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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Scopus BioPharma Inc | NASDAQ:SCPS | NASDAQ | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.1682 | 0.1311 | 0.1369 | 0 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ended from ________ to ________
Commission File Number: 001-39788
SCOPUS BIOPHARMA INC
(Exact name of registrant as specified in its charter)
Delaware | 82-1248020 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
420 Lexington Avenue, Suite 300
New York, New York, 10170
(Address of principal executive offices)
(212) 479-2513
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $0.001 per | SCPS | The Nasdaq Stock Market LLC (Nasdaq |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
|
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 21, 2022, there were 21,094,264 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 20 | |
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29 | ||
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30 | ||
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Unregistered Sales of Equity Securities and Use of Proceeds. | 31 | |
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31 | ||
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31 | ||
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31 | ||
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32 | ||
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33 | ||
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements.
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
| (unaudited) |
| ||||
ASSETS |
|
|
|
| ||
Current assets: |
|
|
|
| ||
Cash | $ | 310,821 | $ | 7,942,971 | ||
Prepaid expenses and other current assets |
| 102,354 |
| 241,904 | ||
Total current assets |
| 413,175 |
| 8,184,875 | ||
Property and equipment, net |
| 2,501 |
| 2,840 | ||
Total assets | $ | 415,676 | $ | 8,187,715 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
| ||||
Current liabilities: |
|
|
|
| ||
Accounts payable and accrued expenses | $ | 5,919,626 | $ | 4,170,266 | ||
COMMITMENTS AND CONTINGENCIES (NOTE 8) |
|
|
|
| ||
Stockholders’ equity (deficit): |
|
|
|
| ||
Preferred stock, $0.001 par value; 20,000,000 shares authorized; zero shares issued and outstanding |
|
| ||||
Common stock, $0.001 par value; 50,000,000 shares authorized; 21,094,264 issued and outstanding |
| 21,094 |
| 21,094 | ||
Additional paid-in capital |
| 45,811,769 |
| 45,538,156 | ||
Accumulated deficit |
| (51,334,134) |
| (41,455,148) | ||
Accumulated other comprehensive loss |
| (2,679) |
| (86,653) | ||
Total stockholders’ equity (deficit) |
| (5,503,950) |
| 4,017,449 | ||
Total liabilities and stockholders’ equity (deficit) | $ | 415,676 | $ | 8,187,715 | ||
See accompanying notes to condensed consolidated financial statements.
2
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended September 30, |
| Nine Months Ended September 30, | |||||||||
2022 |
| 2021 | 2022 |
| 2021 | |||||||
Revenues | $ | — | $ | — | $ | — | $ | — | ||||
Operating expenses: |
|
|
|
| ||||||||
General and administrative |
| 981,342 |
| 2,682,310 |
| 7,943,143 |
| 6,228,103 | ||||
Research and development |
| 917,267 |
| 77,527 |
| 1,935,843 |
| 14,887,657 | ||||
Total operating expenses |
| 1,898,609 |
| 2,759,837 |
| 9,878,986 |
| 21,115,760 | ||||
Loss from operations |
| (1,898,609) |
| (2,759,837) |
| (9,878,986) |
| (21,115,760) | ||||
Other income (expense): |
|
|
|
|
|
|
|
| ||||
Interest expense |
| — |
| (110,669) |
| — |
| (774,679) | ||||
Change in fair value of common stock warrant liability | — | 1,470,163 | — | 1,455,889 | ||||||||
Total other income (expense) | — | 1,359,494 | — | 681,210 | ||||||||
Net loss |
| (1,898,609) |
| (1,400,343) |
| (9,878,986) |
| (20,434,550) | ||||
Comprehensive income (loss): |
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
| 9,354 |
| (5,590) |
| 83,974 |
| 2,019 | ||||
Total comprehensive loss |
| $ | (1,889,255) |
| $ | (1,405,933) |
| $ | (9,795,012) |
| $ | (20,432,531) |
Net loss per common share: |
|
|
|
|
|
|
|
| ||||
Basic and diluted | (0.09) | (0.08) | (0.47) | (1.23) | ||||||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
| ||||
Basic and diluted |
| 21,094,264 |
| 17,148,180 |
| 21,094,264 |
| 16,551,101 | ||||
See accompanying notes to condensed consolidated financial statements.
3
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
Common Stock | Additional | Note | Accumulated | Accumulated Other | Total Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Paid-in Capital |
| Receivable |
| Deficit |
| Comprehensive Loss |
| Equity (Deficit) | |||||||
Balances as of June 30, 2022 |
| 21,094,264 | $ | 21,094 | $ | 45,728,212 | $ | — | $ | (49,435,525) | $ | (12,033) | $ | (3,698,252) | ||||||
Stock-based compensation expense |
| — |
| — |
| 83,557 |
| — |
| — |
| — |
| 83,557 | ||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| — |
| 9,354 |
| 9,354 | ||||||
Net loss |
| — |
| — |
| — |
| — |
| (1,898,609) |
| — |
| (1,898,609) | ||||||
Balances as of September 30, 2022 |
| 21,094,264 | $ | 21,094 | $ | 45,811,769 | $ | — | $ | (51,334,134) | $ | (2,679) | $ | (5,503,950) | ||||||
Common Stock | Additional | Note | Accumulated | Accumulated Other | Total Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Paid-in Capital |
| Receivable |
| Deficit |
| Comprehensive Loss |
| Equity (Deficit) | |||||||
Balances as of December 31, 2021 | 21,094,264 | $ | 21,094 | $ | 45,538,156 | $ | — | $ | (41,455,148) | $ | (86,653) | $ | 4,017,449 | |||||||
Stock-based compensation expense |
| — |
| — |
| 273,613 |
| — |
| — |
| — |
| 273,613 | ||||||
Foreign currency translation adjustment | — | — | — | — | — | 83,974 | 83,974 | |||||||||||||
Net loss | — | — | — | — | (9,878,986) | — | (9,878,986) | |||||||||||||
Balances as of September 30, 2022 |
| 21,094,264 | $ | 21,094 | $ | 45,811,769 | $ | — | $ | (51,334,134) | $ | (2,679) | $ | (5,503,950) | ||||||
Common Stock | Additional | Note | Accumulated | Accumulated Other | Total Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Paid-in Capital |
| Receivable |
| Deficit |
| Comprehensive Loss |
| Equity (Deficit) | |||||||
Balances as of June 30, 2021 |
| 18,094,264 | $ | 18,094 | $ | 33,094,511 | $ | (1,500,000) | $ | (33,535,946) | $ | (60,458) | $ | (1,983,799) | ||||||
Conversion of convertible notes payable and accrued interest into W Warrants |
| — |
| — |
| 3,084,875 |
| — |
| — |
| — |
| 3,084,875 | ||||||
Reclassification of common stock warrant liability into equity |
| — |
| — |
| 1,944,754 |
| — |
| — |
| — |
| 1,944,754 | ||||||
Stock-based compensation expense |
| — |
| — |
| 154,467 |
| — |
| — |
| — |
| 154,467 | ||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| — |
| — |
| (5,590) |
| (5,590) | ||||||
Net loss |
| — |
| — |
| — |
| — |
| (1,400,343) |
| — |
| (1,400,343) | ||||||
Balances as of September 30, 2021 |
| 18,094,264 | $ | 18,094 | $ | 38,278,607 | $ | (1,500,000) | $ | (34,936,289) | $ | (66,048) | $ | 1,794,364 | ||||||
Common Stock | Additional | Note | Accumulated | Accumulated Other | Total Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Paid-in Capital |
| Receivable |
| Deficit |
| Comprehensive Loss |
| Equity (Deficit) | |||||||
Balances as of December 31, 2020 | 14,577,597 | $ | 14,578 | $ | 14,224,000 | $ | (1,500,000) | $ | (14,501,739) | $ | (68,067) | $ | (1,831,228) | |||||||
Issuance of common stock - net of issuance costs of $1,168,900 | 1,150,000 | 1,150 | 9,179,950 | — | — | — | 9,181,100 | |||||||||||||
Issuance of common stock for acquisition of in-process research and development | 1,100,000 | 1,100 | 7,654,901 | — | — | — | 7,656,001 | |||||||||||||
Issuance of common stock on achievement of research and development milestones | 1,266,667 | 1,266 | 5,065,401 | — | — | — | 5,066,667 | |||||||||||||
Conversion of convertible notes payable and accrued interest into W Warrants | — | — | 3,084,875 | — | — | — | 3,084,875 | |||||||||||||
Common stock warrant liability | — | — | (3,400,643) | — | — | — | (3,400,643) | |||||||||||||
Reclassification of common stock warrant liability into equity | — | — | 1,944,754 | — | — | — | 1,944,754 | |||||||||||||
Stock-based compensation expense | — | — | 525,369 | — | — | — | 525,369 | |||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | 2,019 | 2,019 | |||||||||||||
Net loss | — | — | — | — | (20,434,550) | — | (20,434,550) | |||||||||||||
Balances as of September 30, 2021 |
| 18,094,264 | $ | 18,094 | $ | 38,278,607 | $ | (1,500,000) | $ | (34,936,289) | $ | (66,048) | $ | 1,794,364 | ||||||
See accompanying notes to condensed consolidated financial statements.
