REBUS HOLDINGS, INC. We have prepared our unaudited condensed consolidated financial statements on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred losses from operations since inception, we have a working capital deficit of$5.9million and we have an accumulated deficit of$66 million 66,248 as ofJune 30, 2022 . We anticipate incurring additional losses for the foreseeable future until such time, if ever, that we can generate significant sales from our therapeutic product candidates which are currently in development or we enter into cash flow positive business development transactions.
To date, we have generated no sales or revenues, have incurred significant losses and expect to incur significant additional losses as we advance our product candidates through development. Consequently, our operations are subject to all the risks inherent in the establishment of a pre-revenue business enterprise as well as those risks associated with a company engaged in the research and development of pharmaceutical compounds.
Our cash balances atJune 30, 2022 were approximately$265,000 , representing 100% of our total assets. Based on our current expected level of operating expenditures we expect to be able to fund our operations into the fourth quarter of 2022. We will require additional cash to fund and continue our operations beyond that point. This period could be shortened if there are any unanticipated increases in planned spending on development programs or other unforeseen events. We anticipate raising additional funds through public or private sales of debt or equity securities, or some combination thereof. There is no assurance that any such financing will be available when needed in order to allow us to continue our operations, or if available, on terms favorable or acceptable
to
us.
In the event additional financing is not obtained, we may pursue cost cutting
measures as well as explore the sale of assets to generate additional funds. If
we are required to significantly reduce operating expenses and delay, reduce the
scope of, or eliminate any of our development programs or clinical trials, these
events could have a material adverse effect on our business, results of
operations, and financial condition. These factors raise substantial doubt about
our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should we be unable to continue as a going
concern.
Our current cash level raises substantial doubt about our ability to continue as
a going concern past the fourth quarter of 2022. If we do not obtain additional
funds by such time, we may no longer be able to continue as a going concern and
will cease operation which means that our shareholders will lose their entire
investment.
6
NOTE 3 - SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited. The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States ("GAAP") and pursuant to the rules and regulations of theSecurities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
These interim consolidated financial statements as of and for the three and six months endedJune 30, 2022 and 2021 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for the three and six months endedJune 30, 2022 are not necessarily indicative of the results to be expected for the year endingDecember 31, 2022 or for any future period. All references toJune 30, 2022 and 2021 in these footnotes are unaudited. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements and the notes thereto for the year endedDecember 31, 2021 , included in the Company's annual report on Form 10-K filed with theSEC onMarch 31, 2022 . The consolidated balance sheet as ofDecember 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all disclosures required by the accounting principles generally accepted in the
United States of America . Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of the parent company,Rebus Holdings, Inc. , (fkaInspyr Therapeutics, Inc. ) and its wholly-owned subsidiaries,Inspyr Therapeutics, Inc. ,Lewis & Clark Pharmaceuticals, Inc. andRidgeway Therapeutics, Inc. (aCalifornia corporation). All significant intercompany accounts and transactions have been eliminated.
Reverse Stock Split and Increase in Authorized Shares
The one for seventy-five (1-for-75) Reverse Stock Split became effective with the Secretary ofState of Delaware as of4:59 p.m. Eastern Time onOctober 5, 2021 , and the Company began trading on a post Reverse Stock Split basis at the market open onOctober 12, 2021 . As a result of the Reverse Stock Split, each of the holders of the Company's Common Stock received one (1) new share of Common Stock for every seventy-five (75) shares such shareholder held immediately prior. No fractional shares were issued as a result of the Reverse Stock Split. Any fractional shares that would have otherwise resulted from the Reverse Stock Split will be rounded up to the next whole number of shares. The Reverse Stock Split also affected the Company's outstanding stock options, warrants and other exercisable or convertible instruments and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the Reverse Stock Split ratio. All share and per share data has been retroactively adjusted in the accompanying consolidated financial statements and footnotes for all periods presented to reflect the effects of the Reverse Stock Split. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Significant estimates include the fair value of derivative instruments, stock-based compensation, recognition of clinical trial costs and other accrued liabilities. Actual results may differ from those estimates.
Research and Development
Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for pre-clinical research, toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs associated therewith.
