REBUS HOLDINGS, INC. 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 annual report. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this annual report.
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 year
ended December 31, 2021 to the year ended December 31, 2020 .
? Liquidity and Capital Resources - Liquidity discussion of our financial
condition and potential sources of liquidity.
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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 A2B 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 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.
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 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 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
and (ii) a holding company reorganization whereby we changed our name to Rebus
? On
executive officer and principal accounting officer and (ii) a member of the
Board of Directors.
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? On June 18, 2021 , we completed the private placement of $600,000 of
non-interest bearing senior convertible debentures in exchange for
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
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
efforts on a novel-immuno-oncology delivery technology targeting adenosine
receptor antagonists for the treatment of cancer.
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 ofDecember 31, 2021 , we had an accumulated deficit of approximately$64.3 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 atDecember 31, 2021 were approximately$711,000 representing 99% 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 third 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. 28
Recent Accounting Pronouncements
With the exception of those discussed below, there have not been any recent
changes in accounting pronouncements and Accounting Standards Update (ASU)
issued by the
InDecember 2019 , the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes." This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning afterDecember 15, 2020 , with early adoption permitted. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Results of Operations
Year 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 years endingDecember 31, 2021 and 2020. We do not anticipate generating any revenues during 2022. Net income for 2021 was approximately$2.7 million and net loss for 2020 was approximately$6.3 million , resulting from the operational activities described below.
Operating Expenses
Operating expense totaled$1.0 million and$2.5 million during 2021 and 2020, respectively. The decrease in operating expenses is the result of the following factors. Year Ended Change in 2021 December 31, Versus 2020 2021 2020 $ % (amount in thousands) Operating Expenses Research and development$ 494 $ 18 $ 476 2,644 % License termination cost - 1,969 (1,969 ) (100 )% General and administrative 528 494 34 7 % Total operating expense$ 1,022 $ 2,481 $ (1,459 ) 59 % Research and Development Research and development expenses totaled$0.5 million and$0.02 million for the years ended 2021 and 2020, respectively. 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.
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License Termination Cost
License termination cost in 2020 relates to the termination of a licensing agreement previously entered into onAugust 3, 2018 , as more fully described elsewhere in this filing. We incurred noncash expense of approximately$1,944,000 related to the issuance of 65 million shares of common stock and 8,000 shares of Series F 0% Convertible Preferred Stock. Additionally, we have assumed certain expenses and costs of approximately$25,000 .
General and Administrative
General and administrative expenses totaled$0.5 million and$0.5 million during 2021 and 2020, respectively. The increase of approximately$0.03 million , or 7%, in 2021 compared to 2020 was primarily due to increased professional fees partially offset by a reduction in director compensation.
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
Year Ended Change in 2021
December 31, Versus 2020
2021 2020 $ %
(amount in thousands)
Gain (loss) on change in fair value of
derivative liability $ 3,687 $ (3,846 ) $ 7,533 196 %
Gain on conversion of debt 1,116 334 782 234 %
Interest (expense), net (1,083 ) (302 ) (781 ) (259 )%Total other income (expense)$ 3,720 $ (3,814 ) $ 7,534 198 %
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 gain of$3.7 million and loss of$3.8 million during the years endedDecember 31, 2021 and 2020, 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 7 in our Consolidated Financial Statements for further discussion on our derivative liability.
Gain on conversion of debt
There was a gain on conversion of debt of approximately$1.1 million during the year endedDecember 31, 2021 , with a gain of approximately$0.3 million during the year endedDecember 31, 2020 . Gain 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$1.1 million net interest expense in 2021, compared to$0.3 million of expense in 2020. The increase of$0.8 million was attributable an increase in the cost associated with derivative instruments issued with a value in excess of proceeds received. 30
Liquidity and Capital Resources
We have incurred losses since our inception in 2003 as a result of significant expenditures for operations and research and development and the lack of any approved products to generate revenue. We have an accumulated deficit of approximately$64.3 million as ofDecember 31, 2021 and anticipate that we will continue to incur additional losses for the foreseeable future. ThroughDecember 31, 2021 , we have funded our operations through the private sale of our equity securities, convertible debt and exercise of options and warrants, resulting in gross proceeds of$39.1 million . Cash atDecember 31, 2021 was approximately$711,000 . 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 third 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.
Year Ended
December 31,
2021 2020
(amounts in thousands)
Cash at beginning of year $ 404 $ 23 Net cash used in operating activities (693 ) (374 ) Net cash provided by investing activities - - Net cash provided by financing activities 1,000 755 Cash at end of year$ 711 $ 404
Net cash used in operating activities was$0.7 million and$0.4 million during 2021 and 2020, respectively. The increase of$0.3 million in cash used during 2021 compared to 2020 was primarily attributable to an increase in net loss (after adjusting for noncash items) of approximately$0.5 million , partially offset by an increase in changes in accounts payable and accrued expense of approximately$0.2 million .
Cash provided by investing activities was
Net Cash Provided by Financing Activities
During 2021, we received net proceeds of$1,000,000 from the sales of our securities and convertible debentures, compared to$755,000 during 2020 in net proceeds from the sales of our securities and convertible debentures. We are actively seeking sources of financing to fund our continued operations and research and development programs.
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