4
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | |||||
| 2022 |
| 2021 | |||
Cash flows from operating activities: |
|
| ||||
Net loss | $ | (9,878,986) | $ | (20,434,550) | ||
Adjustments to reconcile net loss to net cash |
|
|
|
| ||
used in operating activities: | ||||||
Depreciation |
| 1,497 |
| 1,147 | ||
Issuance of common stock and warrants for acquisition of in-process research and development | — | 7,656,001 | ||||
Issuance of common stock on achievement of research and development milestones | — | 5,066,667 | ||||
Change in fair value of common stock warrant liability | — | (1,455,889) | ||||
Stock-based compensation |
| 273,613 |
| 525,369 | ||
Amortization of debt issuance costs and debt discount |
| — |
| 606,104 | ||
Changes in operating assets and liabilities: |
|
|
| |||
Prepaid expenses and other current assets |
| 136,307 |
| (256,723) | ||
Accounts payable and accrued expenses |
| 1,762,842 |
| 1,015,866 | ||
Net cash used in operating activities |
| (7,704,727) |
| (7,276,008) | ||
Cash flows from investing activities: |
|
|
|
| ||
Purchases of property and equipment |
| (1,552) |
| (1,999) | ||
Cash flows from financing activities: |
|
|
|
| ||
Gross proceeds from issuance of common stock |
| — |
| 10,350,000 | ||
Issuance costs related to the issuances of common stock |
| — |
| (1,168,900) | ||
Payment of principal on Convertible Notes | — | (104,505) | ||||
Net cash provided by financing activities |
| — |
| 9,076,595 | ||
Effects of changes in foreign currency exchange rates on cash |
| 74,129 |
| 1,392 | ||
Net increase (decrease) in cash |
| (7,632,150) |
| 1,799,980 | ||
Cash, beginning of period |
| 7,942,971 |
| 1,832,100 | ||
Cash, end of period | $ | 310,821 | $ | 3,632,080 | ||
Supplemental disclosure of cash flow information: |
|
|
|
| ||
Non-cash financing activity: |
|
|
|
| ||
W Warrants accounted for as warrant liability | $ | — | $ | 3,400,643 | ||
Reclassification of warrant liability into equity | $ | — | $ | 1,944,754 | ||
Conversion of Convertible Notes payable and accrued interest into W Warrants | $ | — | $ | 3,084,875 | ||
Cash paid during the period for: | ||||||
Interest | $ | — | $ | 25,043 | ||
See accompanying notes to condensed consolidated financial statements.
5
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. | Organization and Description of the Business |
Nature of Operations
Scopus BioPharma Inc. (“Scopus”) and its subsidiary, Vital Spark Inc. (“VSI”), are headquartered in New York, New York. Its other subsidiaries, Duet BioTherapeutics Inc. (“Duet”) (formerly Olimmune Inc.) and Scopus BioPharma Israel Ltd. (“SBI”), are headquartered in Los Angeles, California and Jerusalem, Israel, respectively. Scopus, VSI, Duet, and SBI are collectively referred to as the “Company.” The Company is a biopharmaceutical company developing transformational therapeutics for serious diseases with significant unmet medical need.
Going Concern
The Company is an early-stage company and has not generated revenues to date. As such, the Company is subject to all of the risks associated with early-stage companies. Since inception, the Company has incurred losses and negative cash flows from operating activities which have been funded from the issuance of common stock, convertible notes, warrants and additional investment options (“AIOs”). The Company does not expect to generate positive cash flows from operating activities for at least the next several years, if at all, until such time it completes the development of its drug candidates, including obtaining regulatory approvals, and anticipates incurring operating losses for the foreseeable future.
The Company incurred net losses of $1,898,609 and $9,878,986 for the three and nine months ended September 30, 2022 and had an accumulated deficit of $51,334,134 as of September 30, 2022. The Company’s net cash used in operating activities was $7,704,727 for the nine months ended September 30, 2022. Further, while the Company has raised significant cash proceeds from public offerings and private placements (see Note 3), the Company still has significant obligations related to certain research and development acquisitions and research and development agreements (see Notes 4 and 7).
The Company’s ability to fund its operations is dependent upon management’s plans, which include raising capital through issuances of debt and equity securities, securing research and development grants, and controlling the Company’s expenses. A failure to raise sufficient financing and/or control expenses, among other factors, will adversely impact the Company’s ability to meet its financial obligations as they become due and payable and to achieve its intended business objectives.
The Company’s results of operations and its ability to fund its operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond its control. The business could be impacted by, among other things, downturns in the financial markets or in economic conditions, inflation, increases in interest rates, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. Accordingly, based on the considerations discussed above, management has concluded there is substantial doubt as to the Company’s ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued.
The Company’s condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should the Company be unable to continue as a going concern.
Nasdaq Listing
The Company has received deficiency notification letters from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in compliance with certain Nasdaq listing rules relating to maintaining a minimum market value of listed securities of $50,000,000 (the “MVLS Requirement”), a minimum market value of publicly held shares of $15,000,000 (the “MVPHS Requirement”), and a minimum bid price of $1.00 for its common stock (the “Minimum Bid Price Requirement”). On July 13, 2022, the Company received an additional letter from Nasdaq stating that because the Company had
6
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
not regained compliance with the MVLS Requirement as of July 12, 2022, trading of the Company’s common stock on Nasdaq would be suspended on July 22, 2022 and removed from listing and registration, unless the Company requested an appeal to a Nasdaq hearings panel by July 20, 2022, which the Company requested prior to such deadline. Such hearing occurred on August 25, 2022. In anticipation of the expiration of the MVPHS Requirement and Minimum Bid Price Requirement cure periods on August 30, 2022 and October 3, 2022, respectively, the Company addressed all three requirements as part of its compliance plan (“Compliance Plan”) during its hearing. By letter dated September 13, 2022, Nasdaq informed the Company of the Panel’s decision directing that the Company’s listing be transferred to the Nasdaq Capital Market, effective at the open of business on September 15, 2022, and the Company’s common stock will continue to be listed on that market subject to, among other things, the Company satisfying the Compliance Plan in full by no later than January 9, 2023. The Company’s listing was transferred to the Nasdaq Capital Market on September 15, 2022 and the Company is actively working to implement the Compliance Plan. There can be no assurance that the Company will be able to implement all of the elements in the Compliance Plan in the time required thereunder. If the Company is in fact not able to implement the Compliance Plan as required, the Company will be de-listed from Nasdaq.
COVID-19 Pandemic
The Company is continually monitoring the impact of the global pandemic on its business, especially since the Company conducts activities in multiple locations, both in and outside of the United States. These locations are New York City and Los Angeles in the United States and Jerusalem and Tel Aviv in Israel. At various times since the onset of the global pandemic, these locations have been severely affected by COVID-19 and, as a result, have been subject to various requirements to stay at home and self-quarantine, as well as constraints on mobility and travel, especially international travel. The onset of COVID-19 in March 2020 and its ensuing effects resulted in delays in the implementation of the Company’s business plan, including the progress of its development programs. Such delays affected, among other things, implementation of clinical efforts, including patient enrollment. As the COVID pandemic has eased, many COVID-related restrictions have been loosened or lifted. However, public health officials have repeatedly warned of a possible resurgence of COVID-19, including as a result of new variants of the virus or other unpredictable events. Any resurgence in the severity of the COVID-19 pandemic would likely have a further impact on the implementation of the Company’s business plan. Further, the business or operations of the Company’s strategic partners and other third parties with whom it conducts business may also be adversely affected by COVID-19. The Company continues to monitor the impact of the global pandemic, including regularly reevaluating the timing of its research and development and clinical milestones.
2. | Summary of Significant Accounting Policies |
The Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected to avail itself of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. In management’s opinion, the accompanying statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. All significant intercompany transactions have been eliminated upon consolidation.
7
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022, as amended on May 2, 2022 (the “2021 Form 10-K”).
The accompanying balance sheet at December 31, 2021 has been derived from the audited balance sheet at December 31, 2021 contained in the Company’s 2021 Form 10-K. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates in these condensed consolidated financial statements include those related to the fair value of warrants, stock-based compensation, the provision or benefit for income taxes and the corresponding valuation allowance on deferred tax assets, and probability of meeting certain milestones. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. On an ongoing basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Due to the inherent uncertainty involved in making estimates, actual results could differ materially from those estimates.
Offering Costs
Offering costs totaling $1,168,900 were recognized as a reduction of the proceeds of the Company’s follow-on public offering completed in February 2021 (See Note 3).