We incurred research and development expenses of approximately$0.2 million and$0.1 million for the three months endedJune 30, 2022 and 2021, respectively. We incurred research and development expenses of approximately$0.2 million and$0.1 million for the six months endedJune 30, 2022 and 2021, respectively.
Cash Equivalents
For purposes of the statements of cash flows, we consider all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. We maintain our cash in bank deposit accounts which, at times, may exceed applicable government mandate insurance limits. We have not experienced any losses in our accounts. We did not have any cash equivalents atJune 30, 2022 orDecember 31, 2021 . 7
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may exceed applicable government mandated insurance limits. Cash was$0.3 million and$0.7 million atJune 30, 2022 andDecember 31, 2021 , respectively. As ofJune 30, 2022 andDecember 31, 2021 , there was no cash over the federally insured limit. Income (Loss) per Share Basic income (loss) per share is calculated by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period.
The following potentially dilutive securities have been excluded from the
computations of basic weighted average shares outstanding as of
Schedule of Antidilutive Securities Excluded from
Computation of Earnings Per Share
Six Months Ended
June 30,
2022 2021
Shares underlying options outstanding - 9
Shares underlying warrants outstanding 1 53
Shares underlying convertible notes outstanding 20,339,299 3,022,772
Shares underlying convertible preferred stock outstanding 128,626,878 28,503,372
148,966,178 31,526,206
Diluted loss per share for the three months ended
Diluted loss per share Net income attributable to common shareholders $
17,156
Income attributable to convertible debentures and preferred stock (17,547 ) Expense attributable to convertible debentures and preferred stock
235
Diluted loss attributable to common shareholders $
(156 ) Basic shares outstanding$ 6,919,167 Convertible instruments 31,526,144 Diluted shares outstanding$ 38,445,311 Diluted loss per share$ (0.00 ) Derivative Liability The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company's balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company values its derivative liabilities using the Black-Scholes option valuation model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability
in the statement of operations.
Fair Value of Financial Instruments
Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments with maturities of one year or less when acquired. We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. The derivative liabilities consist of our convertible notes and Series F preferred stock with variable conversion features. The Company uses the Black-Scholes option-pricing model to value its derivative liabilities which incorporate the Company's stock price, volatility,U.S. risk-free interest rate, dividend rate, and estimated life. 8 Fair Value Measurements TheU.S. GAAP Valuation Hierarchy establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company has recorded a derivative liability for its convertible notes and preferred stock with variable conversion features as ofJune 30, 2022 andDecember 31, 2021 . The tables below summarize the fair values of our financial liabilities as ofJune 30, 2022 andDecember 31, 2021 (in thousands): Schedule of fair values of financial liabilities Fair Value at June 30, Fair Value Measurement Using 2022 Level 1 Level 2 Level 3 Convertible notes $ 417 - - $ 417 Preferred stock 1,659 - - 1,659 Derivative liability $ 2,076 $ - $ -$ 2,076 Fair Value at December 31, Fair Value Measurement Using 2021 Level 1 Level 2 Level 3 Convertible notes $ 518 - - $ 518 Preferred stock 606 - - 606 Derivative liability $ 1,124 $ - $ -$ 1,124
The reconciliation of the derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):
Schedule of derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3)
Six Months Ended
June 30,
2022 2021
Balance at beginning of year $ 1,124 $ 6,828 Additions to derivative instruments -
1,354
Reclassification on conversion (507 ) (3,029 ) Loss (gain) on change in fair value of derivative liability 1,459
3,659
Balance at end of year $ 2,076 $ 8,812
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment
date. A valuation allowance is provided when it is more likely than not that
some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income and the reversal of deferred tax liabilities during the period in
which the related temporary difference becomes deductible.
Recent Accounting Pronouncements
There have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by theFinancial Accounting Standards Board (FASB) during the six months endedJune 30, 2022 that are of significance or potential significance to the Company. 9
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
The following table contains additional information for the periods reported (in thousands).
