diluted loss per common share | $(0.52) | $(0.86) | - Net loss decreased by **$2.6 million** in 2019 compared to 2018, primarily due to a **$5.0 million** decline in CG-806 license fees and a **$2.0 million** decrease in stock option compensation, partially offset by a **$3.7 million** increase in CG-806 and APTO-253 development program expenditures[296](index=296&type=chunk) - Research and development expenses decreased by **$1.9 million** in 2019 to **$16.8 million**, mainly due to the absence of **$5.0 million** in CG-806 license fees paid in 2018, offset by a **$2.4 million** increase in CG-806 program costs and a **$1.6 million** increase in personnel expenses[297](index=297&type=chunk)[298](index=298&type=chunk)[300](index=300&type=chunk) - General and administrative expenses decreased by **$352 thousand** in 2019 to **$10.0 million**, primarily due to a **$1.4 million** decrease in stock-based compensation, partially offset by a **$1.0 million** increase in other general and administrative costs[303](index=303&type=chunk)[304](index=304&type=chunk) [Critical Accounting Policies and Estimates](index=57&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) Management's critical accounting policies and estimates include assessing going concern, contingent liabilities, tax accounts, and share-based compensation - Management's critical accounting policies and estimates include assessing the ability to continue as a going concern, valuation of contingent liabilities, valuation of tax accounts (deferred tax assets and valuation allowances), and assumptions for share-based compensation[306](index=306&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - Effective January 1, 2019, Aptose adopted FASB standard ASU No. 2016-02, 'Leases (Topic 842)', recognizing right-of-use assets and lease liabilities for operating leases with terms over twelve months[312](index=312&type=chunk)[361](index=361&type=chunk) - Upon adoption of Topic 842, the company recorded a right-of-use asset of approximately **$1.57 million** and a lease liability of approximately **$1.65 million**[313](index=313&type=chunk)[362](index=362&type=chunk) - As of March 10, 2020, Aptose had **76,269,806 Common Shares** issued and outstanding, with an additional **11,597,968 shares** issuable from stock options and restricted share units[314](index=314&type=chunk) [ITEM 7A. Market Risk Disclosures](index=59&type=section&id=ITEM%207A.%20QUALITATIVE%20AND%20QUANTITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Aptose, as a smaller reporting company, is exempt from market risk disclosure requirements - Aptose, as a smaller reporting company, is exempt from providing qualitative and quantitative disclosures about market risk under SEC rules and regulations[315](index=315&type=chunk) [ITEM 8. Financial Statements and Supplementary Data](index=59&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) Required financial statements and supplementary data are provided in the Exhibits section of this Annual Report - The financial statements required by this item are included in the Exhibits to this Annual Report on Form 10-K[315](index=315&type=chunk) [ITEM 9. Changes in and Disagreements with Accountants](index=59&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) There are no changes in or disagreements with accountants on accounting and financial disclosure to report [ITEM 9A. Controls and Procedures](index=60&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Aptose's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with an exemption from auditor attestation - Aptose's management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of December 31, 2019[317](index=317&type=chunk) - Internal control over financial reporting was assessed as effective based on the COSO 2013 Framework[320](index=320&type=chunk) - As an 'emerging growth company', Aptose is exempt from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act[320](index=320&type=chunk) [Changes in Internal Control Over Financial Reporting](index=60&type=section&id=CHANGES%20IN%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) There were no material changes in Aptose's internal control over financial reporting during the fiscal quarter ended December 31, 2019 - There were no material changes in Aptose's internal control over financial reporting during the fiscal quarter ended December 31, 2019[321](index=321&type=chunk) [ITEM 9B. Other Information](index=60&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) There is no other information to report under this item [PART III. Directors and Executive Officers](index=60&type=section&id=PART%20III.) This part provides information on the company's directors, executive officers, and corporate governance matters [ITEM 10. Directors, Executive Officers and Corporate Governance](index=60&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Director, executive officer, and corporate governance information is incorporated by reference from the 2020 Proxy