Fair Value Measurement
Certain assets and liabilities are carried at fair value in accordance with U.S. GAAP. Fair value is defined as the price which would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy which prioritizes the inputs used in the valuation methodologies, are as follows:
Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets which are not active, or other inputs observable or can be corroborated by observable market data.
Level 3Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
As of September 30, 2022 and December 31, 2021, the carrying amounts of the Company’s cash, and the accounts payable and accrued expenses approximate their respective fair values due to the short-term nature of these instruments.
The common stock warrant liability was recorded at fair value on a recurring basis and is considered a Level 3 liability until its reclassification into equity during the three-month period ended September 30, 2021.
The table below presents the changes in Level 3 liabilities measured at fair value on a recurring basis (see Note 9).
8
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| Common Stock | ||
Warrant Liability | |||
Balance at December 31, 2020 | $ | — | |
Reclassification of warrants into liabilities (see Note 9) |
| 3,400,642 | |
Change in fair value of common stock warrant liability |
| (1,455,888) | |
Reclassification of warrants into equity (see Note 9) |
| (1,944,754) | |
Balance at September 30, 2021 | $ | — | |
There were no liabilities measured at fair value at September 30, 2022 and December 31, 2021. There are no assets measured at fair value on a recurring basis, nor are there assets or liabilities measured at fair value on a non-recurring basis during the nine months ended September 30, 2022 and 2021.
Net Loss Per Share
Basic net loss per common share attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the relevant period. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as dilutive net loss per share as the inclusion of the weighted-average number of all potential dilutive common shares, which consist of convertible notes, stock options, warrants and AIOs, would be anti-dilutive.
The following table presents the weighted-average, potentially dilutive shares that were excluded from the computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:
Recent Accounting Pronouncements
The Company, as an emerging growth company, has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of The Securities Act of 1933, for complying with new or revised accounting standards, which allows us to defer adoption of certain accounting standards until those standards would otherwise apply to private companies unless otherwise noted.
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. Management is currently evaluating the new guidance but does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
9
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. | Equity offerings |
On December 18, 2020, the Company completed an IPO of 575,000 shares of its common stock at a public offering price of $5.50 per share for aggregate gross proceeds, including the Company’s underwriters’ exercise, in full, of their over-allotment option, of $3,162,500. The Company received aggregate net proceeds of $1,711,186 after deducting offering costs of $1,451,314. The Company’s common stock is listed on The Nasdaq Global Market under the symbol “SCPS”. In connection with the Company’s IPO, the Company granted an option to purchase 57,500 shares of the Company’s common stock to the underwriter.
On February 10, 2021, the Company completed a follow-on public offering of 1,150,000 shares, including the Company’s underwriters’ exercise in full of their over-allotment option, of its common stock at a public offering price of $9.00 per share, for aggregate gross proceeds of $10,350,000. The Company received aggregate net proceeds of $9,181,100 after deducting offering costs of $1,168,900 related to the follow-on public offering. The offering costs were recognized as a reduction of the proceeds of the Company’s follow-on public offering. In addition, in connection with the Company’s follow-on public offering, the Company granted options to purchase 115,000 shares of the Company’s common stock to the underwriter. These options have a weighted-average exercise price of $11.25 and a grant date weighted-average fair value of $6.55 per option.
On November 21, 2021, the Company entered into securities purchase agreements with certain institutional investors, pursuant to which the Company issued, in a private placement offering (the “Private Placement”), 3,000,000 shares of common stock, Series A Additional Investment Options (the “Series A AIOs”) to purchase 1,500,000 shares of Common Stock and Series B Additional Investment Options (the “Series B AIOs,” together with the Series A AIOs, the “AIOs”) to purchase 1,500,000 shares of Common Stock, at a purchase price of $3.25 per share and associated AIOs. At the closing on November 23, 2021, the Company received gross proceeds of $9,750,000 and incurred approximately $1,482,600 in offering costs, of which $1,131,700 was paid in cash and $350,900 relating to the fair value of the Placement Agent AIOs (discussed below).
The Series A AIOs are exercisable immediately and have a term of five years starting on January 18, 2022 (see the amendment disclosure below) and have an exercise price of $3.125 per share. The Series B AIOs became exercisable upon effectiveness of that certain Registration Statement on Form S-3 (File No 333-261991), which was declared effective by the SEC on January 18, 2022, and have a term of five years starting on January 18, 2022 and have an exercise price of $3.125 per share.
In conjunction with the Private Placement, the Company issued to the placement agent the AIOs (the “Placement Agent AIOs”) to purchase up to 225,000 shares of common stock. The Placement Agent AIOs have an exercise price equal to $4.0625, or 125% of the offering price per Share and associated AIOs with a term of five years following January 18, 2022.
On January 14, 2022, the Company entered into amendments to the purchase agreements and registration rights agreements with the investors in the Private Placement, pursuant to which the parties (i) agreed to remove the requirement that the Company hold a shareholder meeting to increase the amount of authorized common stock in the Company’s Certificate of Incorporation and (ii) agreed to have the Series B AIOs be immediately exercisable upon effectiveness of that certain Registration Statement of Form S-3 (File No 333-261991), which was declared effective by the SEC on January 18, 2022, (the “Effectiveness Date”). In addition, the Placement Agent AIOs issued in connection with the Private Placement were amended to also become immediately exercisable upon the Effectiveness Date and the restriction on the Company conducting subsequent equity sales for a period of 60 days contained in the original purchase agreements, which expired in March 2022, was amended to commence on the Effectiveness Date.
There were no exercises or cancellations of AIOs since their issuance through September 30, 2022.
The total fair value of the Placement Agent AIOs was $350,900 at the issuance date. The Company estimated the fair value of the AIOs using the Black-Scholes option pricing model based on the following assumptions:
Risk-free interest rate |
| 1.33 | % |
Expected life |
| 5 years | |
Dividend yield |
| 0 | % |
Volatility |
| 80 | % |
10
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. | Acquisitions |
On June 25, 2021, the Company completed the acquisition of Duet, a developer of oligonucleotide immunotherapies for the treatment of multiple cancers. Duet owned the exclusive right to negotiate two license agreements with City of Hope (“COH”), which were executed concurrently with the closing of the acquisition, relating to Duet’s drug candidates, CpG-STAT3ASO (“DUET-02”) and CpG-STAT3decoy (“DUET-03”) (see Note 7). The transaction was accounted for as an asset acquisition as the purchase primarily related to a single asset.
The aggregate upfront expense, including the upfront license fees paid to COH, totaled approximately $8.1 million, consisting of approximately $0.4 million payable in cash and the issuance of approximately $7.7 million of common stock. Pursuant to asset acquisition accounting, acquired IPR&D with no alternative future use is expensed at acquisition. Accordingly, the $8.1 million was recognized in “Research and development” expenses in the accompanying consolidated statements of comprehensive loss during the second quarter of 2021.
On June 10, 2020, pursuant to a stock exchange agreement, the Company completed the acquisition of Bioscience Oncology Pty. Ltd. (“Bioscience Oncology”), a pre-clinical biopharmaceutical company which held a single asset, the exclusive right to negotiate a license agreement for CpG-STAT3siRNA (“DUET-01”) with COH (see Note 7). Under the terms of the agreement, the previous stockholders of Bioscience Oncology were eligible to receive additional contingent consideration of up to approximately 2.5 million shares of common stock upon the achievement of specified milestones, which is to be recognized when it is determined the corresponding milestone is probable to be achieved. In June 2021, the previous stockholders of Bioscience Oncology were issued approximately 1.3 million shares of common stock upon achievement of a specified milestone. The fair value of the shares as of the acquisition date totaling approximately $5.1 million was recognized in “Research and development” expenses in the accompanying consolidated statements of comprehensive loss during the second quarter of 2021. As of September 30, 2022, the previous stockholders of Bioscience Oncology remain eligible to receive additional contingent consideration of approximately 1.3 million shares of common stock (the “Contingent Common Stock”) upon achievement of a second specified milestone (see Notes 7 and 9).
5. | Accounts payable and accrued expenses |
Accounts payable and accrued expenses consist of the following as of:
6. | Debt |
In April 2020, the Company commenced a private placement of convertible promissory notes (“Convertible Notes”) with Series W Warrants (the “W Warrants”) in an initial principal amount of up to $3,000,000 (“Convertible Notes Private Placement”). The Convertible Notes had an annual interest rate of 10% and a scheduled maturity on the earlier of July 31, 2021 or a change of control of the Company (the “Maturity Date”).
For each $1.00 of initial principal, the purchaser also received one W Warrant. Prior to the Maturity Date, the holder could elect to convert each $1.00 of initial principal amount of Convertible Notes plus accrued and unpaid interest into W Warrants at a conversion price of $0.50 per W Warrant.