Schedule of additional information of cash flow
Six Months Ended
June 30,
2022 2021Non-cash financial activities: Common stock issued on conversion of notes payable and derivative liability
$ 790 $ 3,696 Debentures converted to common stock 462
2,156
Derivative liability extinguished upon conversion of notes payable 507
3,029
Derivative liability issued -
1,354
Accounts payable paid through issuance of debentures -
100
Accrued director fees forgiven and credited to paid in capital - 336
There was no cash paid for interest and income taxes for the six months ended
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
Schedule of accrued expenses
June 30 , December 31,
2022 2021
Accrued compensation and benefits
233 233
Accrued other 492 445
Total accrued expenses $ 2,051 $ 2,004
NOTE 6 - DERIVATIVE LIABILITY
We account for equity-linked financial instruments, such as our convertible preferred stock, convertible debentures and our common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the respective agreement. Equity-linked financial instruments are accounted for as derivative liabilities, in accordance with ASC Topic 815 - Derivatives and Hedging, if the instrument allows for cash settlement or issuance of a variable number of shares. We classify derivative liabilities on the balance sheet at fair value, and changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent to the initial issuance of the stock warrant. We have issued convertible debentures and preferred stock which contain variable conversion features, anti-dilution protection and other conversion price adjustment provisions. As a result, the Company assessed its outstanding equity-linked financial instruments and concluded that the convertible notes and preferred stock are subject to derivative accounting. The fair value of the conversion feature is classified as a liability in the consolidated financial statements, with the change in fair value during the periods presented recorded in the consolidated statement of losses. During the three months endedJune 30, 2022 and 2021, we recorded expense of approximately$1.1 million and income of approximately$17.5 million , respectively, related to the change in fair value of the derivative liabilities during the periods. During the six months endedJune 30, 2022 and 2021, we recorded expense of approximately$1.5 million and$3.7 million , respectively. For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuations of the derivatives for the six months endedJune 30, 2022 and 2021 are as follows:
Schedule of black scholes valuations of derivatives
For the
Six Months Ended
June 30,
2022 2021
Expected dividends 0 % 0 %
Expected volatility 198% - 260 % 101% - 301 %
Risk free interest rate 0.22% - 2.86 % 0.05% - 0.07 %
Expected term 3 - 21 Months 3 - 12 Months
As of June 30, 2022 and December 31, 2021 , the derivative liability recognized
in the financial statements was approximately $2.1 million and $1.1 million ,
respectively.
10
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company currently does not have any ongoing leases for office space. It has availability to office space on an as needed basis. Its employees work on a remote basis.
There was no rent expense for the three and six months ended
Legal Matters The Company is subject at times to legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. COVID-19 Uncertainty OnMarch 11, 2020 , theWorld Health Organization declared a pandemic related to the rapidly spreading coronavirus (COVID-19) outbreak, which has led to a global health emergency. The extent of the public-health impact of the outbreak is currently unknown and rapidly evolving, and the related health crisis could adversely affect the global economy, resulting in an economic downturn. Any disruption of the Company's facilities or those of our suppliers could likely adversely impact the Company's operations. At this time, there is significant uncertainty relating to the potential effect of the novel coronavirus on our business.
NOTE 8 - CAPITAL STOCK AND STOCKHOLDERS' EQUITY
Preferred Stock As ofJune 30, 2022 , there were outstanding 134 shares of Series A Preferred Stock, 71 shares of Series B Preferred Stock, 290 shares of Series C Preferred Stock, 5,000 shares of Series D Preferred Stock, 5,000 shares of Series E Preferred Stock and 8,000 shares of Series F Preferred Stock. As a result of past equity financings and conversions of debentures, the conversion prices of (i) our Series A Preferred Stock has been reduced to$29,812.50 per share atJune 30, 2022 , (ii) our Series B Preferred Stock has been reduced to$0.75 per share atJune 30, 2022 , (iii) 200 shares of our Series C preferred stock has been reduced to$1,125.00 per share atJune 30, 2022 , (iv) 90.43418 shares of our Series C Preferred Stock has been reduced to$562.50