Statement, including the Code of Business Conduct - Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the 2020 Annual Meeting of Shareholders[324](index=324&type=chunk) - Aptose has adopted a Code of Business Conduct and Ethics, available on its website, which applies to directors, officers, and employees[324](index=324&type=chunk) [ITEM 11. Executive Compensation](index=61&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Executive compensation details are incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement - Information on executive compensation is incorporated by reference from the Proxy Statement[325](index=325&type=chunk) [ITEM 12. Security Ownership and Related Stockholder Matters](index=61&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Security ownership and related stockholder matters are incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement - Information on security ownership of certain beneficial owners and management, and equity compensation plan information, is incorporated by reference from the Proxy Statement[325](index=325&type=chunk) [ITEM 13. Related Transactions and Director Independence](index=61&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AN%20DIRECTOR%20INDEPENDENCE) Related transactions and director independence information is incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement - Information on corporate governance (Board independence) and interest of related persons in transactions is incorporated by reference from the Proxy Statement[326](index=326&type=chunk) [ITEM 14. Principal Accounting Fees and Services](index=61&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Principal accounting fees and services information is incorporated by reference from the 2020 Annual Meeting of Shareholders Proxy Statement - Information on audit, audit-related, tax, and other fees, as well as pre-approval policies and procedures, is incorporated by reference from the Proxy Statement[326](index=326&type=chunk) [PART IV. Exhibits and Financial Statement Schedules](index=61&type=section&id=PART%20IV.) This part contains a list of exhibits and financial statement schedules filed as part of the annual report [ITEM 15. Exhibits, Financial Statement Schedules](index=61&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section details the filed financial statements and a comprehensive list of exhibits, including corporate documents and agreements - The report includes audited consolidated financial statements for the years ended December 31, 2019 and 2018, prepared in accordance with US GAAP[237](index=237&type=chunk)[327](index=327&type=chunk) - Financial statements include Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Shareholders' Equity, Statements of Cash Flows, and Notes to Financial Statements[327](index=327&type=chunk) - A comprehensive list of exhibits is provided, covering corporate documents, employment agreements, license agreements (e.g., with CrystalGenomics and Ohm Oncology), and various certifications[328](index=328&type=chunk)[330](index=330&type=chunk) [ITEM 16. Form 10-K Summary](index=64&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) There is no Form 10-K summary provided in this section [Signatures](index=64&type=section&id=SIGNATURES) This section contains the signatures of the company's directors and executive officers, certifying the report's compliance [Signatures of Directors and Officers](index=64&type=section&id=Signatures%20of%20Directors%20and%20Officers) The report is signed by the Board of Directors and executive officers, certifying compliance with Securities Act and Exchange Act requirements - The report is signed by the Board of Directors and executive officers, including William G. Rice (President, CEO, and Chairman) and Gregory K. Chow (SVP and CFO)[333](index=333&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk) - Signatures confirm compliance with the requirements of the Securities Act and the Securities Exchange Act of 1934, dated March 10, 2020[334](index=334&type=chunk)[335](index=335&type=chunk) [Consolidated Financial Statements](index=66&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's audited consolidated financial statements and related notes for the reporting period [Report of Independent Registered Public Accounting Firm](index=66&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued an unqualified opinion on Aptose's 2019 and 2018 consolidated financial statements, prepared under U.S. GAAP, noting a change in lease accounting - KPMG LLP issued an unqualified opinion on Aptose Biosciences Inc.'s consolidated financial statements for the years ended December 31, 2019 and 2018[336](index=336&type=chunk) - The financial statements were prepared in conformity with U.S. generally accepted accounting principles (GAAP)[336](index=336&type=chunk) - The company changed its method of accounting for leases on January 1, 2019, due to the adoption of FASB ASU No. 2016-02, Leases (Topic 842)[337](index=337&type=chunk) [Consolidated