Between June 2020 and September 2020, the Company issued an aggregate initial principal amount of $2,001,605 of Convertible Notes as part of the Convertible Notes Private Placement for net cash proceeds of $1,741,531 after issuance costs of $260,074, of
11
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
which $192,787 was recognized as deferred financing costs and the remaining $67,287 as a reduction of the proceeds allocated to the attached W Warrants.
Between February 2020 and June 2020, the Company issued Convertible Notes on identical terms to those issued in the Convertible Notes Private Placement to HCFP/Portfolio Services LLC (“Portfolio Services”) (see Note 9), investors and vendors, on a direct basis, in an aggregate initial principal amount of $636,230 for $187,500 in cash, with the balance as consideration for legal and management services rendered and payable (the “Company Direct Offering”).
Holders of W Warrants purchased in December 2019 and January 2020 were provided the option to surrender two W Warrants for the purchase of $1.00 of initial principal amount of Convertible Notes. On September 28, 2020, all holders of W Warrants purchased in December 2019 and January 2020 elected to surrender all of their W Warrants and, accordingly, the Company issued an aggregate initial principal amount of $252,000 of Convertible Notes in exchange for 504,000 surrendered W Warrants, of equivalent fair market value, as part of the Convertible Notes Private Placement.
Effective July 31, 2021, the holders of the Convertible Notes converted, under the original terms of the Convertible Notes, an aggregate of $3,084,875 of initial principal and accrued and unpaid interest at a rate of $0.50 per W Warrant, resulting in the issuance of 6,169,771 W Warrants. The remaining outstanding principal and accrued and unpaid interest through July 31, 2021 of $129,548 was repaid in cash. Accordingly, the Company has no further obligations under the Convertible Notes at September 30, 2022 or December 31, 2021.
As of their issuance dates, the Convertible Notes principal amount of $2,889,835, reduced for issuance costs of $260,074, was allocated to the Convertible Notes and W Warrants, based on their respective relative fair value, resulting in an allocation of $1,733,769 and $895,992 to the Convertible Notes and W Warrants, respectively. The resulting difference between the principal amount and the amount allocated to Convertible Notes of $1,156,066 was recognized as debt discount, which was amortized as interest expense over the term of the Convertible Notes.
No interest expense was incurred during the three and nine months ended September 30, 2022. Interest expense for the three and nine months ended September 30, 2021 totaled $110,669 and $774,679, respectively, and is included in “Interest expense” in the accompanying condensed consolidated statements of comprehensive loss. For the three and nine months ended September 30, 2021, interest expense includes $24,083 and $168,575, respectively, of interest expense and $86,586 and $606,104, respectively, of debt discount and amortization of deferred financing costs.
7. | Research and Development Agreements |
Agreement Related to Intellectual Property Rights
In July 2017, VSI, as “Licensee,” entered into a Patent License Agreement (the “Patent License Agreement”) with the U.S. Department of Health and Human Services, as represented by the National Institute on Alcohol Abuse and Alcoholism (“NIAAA”) and the National Institute on Drug Abuse (“NIDA”) of the National Institutes of Health (“NIH”), (collectively “Licensor”). In the course of conducting biomedical and behavioral research, the Licensor developed inventions that may have commercial applicability. The Company acquired commercialization rights to certain inventions in order to develop processes, methods, or marketable products for public use and benefit.
Patent fee reimbursement under the Patent License Agreement was $5,016 and $15,050 for the three and nine months ended September 30, 2022, respectively. Patent fee reimbursement under the Patent license agreement was $5,017 and $15,050 for the three and nine months ended September 30, 2021, respectively. These costs are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.
Pursuant to the terms of the Patent License Agreement, VSI is required to make minimum annual royalty payments on January 1 of each calendar year, which shall be credited against any earned royalties due for sales made in that year, throughout the term of the Patent License Agreement. For the three months ended September 30, 2022 and 2021, $6,250 of this prepaid royalty expense was recognized in each period in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss. For the nine months ended September 30, 2022 and 2021, $18,750 of this prepaid royalty expense was
12
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
recognized in each period in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.
The Patent License Agreement also provides for payments from VSI to the Licensor upon the achievement of certain product development and regulatory clearance milestones, as well as royalty payments on net sales upon the commercialization of products developed utilizing the licensed patents. Through September 30, 2022, the Licensor has not achieved any milestones and therefore VSI has not made any milestone payments.
VSI is obligated to pay earned royalties based on a percentage of net sales, as defined in the Patent License Agreement, of licensed product throughout the term of the Patent License Agreement. Since April 18, 2017 (inception) through September 30, 2022, there have been no sales of licensed products. In addition, VSI is also obligated to pay the Licensor additional sublicensing royalties on the fair market value of any consideration received for granting each sublicense. Through September 30, 2022, VSI has not entered into any sublicensing agreements and therefore no sublicensing consideration has been paid to Licensor.
As previously disclosed, the Company’s rights under its license with the NIH may overlap with rights which may have been granted to another company. The Company has been in communication with the NIH seeking clarification as to each company’s rights. The Company has also had, from time to time, discussions with such other company to explore possible collaborations. The Company has been unable to enter into any such arrangements. Notwithstanding the Company’s attempts to engage the NIH to clarify these overlapping rights, the NIH has disregarded such requests. By email dated August 15, 2022, the NIH purports to terminate the Company’s rights. The Company rejects the NIH’s purported action and intends to further seek to engage with the NIH in an attempt to protect and clarify its rights.
Memorandums of Understanding
Effective July 28, 2018, SBI entered into two Memorandums of Understanding (“MOUs”) with Yissum Research Development Company (“Yissum”) of the Hebrew University of Jerusalem Ltd. (“Hebrew University”). Research under the Yissum MOUs was completed in December 2019 and March 2020, respectively, resulting in the license agreements below.
Effective March 5, 2019, the Company entered in a license agreement with Yissum with respect to the results of the research relating to the combination of CBD with approved anesthetics as a potential treatment for the management of pain. Under the license agreement, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the license agreement, including net sales generated from sub-licensees. In addition, the Company will be obligated to make payments upon the achievement of certain clinical development and product approval milestones. From March 5, 2019 through September 30, 2022, there have been no sales of licensed products by the Company nor has the Company entered into any sub-licensing agreements. Further, none of the milestones in the agreement have been reached and therefore as of September 30, 2022, there is no obligation to make any milestone payments.
Effective August 8, 2019, the Company entered into a second license agreement with Yissum with respect to the research results relating to the synthesis of novel cannabinoid dual-action compounds and novel chemical derivatives of cannabigerol and tetrahydrocannabivarin. Under this license agreement, the Company is required to pay earned royalties based upon a percentage of net sales at one percentage for regulated products and a lesser percentage for non-regulated products. The Company is obligated to pay development milestone payments tied to regulated products totaling $1,225,000 in the aggregate and $100,000 for non-regulated products in the aggregate. None of the milestones in the agreement have been reached and therefore as of September 30, 2022 there is no obligation to make any milestone payments.
CpG-STAT3siRNA (DUET-01) Agreements
In June 2020, the Company entered into an exclusive, worldwide license agreement with COH relating to CpG-STAT3siRNA (the “siRNA Exclusive License Agreement”). In addition to the siRNA Exclusive License Agreement, the Company also entered into a Sponsored Research Agreement (the “SRA”) relating to on-going research and development activities in collaboration with COH relating to CpG-STAT3siRNA. The Company obtained the right to negotiate the siRNA Exclusive License Agreement with COH as part of the Bioscience Oncology acquisition in June 2020 (Note 4). The Company incurred the license maintenance fees in relation to the siRNA Exclusive License Agreement of $7,500 for each of the three-month periods ended September 30, 2022 and
13
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2021, and $22,500 for each of the nine-month periods ended September 30, 2022 and 2021. In September 2022, the SRA was extended until September 2025 with no additional costs to the Company.
Under the terms of the siRNA Exclusive License Agreement, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the siRNA Exclusive License Agreement, including net sales generated from sub-licensees. In addition, the Company is obligated to make payments in cash upon the achievement of certain clinical development and product approval milestones totaling $3,525,000 in the aggregate. None of the milestones in the siRNA Exclusive License Agreement have been reached and therefore as of September 30, 2022, there is no obligation to make any milestone payments. Pursuant to the terms of the SRA, the Company has committed to fund research and development at COH for two years in accordance with a predetermined funding schedule. Total expenses incurred in connection with the SRA were $0 and $62,500 for the three months ended September 30, 2022 and 2021, respectively. Total expenses incurred in connection with the SRA were $111,111 and $187,500 for the nine months ended September 30, 2022 and 2021, respectively. These expenses are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.