per share atJune 30, 2022 . Common Stock Reverse Stock Split OnSeptember 1, 2021 , the Board of Directors approved a one-for-seventy-five (1-for-75) Reverse Stock Split. The Reverse Stock Split became effective with the Secretary ofState of Delaware as of4:59 p.m. Eastern Time onOctober 5, 2021 , and the Company began trading on a post Reverse Stock Split basis at the market open onOctober 12, 2021 . As a result of the Reverse Stock Split, each of the holders of the Company's Common Stock received one (1) new share of Common Stock for every seventy-five (75) shares such shareholder held immediately prior. No fractional shares were issued as a result of the Reverse Stock Split. Any fractional shares that would have otherwise resulted from the Reverse Stock Split will be rounded up to the next whole number of shares. The Reverse Stock Split also affected the Company's outstanding stock options, warrants and other exercisable or convertible instruments and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the Reverse Stock Split ratio. All share and per share data has been retroactively adjusted in the accompanying consolidated financial statements and footnotes for all periods presented to reflect the effects of the Reverse Stock Split. 11 Common Stock Activity
During the six months endedJune 30, 2022 , we issued a total of 20,363,686 shares of common stock, valued at$789,699 , upon the conversion of$461,972 principal amount of our convertible debentures. We recorded loss on conversion of debt of$0 and$23,746 during the three and six months endedJune 30, 2022 , respectively. During the six months endedJune 30, 2021 , we issued a total of 4,627,031 shares of common stock, valued at$3,696,057 , upon the conversion of$2,155,568 principal amount of our convertible debentures. We recorded gain on conversion of debt of$11,395 and$1,177,504 during the three and six months endedJune 30, 2021 , respectively.
NOTE 9 - CONVERTIBLE DEBENTURES AND NOTES
June 2021 Debentures OnJune 18, 2021 , the Company sold an aggregate of$600,000 of senior convertible debentures ("June Debentures") for (i)$500 ,000in cash and (ii)$100,000 in cancellation of outstanding indebtedness to existing accredited and institutional investors of the Company. The June Debentures (i) are non-interest bearing, (ii) have a maturity date ofJune 18, 2022 , (iii) are convertible into shares of Common Stock at the election of the holders at any time, subject to a beneficial ownership limitation of 9.99%, and (iv) have a conversion price equal to the lesser of$24.75 and 85% of the lowest Volume Weighted Average Price (VWAP) during the five (5) trading days immediately prior to the conversion date, subject to adjustment, as described therein. The maturity date of the debentures has been extended toDecember 31, 2023 .
During the six months ended
We have amortized$21,440 and$54,292 of discount to interest expense during the three and six months endedJune 30, 2022 , respectively and$203,458 of discount has been charged off against loss upon the conversion of the June Debentures during the three months endedMarch 31, 2022 . There was no unamortized discount atJune 30, 2022 .October 2020 Debentures OnOctober 23, 2020 , the Company sold an aggregate of$600,000 of senior convertible debentures ("October Debentures") for (i)$500,000 in cash and (ii)$100,000 in cancellation of outstanding indebtedness to existing accredited and institutional investors of the Company. The October Debentures (i) are non-interest bearing, (ii) have a maturity date ofOctober 23, 2021 , (iii) are convertible into shares of common stock at the election of the holders at any time, subject to a beneficial ownership limitation of 9.99%, and (iv) have a conversion price equal to the lesser of (i)$24.75 and (ii) 85% of the lowest volume-weighted average price during the five trading days immediately prior to the date of conversion. The maturity date of the debentures has been extended toDecember 31, 2023 .
October Debentures in the amount of
September 2017 Debentures OnSeptember 12, 2017 , we entered into an exchange agreement ("Exchange Agreement") with certain holders of our Series A Preferred Stock and Series B Preferred Stock. Pursuant to the terms of the Exchange Agreement, we issued to the investors approximately$2.5 million in principal amount of senior convertible debentures (the "September 2017 Debentures") in exchange for 1,614.8125 shares of Series A Preferred Stock with a stated value of approximately$1.6 million and 890 shares of Series B Preferred Stock with a stated value of approximately$0.9 million .
On
The maturity date of theSeptember 2017 Debentures has been extended toDecember 31, 2023 . September Debentures in the amount of$110 ,072remain outstanding
atJune 30, 2022 .