Statements of Financial Position](index=69&type=section&id=Consolidated%20Statements%20of%20Financial%20Position) Aptose's financial position strengthened in 2019, with total assets growing to **$100.48 million** and shareholders' equity significantly increasing Consolidated Statements of Financial Position (US thousands) | Asset/Liability/Equity | December 31, 2019 | December 31, 2018 | | :--------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $79,842 | $15,299 | | Investments | $17,758 | $440 | | Total current assets | $98,766 | $16,486 | | Right-of-use assets, operating leases | $1,376 | $- | | **Total assets** | **$100,476** | **$16,870** | | Accounts payable | $1,960 | $1,315 | | Accrued liabilities | $3,058 | $1,474 | | Current portion of lease liability | $521 | $- | | Total current liabilities | $5,539 | $2,789 | | Lease liability, operating leases | $1,011 | $- | | **Total liabilities** | **$6,550** | **$2,789** | | Share capital | $365,490 | $261,072 | | Additional paid-in capital | $34,649 | $32,963 | | Deficit | $(301,915) | $(275,638) | | **Total shareholders' equity** | **$93,926** | **$14,081** | | **Total liabilities and shareholders' equity** | **$100,476** | **$16,870** | - Total assets increased significantly by **494%** from **$16.87 million** in 2018 to **$100.48 million** in 2019[343](index=343&type=chunk) - Shareholders' equity increased by **567%** from **$14.08 million** in 2018 to **$93.93 million** in 2019[343](index=343&type=chunk) [Consolidated Statements of Loss and Comprehensive Loss](index=70&type=section&id=Consolidated%20Statements%20of%20Loss%20and%20Comprehensive%20Loss) Aptose reported a **$26.28 million** net loss in 2019, an improvement from 2018, with basic and diluted loss per share improving to **$(0.52)** Consolidated Statements of Loss and Comprehensive Loss (US thousands) | Metric | 2019 | 2018 | | :------------------------------------------------------------------ | :---------- | :---------- | | Revenue | - | - | | Research and development expenses | 16,835 | 18,733 | | General and administrative expenses | 10,022 | 10,374 | | Operating expenses | 26,857 | 29,107 | | Interest income | 574 | 283 | | Foreign exchange gain/(loss) | 6 | (44) | | Total other income | 580 | 239 | | **Net loss** | **(26,277)**| **(28,868)**| | Unrealized gain on securities available-for-sale | 18 | - | | **Total comprehensive loss** | **(26,259)**| **(28,868)**| | Basic and diluted loss per common share | $(0.52) | $(0.86) | | Weighted average number of common shares outstanding (in thousands) | 50,160 | 33,391 | - Net loss decreased by **$2.59 million (9%)** from 2018 to 2019[345](index=345&type=chunk) - Basic and diluted loss per common share improved by **$0.34 (39.5%)** from 2018 to 2019[345](index=345&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=71&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Aptose's shareholders' equity significantly increased to **$93.93 million** in 2019, driven by substantial equity issuances from public offerings Consolidated Statements of Changes in Shareholders' Equity (US thousands) | Metric | December 31, 2018 | December 31, 2019 | | :------------------------------------------------------------------ | :---------------- | :---------------- | | Balance, December 31 | $14,081 | $14,081 | | Common shares issued pursuant to December 2019 public offering | - | $68,588 | | Common shares issued pursuant to June 2019 public offering | - | $19,594 | | Common shares issued pursuant to 2019 share purchase agreement | - | $4,730 | | Common shares issued under the 2018 ATM | - | $178 | | Common shares issued pursuant to 2018 share purchase agreement | - | $10,000 | | Common shares issued upon exercise of stock options | - | $718 | | Common shares issued on redemption of restricted share units | - | $- | | Stock-based compensation | - | $2,296 | | Other comprehensive gain | - | $18 | | Net loss | - | $(26,277) | | **Balance, December 31, 2019** | **$14,081** | **$93,926** | | Balance, December 31, 2017 | $10,202 | - | | Common shares issued under the 2018 ATM | $10,710 | - |\ | Common shares issued pursuant to 2017 share purchase agreement | $14,995 | - | | Common shares issued pursuant to 2018 purchase agreement | $2,526 | - | | Shares issued on redemption of restricted share units | $- | - | | Common shares issued upon exercise of stock options | $240 | - | | Stock-based compensation | $4,276 | - | | Net loss | $(28,868) | - | | **Balance, December 31, 2018** | **$14,081** | - | - Total shares issued and outstanding increased from **38,161,808** at December 31, 2018, to **76,108,031** at December 31, 2019[347](index=347&type=chunk) - The company raised significant capital through public offerings in June and December 2019, contributing **$19.6 million** and **$68.6 million** (net of costs) respectively to share capital[347](index=347&type=chunk) [Consolidated Statements of Cash Flows](index=72&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Aptose's cash