In March 2021, the Company paid to COH approximately $1.2 million relating to the clinical lot manufacturing and IND preparation costs for CpG-STAT3siRNA and agreed to pay $10,000 per month to COH for certain project management and regulatory services relating to the preparation of the IND for CpG-STAT3siRNA until such IND was filed with the FDA, which occurred in April 2021. Further, the Company incurred costs of $0 and $43,433 during the three and nine months ended September 30, 2022, respectively, pursuant to a clinical research support agreement (the “CRSA) relating to the Phase 1 clinical trial for CpG-STAT3siRNA to be conducted at COH. The Company incurred costs of $10,010 and $0.3 million during the three and nine months ended September 30, 2021, respectively, pursuant to the CRSA relating to the Phase 1 clinical trial for CpG-STAT3siRNA conducted at COH. These expenses are included in “Research and development” expenses in the accompanying consolidated statements of comprehensive loss.
On April 7, 2022, the Company entered into a sponsored research agreement (the “Kortylewski SRA”) with COH for research to be conducted by Marcin Kortylewski, Ph.D., a Co-Founder and Senior Advisor of Duet and Professor in the Department of Immuno-Oncology at COH. Pursuant to the Kortylewski SRA, Dr. Kortylewski and his lab will be evaluating novel chemical structures and formulations to increase the stability of siRNA-based molecules to enable systemic delivery. The research under the Kortylewski SRA is conducted over a two-year period at a cost of approximately $200,000 per year. The Company incurred $50,722 and $97,841 during the three and nine months ended September 30, 2022, respectively, related to the Kortylewski SRA, included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.
Duet (DUET-02 and DUET-03) License Agreements
On June 25, 2021, the Company entered into two exclusive, worldwide license agreements with COH relating to Duet’s drug candidates. The Company obtained the rights to negotiate the CpG-STAT3ASO Patent Rights License Agreement and the CpG-STAT3decoy Patent Rights License Agreement (together, the “Duet License Agreements”) with COH as part of the Duet acquisition in June 2021 (see Note 4). Under the terms of the Duet License Agreements, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the Duet License Agreements, including net sales generated from sub-licensees. The Company incurred upfront license fees of $335,622 in connection with the Duet License Agreements, of which $181,436 was included in accounts payable and accrued expenses at September 30, 2022 and December 31, 2021. The Company incurred $12,500 and $37,500 related to annual license maintenance fees during the three and nine months ended September 30, 2022. On April 19, 2022, the Company entered into an amendment to the CpG-STAT3ASO Patent Rights License Agreement with COH to secure a non-exclusive royalty bearing right and license to use and make derivative works of certain technical information and know how related to CpG-STAT3ASO. In connection with the amendment, the Company agreed to make a one-time non-refundable license fee payment of $25,000 to COH within five days of the effective date of the amendment, included in “Research and development” expenses in the accompanying consolidated statement of comprehensive loss for the nine months ended September 30, 2022.
In addition, the Company is obligated to make payments in cash upon the achievement of certain clinical development and product approval milestones totaling $6,750,000 for each , or $13,500,000 in the aggregate. None of the milestones in the Duet License Agreements have been reached and therefore, as of September 30, 2022, and December 31, 2021, there is no obligation to make any milestone payments.
14
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. | Commitments and Contingencies |
Research and Development Agreements
The Company has entered into various research and development agreements which require the Company to provide certain funding and support. See Note 7 for further information regarding these agreements.
Legal Proceedings
The Company is involved in litigation initiated by or against former officers and/or directors and certain of the family members of such persons (the “Adverse Parties”). The Adverse Parties are primarily Morris Laster and certain of his family members (“Laster”), Ashish P. Sanghrajka (“Sanghrajka”) and/or Paul Hopper (“Hopper”). Laster and Sanghrajka are former officers and directors of the Company and Hopper is a former director of the Company.
In April 2021, Laster initiated litigation against the Company in the Delaware Court of Chancery (the “Chancery Court”) relating to ownership and transferability of shares of the Company’s common stock (the “Delaware Litigation”). Pursuant to a stipulation approved by the Chancery Court in the Delaware Litigation, the parties agreed to, among other things, an expedited timeline for resolving the Delaware Litigation with a trial intended to be held in December 2021. Such stipulation also provided for adjournments or postponements of the Company’s 2021 Annual Meeting of Stockholders (“2021 Annual Meeting”), such that the 2021 Annual Meeting would be held and the vote on the items of business to be considered at the Annual Meeting would take place during a specified time after a decision on the merits by the Chancery Court or a final settlement between the parties. Pursuant to additional proceedings in the Chancery Court, the Company became subject to further expedition for document production. The Company’s inability to meet such production deadlines, among other things, resulted in the Company being sanctioned by the Chancery Court. Laster made several motions relating to such sanctions, including seeking to recover legal fees. Commencing in January 2022, the Chancery Court, by subsequent hearings and court orders, specified the categories and amounts of legal fees which would be reimbursable. In April 2022, the Company was ordered by the Chancery Court to reimburse $358,874 of legal fees, which were paid in May 2022. In an attempt to mitigate the dispute, reduce the ongoing expenses and disruption of expedition, and limit exposure under sanctions, the Company has taken steps in an effort to resolve the Delaware Litigation, including facilitating the transfer by the then-record owner to Laster of record ownership of the 3,500,000 shares of common stock and facilitating the delivery of an irrevocable proxy by the then-record owner to Laster to vote such shares. The Delaware Litigation remains in discovery with a trial date scheduled for May 2023, which has been subject to several postponements.
In July 2021, the Company reported that it had terminated the employment of Sanghrajka, the Company’s former president, in accordance with the terms of his employment agreement. The Company also reported that the Audit Committee had conducted an internal review and, as a result of such review, the Executive Committee and Audit Committee requested the resignations of Sanghrajka and Hopper from the Board. In August 2021, Sanghrajka filed a lawsuit against the Company and several other parties alleging, among other things, that he was wrongfully terminated by the Company. The Company believes Sanghrajka’s lawsuit is without merit. The Company filed a lawsuit, subsequently withdrawn, against Sanghrajka and Hopper and an affiliate of Hopper alleging, among other things, fraud and breaches of fiduciary duty and contractual obligations owed to the Company in connection with Hopper’s sale of Bioscience Oncology to the Company, and for declaratory judgment that Sanghrajka and Hopper are not entitled to indemnification or advancement of expenses. In response to the lawsuit filed by the Company, counsel for Sanghrajka and Hopper sent a letter to the Company demanding indemnification and advancement of expenses relating to the Company’s lawsuit against them. In October 2021, the Company received a letter from counsel in Australia for Hopper claiming, among other things, that the Company made defamatory statements about Hopper in certain of its SEC filings, including in the filing disclosing the request for Hopper to resign. The Company believes that Hopper’s claims are without merit.
On October 26, 2021, the Adverse Parties filed a stockholders derivative lawsuit (the “Derivative Complaint”), purportedly on behalf of the Company, against all of the other members of the Company’s Board of Directors “Board”), excluding Sanghrajka and Hopper, and certain of their affiliates in the Chancery Court. The Derivative Complaint set forth various assertions and allegations against the Executive Committee Directors and Independent Directors. On November 12, 2021, the Company filed a motion to dismiss the Derivative Complaint. On March 11, 2022, the Chancery Court dismissed the Derivative Complaint.
15
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On December 16, 2021, HCFP/Capital Partners VIB LLC (“VIB”) filed a Motion to Intervene and attached its Complaint in Intervention, which alleges, among other things, that although Laster claims to have acquired 6,000,000 shares of the Company’s common stock in June 2017, Laster never owned or acquired those shares because he did not sign or agree to VIB’s operating agreement, which is the only way he could have obtained such shares. On January 3, 2022, the Executive Committee Directors filed a Verified Complaint pursuant to Section 225 of the Delaware General Corporation Law challenging the results of the 2021 Annual Meeting (the “Section 225 Action”), on the basis that, among other things, (i) Laster improperly voted 6,000,000 shares of the Company’s common stock at the 2021 Annual Meeting because Laster does not own such shares over which Laster improperly and incorrectly claimed ownership, and (ii) Laster would have not succeeded at the 2021 Annual Meeting but for the fact they improperly voted such shares given that an overwhelming majority (of more than 90%) of unaffiliated stockholders’ votes were in favor of the incumbent directors. On April 26, 2022, the directors who joined the Company’s Board as a result of the election results being contested by the Section 225 Action voluntarily resigned from the Board.
There have been limited activities relating to such matters during the three-month period ended September 30, 2022. However, the Company anticipates a higher level of activity in 2023, including relating to a proceeding in the Delaware Litigation scheduled to begin in May 2023. Litigation is highly unpredictable and the costs of litigation, including legal fees, costs and expenses, and the possible liabilities, including monetary damages, to which the Company could become subject could be significant. Any such liabilities would have a material adverse effect on the Company. The Company’s existing capital resources are extremely limited and are insufficient to fund its business and/or litigation. There can be no assurance that financing will be available to the Company on a timely basis and on satisfactory terms, or at all. Failure to obtain sufficient financing on satisfactory terms in the immediate future would have a material adverse effect on the Company, including possibly being required to substantially curtail or cease its operations.