NOTE 10 - RELATED PARTY TRANSACTIONS
In September of 2021, we began paying$10,000 per month toSilvestre Law Group, P.C. , our outside corporate counsel, for ourSEC compliance legal work ("Monthly Fee").Mr. Silvestre , our CEO sinceAugust 16, 2021 , is a principal ofSilvestre Law Group, P.C. Additionally,Silvestre Law Group bills us at their standard rates for additional services outside of the scope of the Monthly Fee. For the three and six months endedJune 30, 2022 , we accrued$30,000 and$65,843 , respectively, in legal fees toSilvestre Law Group . We paidSilvestre Law Group $40,000 for the Monthly Fee and recorded an additional$25,843 in legal fees for other services not covered by the Monthly Fee during the six months endedJune 30, 2022 . The company has a balance due toSilvestre Law Group of$309,848 atJune 30, 2022 .Silvestre Law Group also holds$290,000 of our convertible debentures atJune 30, 2022 . 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding our business development plans, pre-clinical and clinical studies, regulatory reviews, timing, strategies, expectations, anticipated expenses levels, business prospects and positioning with respect to market, demographic and pricing trends, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies or predictions. These forward-looking statements are based on a number of assumptions and currently available information and are subject to a number of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Special Note Regarding Forward-Looking Statements" and under "Risk Factors" and elsewhere in this quarterly report. The following discussion should be read in conjunction with Part I, Item 1 of this Quarterly Report as well as the financial statements and related notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC on March
31, 2022.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
? Company Overview - Discussion of our business plan and strategy in order to
provide context for the remainder of MD&A.
? Critical Accounting Policies - Accounting policies that we believe areimportant to understanding the assumptions and judgments incorporated in our
reported financial results and forecasts.
? Results of Operations - Analysis of our financial results comparing the three
and six months ended June 30, 2022 , to the comparable periods of 2021.
? Liquidity and Capital Resources - Liquidity discussion of our financial
condition and potential sources of liquidity.
Company Overview
Business
Rebus Holdings, Inc. (fka Inspyr Therapeutics, Inc. ) is a pharmaceutical company
focused on the research and development of novel targeted precision therapeutics
for the treatment of cancer. Our approach utilizes our proprietary delivery
technology to better enhance immuno-modulation for improved therapeutic
outcomes. Our potential first-in-class immune-oncology lead asset, RT-AR001, an
adenosine A2A receptor antagonist, is differentiated by its intratumoral
delivery of nano- or microparticle formulations that allows for better tumor
infiltration. The adenosine A2 Receptor is one of many T-cell surface immune
checkpoint proteins. Our patented portfolio of adenosine receptor antagonists
provides flexibility to optimize treatment based on the specific adenosine
targets found in each type of cancer.
Adenosine Receptor Modulators
The adenosine receptor modulators include A2A, A2B and dual A2A/A2B antagonists
that have broad development applicability including indications within
immuno-oncology. Very high concentrations of adenosine are produced in the tumor
microenvironment which prevents the host's own immune cells from attacking the
tumor. Adenosine receptor antagonists as single-agents and in combination with
other existing immuno-oncology agents may overcome this immunosuppression, and
boost the host immune response leading to enhanced anti-tumor activity as well
as inhibition of metastasis. Preclinical data has shown effects with our drug
candidates in animal models utilizing a novel platform delivery system. While we
believe that the data from our nonclinical studies appear encouraging, the
outcome of our ongoing or future studies may ultimately be unsuccessful.
13
Pursuant to our recent termination of license withRidgeway Therapeutics, Inc. , aDelaware Corporation , we reacquired the rights to certain intellectual property, discussed above, and are currently focusing on a pipeline of small molecule adenosine receptor modulators. InOctober 2020 , pursuant to the cancellation of a license agreement whereby we previously licensed US Patent 9,593,118, we reacquired the exclusive right to such patent that covers both A2B and dual A2A/A2B antagonists. Accordingly, going forward our major focus will be to: (i) further characterization of the anti-cancer activity of our unique pipeline delivery platform containing A2A, A2B and dual A2A/A2B antagonists, leading to selection of a clinical candidate or candidates for an Investigative New Drug or IND enabling studies; and (ii) licensing and/or partnering our delivery platform and the A2A, A2B and dual A2A/A2B antagonists for further development. DuringMarch 2020 , we sold$250,000 of debt securities for cash, inOctober 2020 , we sold$500,000 of debt securities for cash, inJanuary 2021 , we sold$500,000 of debt securities for cash and inJune 2021 we sold$500,000 of debt securities for cash. We are currently using such funds to maintain ourSEC reporting requirements, pay outstanding invoices to our independent registered accounting firm, legal fees, and to retain consultants and other personnel in preparation for an Investigational New Drug Application filing related to our unique delivery platform and portfolio of adenosine A2R antagonists for the treatment of certain solid tumors. Should we fail to further raise sufficient funds to execute our business plan, our priority would be to maintain our intellectual property portfolio and seek business development opportunities with potential development partners and/or acquirors. Pre-Revenue
We are a pre-revenue, early-stage company that has not achieved profitability, and has no product revenues. Additionally, we have no approved products for sale.