and cash equivalents increased by **$64.54 million** in 2019, reaching **$79.84 million**, primarily from **$103.45 million** in financing activities Consolidated Statements of Cash Flows (US thousands) | Activity | 2019 | 2018 | | :-------------------------------------------------------------------- | :---------- | :---------- | | Net loss for the year | $(26,277) | $(28,868) | | Cash used in operating activities | $(21,558) | $(23,207) | | Cash provided by financing activities | $103,448 | $27,871 | | Cash provided by (used in) investing activities | $(17,370) | $12 | | Effect of exchange rate fluctuations on cash and cash equivalents held | $23 | $(8) | | Increase in cash and cash equivalents | $64,543 | $4,668 | | Cash and cash equivalents, beginning of year | $15,299 | $10,631 | | **Cash and cash equivalents, end of year** | **$79,842** | **$15,299** | - Cash provided by financing activities increased by **$75.58 million (271%)** in 2019 compared to 2018[349](index=349&type=chunk) - Cash used in investing activities shifted from a slight inflow of **$12 thousand** in 2018 to an outflow of **$17.37 million** in 2019, mainly due to net purchases of investments[349](index=349&type=chunk) [Notes to Consolidated Financial Statements](index=73&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail Aptose's reporting entity, accounting policies, reliance on equity financing, new lease accounting, and breakdowns of key financial statement items - Aptose is a clinical-stage biotechnology company focused on oncology, with CG-806 and APTO-253 in clinical development[351](index=351&type=chunk)[352](index=352&type=chunk) - The company finances operations primarily through equity financing and expects continued negative cash flow until regulatory approval and commercialization of products[353](index=353&type=chunk)[355](index=355&type=chunk) - Significant accounting policies include the basis of consolidation, US GAAP presentation, and critical judgments/estimates for contingent liabilities, tax accounts, and share-based compensation[358](index=358&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk)[368](index=368&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk) - The adoption of FASB Topic 842 on January 1, 2019, resulted in the recognition of right-of-use assets and lease liabilities for operating leases[361](index=361&type=chunk)[362](index=362&type=chunk) - In 2019, Aptose completed two public offerings, raising approximately **$88.18 million** net, and issued shares under Aspire Capital agreements, significantly increasing share capital[396](index=396&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk) - The company has substantial deferred tax assets, primarily from net operating losses and R&D expenditures, but a full valuation allowance is maintained due to a history of losses[425](index=425&type=chunk) [1. Reporting Entity](index=73&type=section&id=1.%20Reporting%20entity) Aptose Biosciences Inc. is a clinical-stage biotechnology company focused on personalized oncology therapies, financed primarily through equity - Aptose Biosciences Inc. is a clinical-stage biotechnology company focused on personalized oncology therapies, with executive offices in San Diego, California, and corporate offices in Toronto, Canada[351](index=351&type=chunk) - The company's clinical-stage programs include CG-806 (FLT3/BTK inhibitor for CLL/SLL/NHL and planned for AML/MDS) and APTO-253 (MYC inhibitor for R/R blood cancers)[352](index=352&type=chunk) - Operations are financed primarily through equity financing, with significant capital raised in 2019, and negative cash flow is expected to continue until product commercialization[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk) [2. Significant Accounting Policies](index=73&type=section&id=2.%20Significant%20accounting%20policies) Aptose's financial statements are prepared under US GAAP, with key policies covering cash, investments, property, R&D, and the adoption of new lease accounting standards - Consolidated financial statements include subsidiaries and are prepared in conformity with US GAAP and SEC rules[358](index=358&type=chunk) - Key accounting policies cover cash and cash equivalents (short-term, highly liquid investments), investments (available-for-sale securities at fair value), concentration of risk, property and equipment (measured at cost, depreciated straight-line), and expensing R&D costs as incurred[363](index=363&type=chunk)[364](index=364&type=chunk)[365](index=365&type=chunk)[366](index=366&type=chunk)[368](index=368&type=chunk) - The company adopted FASB ASU No. 2016-02, 'Leases (Topic 842)', on January 1, 2019, recognizing right-of-use assets and lease liabilities for operating leases[361](index=361&type=chunk)[362](index=362&type=chunk) - Stock-based compensation is measured using the fair value method (Black-Scholes model for options, grant-date fair value for RSUs) and expensed over the vesting period[371](index=371&type=chunk)[372](index=372&type=chunk)[373](index=373&type=chunk) [3. Cash and Cash Equivalents](index=76&type=section&id=3.