9. | Stockholders’ Equity |
Warrants
On June 5, 2020, the Company issued to HCFP/Capital Partners 18-B-2 LLC (“CP18B2”) 3,000,000 W Warrants in exchange for consideration of a $1.5 million contingent promissory note (“Note Receivable”). The Note Receivable accrued interest at a rate of 1% per annum. Payment of this Note Receivable was contingent on exercise or sale of the W Warrants prior to their expiration. If the W Warrants had not been sold or exercised prior to their expiration by CP18B2, no payment of principal and interest of the Note Receivable would be required.
On July 31, 2021, the Company issued 6,169,771 W Warrants in connection with the conversion of the Convertible Notes (Note 6).
In connection with and to enable the closing of the Private Placement (see Note 3), the Company entered into a Warrant Contribution Agreement with CP18B2 pursuant to which CP18B2 contributed 3,000,000 W Warrants back to the Company in exchange for cancellation of the Note Receivable, including the interest.
During the nine months ended September 30, 2022, no warrants were issued, exercised, or forfeited. As of September 30, 2022, 11,854,209 warrants were outstanding, representing an aggregate of 23,458,418 underlying shares of common stock, and exercisable at a weighted-average exercise price of $3.95. As of September 30, 2022, the remaining contractual term of the outstanding warrants was 4.0 years.
16
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Common Stock Warrant Liability
At June 25, 2021, the sum of (i) the Company’s number of shares of common stock outstanding as of June 25, 2021, (ii) the total number of shares of common stock not yet issued or issuable pursuant to derivative securities and (iii) the number of shares of Contingent Common Stock, which sum is not a determination of shares actually issued and outstanding under applicable law, exceeded the number of authorized shares. Pursuant to ASC Topic 815, Derivatives and Hedging (“ASC 815”), the number of shares of common stock calculated as being in excess of the number of authorized shares should be classified as a liability and revalued at the end of each reporting period, as applicable. As a result, at June 25, 2021, the Company reclassified from additional paid-in capital to common stock warrant liability a total of 356,836 W Warrants at a fair value of $3,400,643. As of July 31, 2021, after giving effect to the conversion of the Convertible Notes on the Maturity Date and giving pro forma effect to the exercise of all derivative securities, including W Warrants (which had not yet become exercisable), Z Warrants (which had not yet become issuable) and all other warrants and stock options (including stock options which had not yet vested), net of forfeiture of 300,000 stock options, the aggregate number of fully-diluted shares of common stock would have been fewer than the number of authorized shares. On the Maturity Date of the Convertible Notes, initial principal and accrued and unpaid interest of $3,084,875 and $129,548 was converted into 6,169,771 W Warrants and repaid in cash, respectively. None of the W Warrants issued upon conversion of the Convertible Notes were exercisable. At that date, the Company reclassified the fair value of the warrant liability of $1,944,754 into the additional paid-in capital. The change in fair value of the common stock warrant liability of $1,455,889 between June 25, 2021 and July 31, 2021 is reflected in “Change in fair value of common stock warrant liability” in the accompanying condensed consolidated statements of comprehensive loss. The fair value of the common stock warrant liability at reclassification date of June 25, 2021 and as of July 31, 2021 was estimated using a Monte Carlo daily price simulation based on the market value of the underlying common stock at the measurement date. Inputs to the model at each date included:
AIOs
During the nine months ended September 30, 2022, no AIOs or Placement Agent AIOs (see Note 3) were exercised or forfeited. As of September 30, 2022, an aggregate of 3,225,000 AIOs and Placement Agent AIOs were outstanding at a weighted-average exercise price of $3.19. As of September 30, 2022, the remaining contractual term of the outstanding AIOs was 4.1 years.
Contingent Common Stock
As a result of the Company’s acquisition of Bioscience Oncology, the previous stockholders of Bioscience Oncology are eligible to receive remaining contingent consideration of up to approximately 1.3 million shares of common stock upon the achievement of a specified milestone, which will be recorded when it is determined the corresponding milestone is probable to be achieved (see Notes 4 and 7).
10. | Stock Options |
Effective September 24, 2018, the Company approved the Scopus BioPharma Inc. 2018 Equity Incentive Plan (the “Plan”), and reserved 1,000,000 shares of the Company’s common stock, such amount subsequently being increased to 2,400,000 shares, for issuance under the Plan. As of September 30, 2022, there were 1,800,000 shares available for issuance under the Plan. The stock options shall be granted at an exercise price per share equal to at least the fair market value of the shares of common stock on the date of grant and generally vest over a three-year period.
17
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Stock option activity is summarized as follows for the nine months ended September 30, 2022:
|
|
| Weighted- | |||||
Weighted- | average | |||||||
average | Remaining | |||||||
Options | Exercise Price | Contractual Life | ||||||
Outstanding at December 31, 2021 | 972,500 | $ | 5.22 | 4.94 | ||||
Granted | — | — | — | |||||
Exercised |
| — |
| — |
| — | ||
Forfeited |
| (200,000) |
| 5.50 |
| — | ||
Outstanding at September 30, 2022 |
| 772,500 | $ | 5.15 | 4.45 | |||
Vested and exercisable at September 30, 2022 |
| 651,801 | $ | 5.08 | 4.68 | |||
Unvested at September 30, 2022 |
| 120,699 | $ | 5.50 | 3.21 | |||
Included in the table above are 172,500 options issued to the underwriters outside of the Plan in connection with the Company’s public offerings (see Note 3).
Stock-based compensation expenses associated with the vesting of options was $83,557 and $273,613 for the three and nine months ended September 30, 2022, respectively. Stock-based compensation expenses associated with the vesting of options was $154,467 and $525,369 for the three and nine months ended September 30, 2021, respectively. Stock-based compensation expense associated with the vesting of options is included in “General and administrative” expenses in the accompanying condensed consolidated statements of comprehensive loss. As of September 30, 2022, total unrecognized stock-based compensation expense was $377,103 and is expected to be recognized over the remaining weighted-average contractual vesting term of 1.2 years.
11. | Related Party Transactions |
The Company has a management services agreement, as amended, with Portfolio Services, an affiliated entity, to provide management services to the Company including, without limitation, financial and accounting resources, general business development, corporate development, corporate governance, marketing strategy, strategic development and planning, coordination with service providers and other services as agreed upon between the parties. The Company pays Portfolio Services a monthly management services fee plus related expense reimbursement and provision of office space and facilities. The monthly management services fee is $50,000 effective July 1, 2020. The monthly facilities fee is $3,000 effective May 1, 2019.
For the three and nine months ended September 30, 2022, the Company incurred expenses of $159,000 and $477,000, respectively, related to the above. For the three and nine months ended September 30, 2021, the Company incurred expenses of $159,000 and $477,000, respectively, related to the above. The costs are included in “General and administrative” expenses in the accompanying condensed consolidated statements of comprehensive loss. Amounts payable to Portfolio Services as of September 30, 2022 and December 31, 2021 were $0.
Pursuant to a management services agreement with Clil Medical Ltd. (“Clil”), an affiliate of a co-founder and former director of the Company, such individual was obligated to provide executive and other management services to the Company. This management services agreement was terminated in June 2020 and, concurrently, such individual resigned as a director of the Company, but continued to serve in various other capacities for the Company and its subsidiaries. Subsequently, such individual submitted resignations to the Company and its subsidiaries. The Company and such individual do not agree on various matters, including obligations under the applicable management services agreement, both prior and subsequent to its termination. The amounts for the services provided through the termination date were fully accrued for as of September 30, 2022 and December 31, 2021. No expenses were incurred under this management services agreement for the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022 and December 31, 2021, the total amount due to Clil was $198,530, and is included in “Accounts payable and accrued expenses” on the accompanying condensed consolidated balance sheets.
In June 2020, the Company issued to CP18B2, an affiliated entity, 3,000,000 W Warrants in exchange for consideration of a contingent Note Receivable. These W Warrants were contributed back to the Company in connection with and to enable the Private Placement in November 2021 in exchange for the cancelation of the Note Receivable (see Note 9).
18
SCOPUS BIOPHARMA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On September 26, 2021, the Board approved an indemnification agreement (the “Indemnification Agreement”), pursuant to which the Company has agreed to indemnify each of the Executive Committee Directors, the employees of HCFP, and certain affiliates and related entities (collectively, the “Indemnified Parties”) from and against any losses, claims, damages or liabilities, including reasonable attorney’s fees, suffered or incurred by the Indemnified Parties in connection with any disputes, litigation or threatened litigation (whether existing prior to or commencing after the date of the Indemnification Agreement) involving certain current or former executives and directors of the Company and arising or resulting from any Indemnified Party’s affiliation or involvement with the Company, including in connection with the provision of additional services beyond those initially contemplated under the Portfolio Services management services agreement. The Indemnification Agreement also provides that the Company will advance expenses to any Indemnified Party, including legal fees, incurred by such Indemnified Party in connection with any litigation or proceeding to which such Indemnified Party is entitled to indemnification under the Indemnification Agreement. The Company incurred approximately $8,501 and $25,087 in legal fees and other expenses in connection with this Indemnification Agreement for the three and nine months ended September 30, 2022, respectively. The Company incurred no legal fees or other expenses in connection with this Indemnification Agreement for the three and nine months ended September 30, 2021.