Recent Developments
? Effective
Split and (ii) a holding company reorganization whereby we changed our
name to
? On
chief executive officer and principal accounting officer and (ii) a member
of the Board of Directors.
? On June 18, 2021 , we completed the private placement of $600,000 of
non-interest bearing senior convertible debentures in exchange for
$500,000 in cash and the cancellation of $100,000 in obligations.
? On January 12, 2021 , we completed the private placement of $500,000 of
non-interest bearing senior convertible debentures.
? On
Common Stock and (ii) 8,000 shares of Series F 0% Convertible Preferred
Stock, we entered into an agreement to terminate an outstanding license
agreement with
licensed certain immune-oncology delivery technologies for the treatment
of cancer to Ridgeway Therapeutics ("License Termination"). As a result of
the License Termination, the Company announced on
would be refocusing its efforts on a novel-immuno-oncology delivery
technology targeting adenosine receptor antagonists for the treatment of
cancer.
14
Financial
To date, we have devoted substantially all of our efforts and financial resources to the development of our proposed drug candidates. We have not received FDA approval to market, distribute or sell any products. We have recently begun working on developing IND approved studies for our adenosine receptor technology platform.
Since our inception in 2003, we have generated no revenue from product sales and have funded our operations principally through the private and public sales of our equity securities. We have never been profitable and as ofJune 30, 2022 , we had an accumulated deficit of approximately$66 million . We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our product candidates and advance them through clinical trials. Our cash balances atJune 30, 2022 were approximately$265,000 representing 100% of total assets. InJanuary 2021 , we completed a private placement of$500,000 in cash of our debt securities and inJune 2021 we completed an additional private placement of$500,000 in cash of our debt securities. Based on our current expected level of operating expenditures and current cash balance as of the date of this report, we expect to be able to fund our operations into the fourth quarter of 2022. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen events. We anticipate raising additional cash through the private or public sales of equity or debt securities to continue to fund our operations and the development of our product candidates. There is no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay or stop our ongoing pre-clinical studies and potential clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding from any source. Going Concern Our auditors' report on ourDecember 31, 2021 consolidated financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Upon the cancellation of the Ridgeway license, we resumed preclinical development. Notwithstanding our recent financings in (i) January of 2021 whereby we raised$500,000 in cash and (ii)June 2021 whereby we raised$500,000 in cash, our current cash level raises substantial doubt about our ability to continue as a going concern. If we do not obtain additional funds, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe United States requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments or conditions. There were no material changes to our critical accounting policies and use of estimates previously disclosed in our 2021 Annual Report on Form 10-K.
Recent Accounting Pronouncements
There have not been any recent changes in accounting pronouncements and
Accounting Standards Update (ASU) issued by the
15
Result of Operations
Three Months Ended
Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue during the three months endedJune 30, 2022 and 2021, and we do not anticipate generating any revenues during 2022. Net loss for the three months endingJune 30, 2022 was approximately$1.4 million and net income was approximately$17.2 million for the three months endedJune 30, 2021 , resulting from the operational activities described below. Operating Expenses
Operating expense totaled approximately
Three months ended Change in 2022
June 30, versus 2021
2022 2021 $ %
(amount in thousands)
Operating Expenses
Research and development $ 174 $ 72 $ 102 142 %
General and administrative 110 84 26 31 %
Total operating expenses $ 284 $ 156 $ 128 82 %
Research and Development Expenses
Research and development expenses totaled approximately
Our current research and development expenses currently consist primarily of consulting fees and development expense related to development of the adenosine A2R antagonists and preparation for an IND filing. General and Administrative
General and administrative expenses totaled approximately$0.1 million and$0.1 million for the three months endedJune 30, 2022 and 2021, respectively. The increase of approximately$0.03 million , or 31%, for the three months endedJune 30, 2022 compared to the same period in 2021, was primarily due to increased franchise tax expense.