%20Cash%20and%20cash%20equivalents) Cash and cash equivalents significantly increased by **$64.54 million** (422%) from 2018 to 2019, reaching **$79.84 million** Cash and Cash Equivalents (US thousands) | Category | December 31, 2019 | December 31, 2018 | | :-------------------------------------------- | :---------------- | :---------------- | | Cash | $1,640 | $621 | | Deposits in high interest savings and term deposits | $78,202 | $14,678 | | **Total** | **$79,842** | **$15,299** | - Cash and cash equivalents increased by **$64.54 million (422%)** from 2018 to 2019[378](index=378&type=chunk) [4. Property and Equipment](index=76&type=section&id=4.%20Property%20and%20equipment) The net book value of property and equipment decreased by **$50 thousand** (13%) from 2018 to 2019 Property and Equipment Net Book Value (US thousands) | Category | December 31, 2019 | December 31, 2018 | | :------------------- | :---------------- | :---------------- | | Laboratory equipment | $25 | $47 | | Computer hardware | $62 | $40 | | Computer software | $94 | $142 | | Office furniture | $65 | $54 | | Leasehold improvements | $88 | $101 | | **Total** | **$334** | **$384** | - Net book value of property and equipment decreased by **$50 thousand (13%)** from 2018 to 2019[379](index=379&type=chunk)[380](index=380&type=chunk) [5. Right-of-Use Assets, Operating Leases](index=77&type=section&id=5.%20Right%20of-use%20assets%2C%20operating%20leases) Aptose recognized **$1.57 million** in right-of-use assets upon adopting Topic 842 on January 1, 2019 Right-of-Use Assets (US thousands) | Metric | December 31, 2019 | | :-------------------------------------- | :---------------- | | Right-of-use assets, January 1, 2019 | $1,570 | | Additions to right-of-use assets | $267 | | Right-of-use assets, December 31, 2019 | $1,837 | | Accumulated amortization | $(461) | | **Right-of-use assets, NBV** | **$1,376** | - The company recognized **$1.57 million** in right-of-use assets upon adopting Topic 842 on January 1, 2019[381](index=381&type=chunk) [6. Investments](index=77&type=section&id=6.%20Investments) Total investments significantly increased from **$440 thousand** in 2018 to **$17.76 million** in 2019, primarily in guaranteed investment certificates Investments by Type (US thousands) | Category | Cost (2019) | Unrealized gain/(loss) (2019) | Market value (2019) | Cost (2018) | Unrealized gain (loss) (2018) | Market value (2018) | | :------------------------------- | :---------- | :---------------------------- | :------------------ | :---------- | :---------------------------- | :------------------ | | Guaranteed investment certificate(s) | $12,008 | $18 | $12,026 | $440 | $- | $440 | | Commercial notes | $3,736 | $- | $3,736 | - | - | - | | Canadian promissory note | $1,996 | $- | $1,996 | - | - | - | | **Total** | **$17,740** | **$18** | **$17,758** | **$440** | **$-** | **$440** | - Total investments increased significantly from **$440 thousand** in 2018 to **$17.76 million** in 2019, primarily in guaranteed investment certificates, commercial notes, and Canadian promissory notes[382](index=382&type=chunk)[383](index=383&type=chunk) [7. Fair Value Measurements and Financial Instruments](index=77&type=section&id=7.%20Fair%20value%20measurements%20and%20financial%20instruments) Aptose measures financial assets and liabilities at fair value, classifying inputs into a three-level hierarchy, with all assets measured at fair value classified as Level 2 - Aptose measures financial assets and liabilities at fair value, classifying inputs into a three-level hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs other than Level 1; Level 3: unobservable inputs)[369](index=369&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk) Assets Measured at Fair Value (US thousands) | Assets | December 31, 2019 | Level 1 | Level 2 | Level 3 | | :------------------------------------------------------------------ | :---------------- | :------ | :-------- | :------ | | High interest savings account | $2,989 | $- | $2,989 | $- | | Commercial notes | $6,235 | $- | $6,235 | $- | | Canadian provincial promissory notes | $5,493 | $- | $5,493 | $- | | Guaranteed investment certificates, issued by a Canadian financial institution | $81,243 | $- | $81,243 | $- | | **Total** | **$95,960** | **$-** | **$95,960** | **$-** | | | | | | | | Assets | December 31, 2018 | Level 1 | Level 2 | Level 3 | | High interest savings account | $496 | $- | $496 | $- | | United States treasury bills | $3,989 | $- | $3,989 | $- | | Canadian provincial promissory notes | $5,991 | $- | $5,991 | $- | | Guaranteed investment certificates, Royal Bank of Canada | $4,642 | $- | $4,642 | $- | | **Total** | **$15,118** | **$-** | **$15,118** | **$-** | - All assets measured at fair value are classified as Level 2, indicating their valuation is based on observable market data other than quoted prices in active markets[387](index=387&type=chunk) [8. Accrued Liabilities](index=78&type=section&id=8.