In connection with the Exchanges, as defined and as described in Note 13 below, certain officers and/or directors exchanged W Warrants for an aggregate of 117,250 shares of Duet Class B Common Stock on the same terms as independent, third-parties.
12. | Income Taxes |
The Company did not provide for any income taxes for the three and nine months ended September 30, 2022 and 2021. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is not more likely than not that the Company will realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of September 30, 2022 and December 31, 2021. Management reevaluates the positive and negative evidence at each reporting period.
13. | Subsequent Events |
In October 2022, in connection with a recapitalization, Scopus entered into exchange agreements with Duet and holders of 10,439,670 W Warrants, exercisable into an aggregate of 20,879,340 shares of Scopus common stock, pursuant to which such W Warrants were exchanged for 1,043,989 shares of Class B Common Stock (defined below) of Duet previously owned by Scopus (the “Exchanges”). Each W Warrant was exchanged for -tenth of a share of Class B Common Stock of Duet, with only whole-shares being issued. Upon completion of the Exchanges, the exchanged W Warrants were cancelled. In connection with the Exchanges and recapitalization, Duet’s certificate of incorporation was amended and restated to authorize (i) an additional 50,000,000 shares of capital stock and (ii) the redesignation of its common stock to include shares of Class A common stock (“Class A Common Stock”) and shares of Class B common stock (“Class B Common Stock”). The Class A Common Stock and Class B Common Stock are identical, except that the holders of Class A Common Stock are entitled to ten votes per share and holders of Class B Shares are entitled to one vote per share. All of the outstanding shares of Class A Common Stock are owned by Scopus. In addition, each share of Class A Common Stock is convertible, at the option of Scopus in its sole discretion, at any time into one share of Class B Common Stock. Each share of Class A Common Stock is automatically convertible into one share of Class B Common Stock if it is held by anyone other than Scopus or a permitted transferee. After giving effect to the recapitalization, Scopus continues to be the controlling stockholder of Duet with an economic ownership stake of approximately 90% and voting control of approximately 99%. In addition, Duet has issued shares of Class B Common Stock and warrants to purchase Class B Common Stock to unrelated third-parties for aggregate cash consideration of $233,919.
In October 2022, Duet’s board of directors adopted an omnibus incentive plan (the “Plan”), as an incentive to recruit and retain highly qualified employees, directors, consultants, and other services providers of Duet. At the discretion of the board of directors, or any authorized committee thereof, the Plan allows for the issuance of stock options, stock appreciation rights, restricted stock awards, performance awards, other stock-based awards, or other cash-based awards. Pursuant to the Plan, 2,000,000 shares of Duet’s Class B Common Stock were set aside and reserved for issuance. To date, no award issuances have occurred under the Plan.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2022, as amended on May 2, 2022 (collectively, the “2021 Form 10-K”), and certain other reports filed with the SEC as may be set forth below.
Forward Looking Statements
This quarterly report on Form 10-Q (“Quarterly Report”) and other reports filed by Scopus BioPharma Inc. (the “Company”) from time to time with the SEC (collectively, the “Filings”) contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Quarterly Report, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, potential growth or growth prospects, future research and development, sales and marketing and general and administrative expenses, and our objectives for future operations, are forward-looking statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,” “continues,” “anticipates,” “intends,” “expects,” “could,” “would,” “projects,” “plans,” “targets,” and variations of such words and similar expressions are intended to identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” described in our 2021 Form 10-K. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Unless otherwise stated in this Quarterly Report, “we”, “us”, “our”, “Company”, “Scopus” and “Scopus BioPharma” refer to Scopus BioPharma Inc. and its subsidiaries.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Quarterly Report are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason after the date of this Quarterly Report or to conform statements to actual results or revised expectations, except as required by law.
Overview
We are a biopharmaceutical company developing transformational therapeutics for serious diseases with significant unmet medical need. We are currently focusing our development efforts on our immuno-oncology programs. Duet BioTherapeutics, our majority-owned subsidiary (“Duet”), integrates the management and clinical development of the immunotherapy assets of Scopus and Olimmune Inc. (the “Duet Platform”). Duet, formerly Olimmune, was acquired by Scopus in June 2021.
The Duet Platform relies on a novel approach to immuno-oncology with a suite of bifunctional oligonucleotides that activate antigen-presenting cells (“APCs”) within the tumor microenvironment, while alleviating tumor immunosuppression to jump-start T cell-mediated immune responses. The unique mechanism-of-action of these synthetic oligonucleotides comes from simultaneously targeting two intracellular immune pathways – signal transducer and activator of transcription 3 (“STAT3”), a master immune checkpoint inhibitor, and toll-like receptor 9 (“TLR9”). The targeted inhibition of STAT3 reawakens immune cells and allows for the full potential of TLR9-driven innate and adaptive immune responses.
20
The Duet Platform is comprised of three distinctive, complementary CpG-STAT3 inhibitors:
● | RNA silencing | CpG-STAT3siRNA | (“DUET-01”) |
● | Antisense | CpG-STAT3ASO | (“DUET-02”) |
● | DNA-binding inhibitor | CpG-STAT3decoy | (“DUET-03”) |
An investigational new drug application (“IND”) for DUET-01 for a Phase 1 clinical trial, as a monotherapy, for B-cell non-Hodgkin lymphoma (“NHL”) was filed in April 2021. In May 2021, the United States Food and Drug Administration (“FDA”) approved this IND. The design of such investigator-sponsored clinical protocol for DUET-01, including the number of study visits, together with COVID-related constraints on mobility and travel have caused delays in patient enrollment. As previously disclosed, the clinical study sponsor publicly reported a later possible start date for enrollment. The clinical study sponsor subsequently reported additional delays in such start date. We have engaged in ongoing discussions with the sponsor regarding enrollment challenges and related matters. DUET-01 is currently designed for intratumoral delivery. In April 2022, we entered into a sponsored research agreement (“SRA”) relating to research, currently underway, to evaluate increasing the stability of siRNA-based molecules, including DUET-01 and potential new chemical entities, to enable systemic delivery. We believe that systemic delivery may enhance drug candidates based on siRNA-based molecules. In connection with the SRA, we obtained certain licensing rights to any intellectual property resulting from the research being conducted under such agreement. While research relating to CpG-STAT3siRNA continues pursuant to the SRA, we have begun prioritizing the development of DUET-02.
DUET-02 is an antisense STAT3 inhibitor (“ASO”) designed for systemic delivery. The STAT3ASO molecule binds directly to the STAT3 mRNA, recruiting ribonuclease H1 (“RNase H1”) to degrade the STAT3 mRNA. The use of ASO permits other chemical modifications resulting in greater stability in human blood. This allows for systemic treatment of harder-to-reach solid tumors such as prostate or kidney cancers. Dose-range finding studies, good laboratory practice (“GLP”) toxicology studies, and good manufacturing process (“GMP”) manufacturing of the drug substance and product are all currently in process. Duet currently anticipates filing an IND in Q1 2024 and thereafter commencing one or more Phase 1/2 clinical trials for advanced solid malignancies.
DUET-03 uses an alternative to the destruction of mRNA to silence STAT3 activity, such as with DUET-01 and DUET-02, instead targeting the actual STAT3 transcription factor protein. We are also evaluating combination therapies with checkpoint inhibitors.
On an ongoing basis, we continue to refine, update and enhance our immuno-oncology pipeline and target indications. We also continually evaluate the possibilities of additional studies with a view to enhancing, among other things, the effectiveness and method of delivery of our drug candidates and identifying additional protections for our intellectual property.
We are currently devoting substantially all of our efforts to our immuno-oncology programs. Due to capital constraints and other considerations, we have been winding down efforts relating to our non-immuno-oncology assets.
We do not have any products approved for sale and have not generated any revenue. We expect to continue to incur significant expenses and increasing operating losses. We anticipate that all of our expenses will increase substantially, including as we:
| ● | continue our research and development efforts; |
| ● | contract with third-party research organizations to manage our clinical and pre-clinical trials for our drug candidates; |
| ● | outsource the manufacturing of our drug candidates for clinical testing and pre-clinical trials; |
| ● | seek to obtain regulatory approvals for our drug candidates; |
| ● | maintain, expand, and protect our intellectual property portfolio; |
| ● | add operational, financial and management information systems and personnel to support our research and development and regulatory efforts; |
21
| ● | continue to be engaged in litigation and actions taken by and/or against certain adverse parties; and |
| ● | operate as a public company. |
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our drug candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital to fund our operations. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through equity and debt offerings. We may also raise capital through government or other third-party funding and grants, collaborations and development agreements, strategic alliances, and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Moreover, our ability to raise capital continues to be impeded by limited availability of authorized common stock. Our failure to raise capital or enter into such other arrangements as and when needed would impair our ability to develop our drug candidates and would have a material adverse effect on our financial condition, including possibly being required to substantially curtail or cease our operations.