Our general and administrative expenses currently consist primarily of expenditures related to legal, accounting and tax, other professional services, and general operating expenses.
Other Income (Expense) Other income (expense) totaled approximately$1.1 million of expense and$17.3 million of income for the three months endedJune 30, 2022 and 2021, respectively. Three Months Ended Change in 2022 June 30, Versus 2021 2022 2021 $ % (amount in thousands) Gain (loss) on change in fair value of derivative liability$ (1,060 ) $ 17,535 $ (18,595 ) (106 )% Gain on conversion of debt - 12 (12 ) (100 )% Interest (expense), net (21 ) (235 ) 214 (91 )% Total other (expense)$ (1,081 ) $ 17,312 $ (18,393 ) (106 )% 16
Gain (loss) on change in fair value of derivative liability
As a result of a change in the fair value of our derivative liability, we realized loss of$1.1 million and gain of$17.5 million during the three months endedJune 30, 2022 and 2021, respectively. The change in the fair value of our derivative liability was the result of our convertible debentures and notes issued inSeptember 2017 ,July 2018 ,December 2018 ,July 2019 ,October 2019 ,November 2019 ,March 2020 ,October 2020 ,January 2021 andJune 2021 , where we issued convertible notes with variable conversion rates, and to the issuance of our Series F preferred stock inOctober 2020 , which is convertible into a variable number of shares of common stock. Refer to Note 6 in our unaudited condensed consolidated financial statements for further discussion on our derivative liability. Gain on conversion of debt There was no gain or loss on conversion of debentures during the three months endedJune 30, 2022 , compared to a gain on conversion of debentures of approximately$0.01 million during the three months endedJune 30, 2021 . Gain or loss on conversion of debt results from the difference between the fair value of common stock issued upon conversion and the carrying amount of the debt converted. Interest income (expense)
We had net interest expense of$0.02 million in the three months endedJune 30, 2022 compared to expense of$0.2 million for the three months endedJune 30, 2021 . The decrease of$0.2 million was attributable to a decrease in the cost associated with derivative instruments issued with a value in excess of proceeds received.
Six Months Ended
Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue during the six months endedJune 30, 2022 and 2021, and we do not anticipate generating any revenues during 2022. Net losses for the six months endingJune 30, 2022 and 2021 were approximately$2.0 million and$3.5 million , respectively, resulting from the operational activities described below. Operating Expenses Operating expense totaled approximately$0.4 million and$0.3 million during the six months endedJune 30, 2022 and 2021, respectively. The increase in operating expenses is the result of the following factors. Six months ended Change in 2022 June 30, versus 2021 2022 2021 $ % (amount in thousands) Operating Expenses Research and development$ 192 $ 93 $ 99 106 % General and administrative 242 253 (11 ) (4 )% Total operating expenses$ 434 $ 346 $ 88 25 %
Research and Development Expenses
Research and development expenses totaled approximately
Our current research and development expenses currently consist primarily of
consulting fees and development expense related to development of the adenosine
A2R antagonists and preparation for an IND filing.
17
General and Administrative
General and administrative expenses totaled approximately$0.2 million and$0.3 million for the six months endedJune 30, 2022 and 2021, respectively. The decrease of approximately$0.01 million , or 4%, for the six months endedJune 30, 2022 compared to the same period in 2021, was primarily due to decreased professional fees and services and director compensation, partially offset by an increase in franchise tax expense.
Our general and administrative expenses currently consist primarily of expenditures related to legal, accounting and tax, other professional services, and general operating expenses.