%20Accrued%20liabilities) Total accrued liabilities increased by **$1.58 million** (107%) from 2018 to 2019, primarily due to higher personnel and R&D expenses Accrued Liabilities (US thousands) | Category | December 31, 2019 | December 31, 2018 | | :---------------------------------- | :---------------- | :---------------- | | Accrued personnel related costs | $1,739 | $955 | | Accrued research and development expenses | $1,062 | $257 | | Other accrued expenses | $257 | $262 | | **Total** | **$3,058** | **$1,474** | - Total accrued liabilities increased by **$1.58 million (107%)** from 2018 to 2019, primarily due to higher accrued personnel-related costs and R&D expenses[388](index=388&type=chunk) [9. Lease Liability](index=78&type=section&id=9.%20Lease%20liability) Aptose leases office and lab spaces in San Diego and Toronto, with lease terms extending to 2022 and 2023, and a total lease liability of **$1.53 million** - Aptose leases office and lab spaces in San Diego, California, and office space in Toronto, Ontario, Canada, with lease terms extending to 2022 and 2023[389](index=389&type=chunk) Minimum Undiscounted Operating Lease Payments (US thousands) | Years ending December 31, | Amount | | :------------------------ | :----- | | 2020 | $534 | | 2021 | $545 | | 2022 | $463 | | 2023 | $119 | | Thereafter | $- | | **Total** | **$1,661** | Lease Liability Details (December 31, 2019) | Metric | Value | | :-------------------------------------- | :-------- | | Weighted-average remaining term (years) | 3.3 | | Weighted-average discount rate | 5.43% | | Lease liability, current portion | $521 | | Lease liability, long term portion | $1,011 | | **Lease liability, total** | **$1,532**| [10. Share Capital](index=80&type=section&id=10.%20Share%20capital) Aptose significantly increased its share capital in 2019 through public offerings and share purchase agreements, raising over **$100 million** in gross proceeds - Aptose has authorized an unlimited number of common voting shares[395](index=395&type=chunk) - In December 2019, the company completed a public offering of **18,543,750 common shares** at **$4.00/share**, generating **$68.59 million** net proceeds[396](index=396&type=chunk) - In June 2019, another public offering of **11,500,000 common shares** at **$1.85/share** generated **$19.59 million** net proceeds[397](index=397&type=chunk) - The company also issued **1,971,428 common shares** under the 2019 Aspire Purchase Agreement for **$4.37 million** net proceeds and **5,502,433 common shares** under the 2018 Aspire Purchase Agreement for **$10 million** net proceeds in 2019[398](index=398&type=chunk)[399](index=399&type=chunk) Loss Per Common Share (US thousands) | Metric | 2019 | 2018 | | :---------------------------------------------- | :---------- | :---------- | | Net loss | $(26,277) | $(28,868) | | Weighted-average common shares – basic and diluted | 50,160 | 33,391 | | Net loss per share – basic and diluted | $(0.52) | $(0.86) | [11. Stock-Based Compensation](index=81&type=section&id=11.%20Stock-based%20compensation) Aptose's stock option plan allows grants to directors, officers, employees, and consultants, with **$1.38 million** in unrecognized compensation cost as of December 31, 2019 - Aptose's stock option plan allows grants to directors, officers, employees, and consultants, with options vesting at various rates (immediate to four years) and a 10-year term[404](index=404&type=chunk) Stock Option Activity Summary (in thousands) | Metric | December 31, 2019 | December 31, 2018 | | :----------------------------------- | :---------------- | :---------------- | | Outstanding, beginning of year | 4,489 | 2,344 | | Granted | 2,160 | 2,320 | | Exercised | (312) | (114) | | Expired | (67) | (51) | | Forfeited | (329) | (10) | | **Outstanding, end of year** | **5,941** | **4,489** | | Weighted average exercise price | $2.84 | $3.11 | | Weighted average remaining contractual life (years) | 7.6 | - | | Aggregate Intrinsic Value | $16,866,623 | - | - As of December 31, 2019, there was **$1.38 million** of unrecognized compensation cost for non-vested stock options, expected to be recognized over **1.77 years**[407](index=407&type=chunk) Stock-Based Compensation Expense (US thousands) | Category | 2019 | 2018 | | :--------------------------- | :-------- | :-------- | | Research and development | $474 | $1,026 | | General and administrative | $1,822 | $3,250 | | **Total** | **$2,296**| **$4,276**| [12. Related Party Transactions](index=83&type=section&id=12.%20Related%20party%20transactions) Aptose utilizes Moores Cancer Center at UCSD for pharmacology lab services, with **$223 thousand** in related R&D expenses in 2019 - Aptose utilizes Moores Cancer Center at UCSD for pharmacology lab services, overseen by Dr. Stephen Howell, Acting Chief Medical Officer of Aptose and a Professor at UCSD[414](index=414&type=chunk) - The company recorded **$223 thousand** in R&D expenses related to this agreement in 2019, down from **$279 thousand** in 2018[415](index=415&type=chunk) [13. Collaborative Agreements](index=84&type=section&id=13.%20Collaborative%20agreements) Aptose has license agreements for CG-806 and APL-581, with potential development and regulatory milestones totaling over **$180 million** - Aptose has license agreements with CrystalGenomics for CG-806, incurring potential development milestones of **$16 million** (ex-Korea/China) and **$6 million** (China), and regulatory milestones of **$44 million** (ex-Korea/China) and **$20

Aptose Biosciences, Inc. (NASDAQ:APTO) Q3 2019 Earnings Conference Call November 5, 2019 5:00 PM ET Company Participants Susan Pietropaolo - SMP Communications William Rice - Chairman, President & CEO Jotin Marango - SVP & Chief Business Officer Gregory Chow - EVP, Corporate Secretary & CFO Conference Call Participants Gregory Renza - RBC Capital Markets John Newman - Canaccord Genuity Corp. Kalpit Patel - Oppenheimer Naureen Quibria - Maxim Group Matthew Cross - JonesTrading Institutional Services Operator ...

[PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section provides the interim financial statements and management's analysis of the company's financial performance and position [Financial Statements](index=4&type=section&id=ITEM%201%20%E2%80%93%20FINANCIAL%20STATEMENTS) This section details the company's interim financial position, comprehensive loss, equity changes, and cash flows for the reported periods [Condensed Consolidated Interim Statements of Financial Position](index=4&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Financial%20Position) Total assets nearly doubled to $32.46 million by September 2019, driven by increased cash and investments from financing activities Condensed Consolidated Interim Statements of Financial Position (in thousands of US dollars) | | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total current assets** | $30,608 | $16,486 | | **Total assets** | $32,460 | $16,870 | | **Total current liabilities** | $3,908 | $2,789 | | **Total liabilities** | $5,032 | $2,789 | | **Total shareholders' equity** | $27,428 | $14,081 | [Condensed Consolidated Interim Statement of Loss and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Interim%20Statement%20of%20Loss%20and%20Comprehensive%20Loss) Net loss decreased to $18.57 million for the nine months ended September 2019, primarily due to lower R&D and G&A expenses Statement of Loss and Comprehensive Loss Highlights (in thousands of US dollars, except per share data) | | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :--- | :--- | :--- | | **Revenue** | $0 | $0 | | **Research and development** | $11,582 | $14,549 | | **General and administrative** | $7,391 | $8,233 | | **Operating Expenses** | $18,973 | $22,782 | | **Net loss** | $(18,568) | $(22,607) | | **Basic and diluted loss per common share** | $(0.39) | $(0.71) | [Condensed Consolidated Interim Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity significantly increased to $27.43 million, driven by public offerings and share purchase agreements, offset by net loss - Total shareholders' equity increased to **$27,428 thousand** at September 30, 2019, from **$14,081 thousand** at December 31, 2018[8](index=8&type=chunk) - Key drivers of the equity increase include proceeds from a public offering (**$19.6 million**) and a share purchase agreement (**$10.0 million**), which were partially offset by the period's net loss (**$18.6 million**)[8](index=8&type=chunk) [Condensed Consolidated Interim Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Cash%20Flows) Cash and equivalents increased by $5.39 million, with financing activities providing $29.81 million, offsetting operating and investing outflows Cash Flow Summary (in thousands of US dollars) | | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :--- | :--- | :--- | | **Cash used in operating activities** | $(15,327) | $(17,705) | | **Cash provided by (used in) investing activities** | $(9,092) | $98 | | **Cash provided by financing activities** | $29,808 | $22,032 | | **Increase in cash and cash equivalents** | $5,387 | $4,425 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%202%20-%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management provides an overview of clinical programs, financial condition, and operational results, highlighting progress and funding into 2021 [Overview and Program Updates](index=19&type=section&id=Overview%20and%20Program%20Updates) Aptose advances two oncology drug candidates, CG-806 and APTO-253, through Phase 1 trials, securing global rights and patents - CG-806 is in a Phase 1a/b study for B-cell malignancies (CLL/SLL/NHL), with patient enrollment completed for the first two dose levels and escalation to the third dose level (450mg BID) approved[58](index=58&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - APTO-253 is in a Phase 1b trial for R/R AML and high-risk MDS. The trial has successfully completed the first