Other Income (Expense)
Other income (expense) totaled approximately
Six Months Ended Change in 2022
June 30, Versus 2021
2022 2021 $ %
(amount in thousands)
Loss on change in fair value of
derivative liability $ (1,459 ) $ (3,659 ) $ 2,200 (60) %
(Loss) gain on conversion of debt (24 ) 1,178 (1,202 ) (102 )% Interest (expense), net (54 ) (652 ) 598 (92 )% Total other (expense)$ (1,537 ) $ (3,133 ) $ 1,596 (51) %
Loss on change in fair value of derivative liability
As a result of a change in the fair value of our derivative liability, we realized loss of$1.5 million and$3.7 million during the six months endedJune 30, 2022 and 2021, respectively. The change in the fair value of our derivative liability was the result of our convertible debentures and notes issued inSeptember 2017 ,July 2018 ,December 2018 ,July 2019 ,October 2019 ,November 2019 ,March 2020 ,October 2020 ,January 2021 andJune 2021 , where we issued convertible notes with variable conversion rates, and to the issuance of our Series F preferred stock inOctober 2020 , which is convertible into a variable number of shares of common stock. Refer to Note 6 in our unaudited condensed consolidated financial statements for further discussion on our derivative liability.
(Loss) Gain on conversion of debt
There was a loss on conversion of debentures of approximately$0.02 million during the six months endedJune 30, 2022 , compared to a gain of$1.2 million during the six months endedJune 30, 2021 . Gain or loss on conversion of debt results from the difference between the fair value of common stock issued upon conversion and the carrying amount of the debt converted. Interest income (expense) We had net interest expense of$0.1 million in the six months endedJune 30, 2022 compared to expense of$0.7 million for the six months endedJune 30, 2021 . The decrease of$0.6 million was attributable to a decrease in the cost associated with derivative instruments issued with a value in excess of proceeds received.
Liquidity and Capital Resources
We have incurred losses since our inception in 2003 as a result of significant expenditures on operations, research and development and the lack of any approved products to generate revenue. We have an accumulated deficit of$66.2 million as ofJune 30, 2022 and anticipate that we will continue to incur additional losses for the foreseeable future. To date, we have funded our operations through the private sale of our equity securities, convertible debentures, and exercise of options and warrants, resulting in gross proceeds of approximately$39.1 million . Cash atJune 30, 2022 was$265,000 . 18 Our auditors' report on ourDecember 31, 2021 financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Based on our current level of expected operating expenditures, we expect to be able to fund our operations into the fourth quarter of 2022. This assumes that we spend minimally on general operations and only continue conducting our ongoing clinical trials, and that we do not encounter any unexpected events or other circumstances that could shorten this time period. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment. We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell equity or debt securities, or enter into collaborative, strategic and/or licensing transactions. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise. If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease development of our product candidates, or
cease
operations altogether.
Six Months Ended Change in 2022
June 30, versus 2021
2022 2021 $ %
(amount in thousands)
Cash at beginning of period $ 711 $ 404 $ 307 76 %Net cash used in operating activities (446 ) (274 ) (172 ) 63 % Net cash provided by investing activities - - - - % Net cash provided by financing activities - 1,000
(1,000 ) (100 )%
Cash at end of period $ 265 $ 1,130 $ (865 ) (77 )%
Cash totaled approximately $0.3 million and $1.1 million as of June 30, 2022 and
2021, respectively. The decrease of approximately $0.9 million at June 30, 2022
compared to the same period in 2021 was primarily attributable to cash usedin operations.
Net cash used in operating activities was approximately$0.4 million and$0.3 million for the six months endedJune 30, 2022 and 2021, respectively. Cash used for operations increased by approximately$0.2 million , or 63%, during the six months endedJune 30, 2022 , compared to the same period in 2021. The increase in cash used was primarily attributable to an increase in our net loss (after adjusting for noncash items) of approximately$0.1 million partially and by changes in accounts payable and accrued expenses of approximately$0.1 million .
Net Cash Provided by Investing Activities
There was no cash provided by or used in investing activities for the six months
ended
Net Cash Provided by Financing Activities
There was no cash provided by financing activities for the six months endedJune 30, 2022 , compared to$1 million cash provided by financing activities for the six months endedJune 30, 2021 . In 2021, we received proceeds of$1,000,000 from the sale of convertible debentures. 19
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