three dose cohorts, and the company plans to begin enrollment for the fourth cohort at **100mg/m2**[61](index=61&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - The company secured worldwide rights to CG-806 (excluding Korea) and has obtained patents in the U.S., Japan, Europe, and Australia, providing protection until **late 2033**[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - The clinical hold on APTO-253, related to manufacturing issues, was lifted by the FDA in **June 2018**, allowing the Phase 1b trial to be re-initiated[83](index=83&type=chunk)[84](index=84&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds $30.2 million in cash and investments, with financing activities providing $29.8 million, sufficient to fund operations into 2021 Liquidity Position (in thousands) | | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,686 | $15,299 | | Investments | $9,528 | $440 | | **Total** | **$30,214** | **$15,739** | | **Working capital** | **$26,700** | **$13,697** | - The company believes its current cash, investments, and available financing facilities will be sufficient to fund planned operations into **2021**[100](index=100&type=chunk) - In **June 2019**, the company completed a public offering, raising gross proceeds of approximately **$21.3 million**[113](index=113&type=chunk) - The company established a new **$40 million** At-The-Market (ATM) facility in **May 2019** and a new **$20 million** share purchase agreement with Aspire Capital[97](index=97&type=chunk)[98](index=98&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Net loss decreased to $18.6 million due to the absence of a 2018 license fee and lower stock-based compensation, despite increased program costs Net Loss Summary (in thousands) | | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :--- | :--- | :--- | | Research and development expenses | $11,582 | $14,549 | | General and administrative expenses | $7,391 | $8,233 | | **Net loss** | **$(18,568)** | **$(22,607)** | Research and Development Expenses Breakdown (in thousands) | | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :--- | :--- | :--- | | License fees – CG-806 | $0 | $5,000 | | Program costs – CG-806 | $5,287 | $4,164 | | Program costs – APTO-253 | $3,296 | $3,085 | | Personnel related expenses | $2,666 | $1,448 | | Stock-based compensation | $309 | $826 | | **Total R&D Expenses** | **$11,582** | **$14,549** | General and Administrative Expenses Breakdown (in thousands) | | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :--- | :--- | :--- | | G&A, excluding non-cash items | $5,515 | $4,726 | | Aspire share purchase agreement fees | $360 | $600 | | Stock-based compensation | $1,425 | $2,869 | | **Total G&A Expenses** | **$7,391** | **$8,233** | [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) The company adopted new lease accounting standards, recognizing a right-of-use asset and lease liability, with no material impact on the statement of loss - Effective **January 1, 2019**, the company adopted the new lease accounting standard, ASU No. 2016-02 (Topic 842)[135](index=135&type=chunk) - Upon adoption, the company recorded a right-of-use asset of approximately **$1.570 million** and a lease liability of approximately **$1.647 million**[136](index=136&type=chunk) [Qualitative and Quantitative Disclosures About Market Risk](index=31&type=section&id=ITEM%203.%20QUALITATIVE%20AND%20QUANTITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exempt from providing market risk disclosures as it qualifies as a smaller reporting company - The company is not required to provide this information as it qualifies as a smaller reporting company[140](index=140&type=chunk) [Controls and Procedures](index=31&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal controls - Management concluded that as of **September 30, 2019**, the company's disclosure controls and procedures were effective[141](index=141&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[144](index=144&type=chunk) [PART II—OTHER INFORMATION](index=33&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section provides information on legal proceedings, risk factors, and exhibits filed with the report [Legal Proceedings](index=33&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings - The company is not currently party to any material legal proceedings[146](index=146&type=chunk) [Risk Factors](index=33&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company is exempt from providing risk factor disclosures as it qualifies as a smaller reporting company - The company is not required to provide this information as it qualifies as a smaller reporting company[147](index=147&type=chunk) [Exhibits](index=33&type=section&id=ITEM%206.%20%E2%80%93%20EXHIBITS) This section lists the exhibits accompanying the quarterly report, including required Sarbanes-Oxley certifications - The report includes certifications from principal officers as required by the Sarbanes-Oxley Act of **2002**[148](index=148&type=chunk)