We have incurred net losses in every year since our inception. From inception (April 18, 2017) until September 30, 2022, we have funded our operations through the issuance of common stock, warrants, additional investment options (“AIOs”) and convertible notes. As of September 30, 2022, we had an accumulated deficit of approximately $51.3 million.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
Please refer to the information provided under the heading “Critical Accounting Policies and Estimates” included in our 2021 Form 10-K. There were no material changes to such policies in the nine months ended September 30, 2022.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to companies that are not emerging growth companies.
As an “emerging growth company,” we also rely on exemptions from certain reporting requirements, including without limitation: (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of an initial public offering; (iii) the date on which we have issued more than $1 billion in non-convertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
22
Results of Operations
Three Months Ended September 30, 2022 Versus Three Months Ended September 30, 2021
The following table summarizes our results of operation for the three months ended September 30, 2022 and 2021:
| Three Months Ended |
|
|
|
| |||||||
(in thousands) | September 30, | |||||||||||
2022 |
| 2021 |
| Change |
| % Change |
| |||||
Operating Expenses: |
|
|
|
|
| |||||||
General and Administrative | $ | 982 | $ | 2,682 | $ | (1,700) | (63.4) | % | ||||
Research and Development |
| 917 | 78 |
| 839 | 1,075.6 | % | |||||
Loss from Operations |
| (1,899) | (2,760) |
| (861) | (31.2) | % | |||||
Other income (expense): | ||||||||||||
Interest expense | — | (111) | 111 | (100.0) | % | |||||||
Change in fair value of common stock warrant liability | — | 1,470 | (1,470) | 100.0 | % | |||||||
Total other expense | — | 1,359 | (1,359) | 100.0 | % | |||||||
Net Loss | $ | (1,899) | $ | (1,401) | $ | (498) | 35.6 | % | ||||
Revenue
We did not have any revenue during the three months ended September 30, 2022 and 2021. Our ability to generate product revenues in the future will depend almost entirely on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize a drug candidate, or enter into collaborations that provide for payments to us.
Operating Expenses
General and Administrative Expenses
General and administrative expenses consist primarily of compensation and benefits to our personnel, including the costs related to our management services agreements, directors and scientific and senior advisors; professional fees and services, including accounting and legal services; and expenses related to obtaining and protecting our intellectual property. We incurred general and administrative expenses in the three months ended September 30, 2022 and 2021 of approximately $1.0 million and $2.7 million, respectively, with a decrease of approximately $1.7 million or 63.4%. This decrease in general and administrative expenses during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 is primarily attributable to a decrease in legal and accounting fees incurred in connection with or as a result of the proxy contest and litigation, including legal services provided to the Board and certain directors and committees thereof, of approximately $1.7 million. Our general and administrative expenses are likely to increase, including to the extent we are able to obtain additional financing to enable us to expand our operations, and may increase materially based upon the activity level of ongoing litigation in any particular period.
Research and Development Expenses
We recognize research and development expenses as they are incurred. Our research and development expenses consist of the costs associated with our acquisition of intellectual property that is classified as in-process research and development, fees incurred under our agreements with licensors, including the expenses associated with securities issued in connection with such agreements, as applicable, and expenses relating to third-party research and development vendors and consultants. For the three months ended September 30, 2022 and 2021, we incurred research and development expenses of approximately $0.9 million and $0.1 million, respectively, an increase of approximately $0.8 million or 1,075.6%. The increase in research and development costs during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 is primarily attributable to approximately $0.8 million in increased patent fees and preclinical expenses incurred in connection with DUET-02. We anticipate that our research and development expenses, exclusive of any in-process research and development relating to our acquisitions, will increase for the foreseeable future as we continue the development of our drug candidates.
23
Other Income (Expense)
Other income (expense) consists of interest expense on our convertible notes and changes in the fair value of a warrant liability. Interest expense decreased from $0.1 million for the three months ended September 30, 2021 to $0 for the three months ended September 30, 2022. Effective July 31, 2021, all of our convertible notes were either converted into W Warrants or repaid in cash. Accordingly, we had no further obligations under the convertible notes at any time from July 31, 2021 through September 30, 2022. Other income related to the change in fair value of warrant liability was $1,470,163 for the three months ended September 30, 2021. There was no income or expense related to the warrant liability during the three months ended September 30, 2022. This income during the three months ended September 30, 2021 is associated with the decrease of a liability related to certain warrants issued in August and September 2020 which were reclassified from equity to warrant liability on June 25, 2021. Until their reclassification into equity on July 31, 2021, we were required to revalue warrants classified on our balance sheet as a liability at the end of each reporting period and reflect a gain or loss from the change in fair value in the period in which the change occurred. We calculated the fair value of such warrants using a Monte Carlo daily price simulation.
Net Loss
Our net losses were approximately $1.9 million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately $0.5 million or 35.6%. We anticipate our net losses will continue as we advance our research and drug development activities and incur additional general and administrative expenses to meet the needs of our business.
Nine Months Ended September 30, 2022 Versus Nine Months Ended September 30, 2021
The following table summarizes our results of operation for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended |
|
|
| ||||||||
(in thousands) | September 30, |
|
|
| ||||||||
| 2022 |
| 2021 |
| Change |
| % Change | |||||
Operating Expenses: |
|
|
|
|
|
|
| |||||
General and Administrative | $ | 7,943 | $ | 6,228 | $ | 1,715 | 27.5 | % | ||||
Research and Development |
| 1,936 |
| 14,888 |
| (12,952) | (87.0) | % | ||||
Loss from Operations |
| (9,879) |
| (21,116) |
| (11,237) | (53.2) | % | ||||
Other income (expense): |
|
|
|
|
|
|
| |||||
Interest expense |
| — |
| (775) |
| 775 | (100.0) | % | ||||
Change in fair value of common stock warrant liability |
| — |
| 1,456 |
| (1,456) | 100.0 | % | ||||
Total other expense |
| — |
| 681 |
| (681) | 100.0 | % | ||||
Net Loss | $ | (9,879) | $ | (20,435) | $ | 10,556 | (51.7) | % | ||||
Revenue
We did not have any revenue during the nine months ended September 30, 2022 and 2021. Our ability to generate product revenues in the future will depend almost entirely on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize a drug candidate, or enter into collaborations that provide for payments to us.
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Operating Expenses
General and Administrative Expenses
General and administrative expenses consist primarily of compensation and benefits to our personnel, including the costs related to our management services agreements, directors and scientific and senior advisors; professional fees and services, including accounting and legal services; and expenses related to obtaining and protecting our intellectual property. We incurred general and administrative expenses in the nine months ended September 30, 2022 and 2021 of approximately $7.9 million and $6.2 million, respectively, an increase of approximately $1.7 million or 27.5%. This increase in general and administrative expenses during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 is primarily attributable to an increase in legal and accounting fees and other expenses incurred in connection with or as a result of the proxy contest and litigation, including legal services provided to the Board and certain directors and committees thereof, of approximately $2.0 million, and additional $0.4 million of costs and expenses associated with Duet operations, which were included for the entire nine-month period in 2022 as compared to only a three-month period following the acquisition of Duet in the prior year. These increases were offset by a decrease of approximately $0.5 million in compensation expense relating to our officers and directors. Our general and administrative expenses are likely to increase, including to the extent we are able to obtain additional financing to enable us to expand our operations, and may increase materially based upon the activity level of ongoing litigation in any particular period.
Research and Development Expenses
We recognize research and development expenses as they are incurred. Our research and development expenses consist of the costs associated with our acquisition of intellectual property that is classified as in-process research and development, fees incurred under our agreements with licensors, including the expenses associated with securities issued in connection with such agreements, as applicable, and expenses relating to third-party research and development vendors and consultants. For the nine months ended September 30, 2022 and 2021, we incurred research and development expenses of approximately $1.9 million and $14.9 million, respectively, a decrease of approximately $13.0 million or 87.0%. The decrease in research and development costs during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 is primarily attributable to the costs of approximately $8.1 million (of which approximately $7.7 million were non-cash) associated with the acquisition of Duet, including upfront costs of the Duet licenses, approximately $1.5 million of costs associated with the preparation for the Phase I clinical trial for DUET-01, and approximately $5.1 million of additional non-cash expense incurred in connection with achievement of a milestone relating to our acquisition of Bioscience Oncology. These decreases were partially offset by approximately $1.7 million in increased patent fees and preclinical expenses incurred in connection with DUET-02. We anticipate that our research and development expenses, exclusive of any in-process research and development relating to our acquisitions, will increase for the foreseeable future as we continue the development of our drug candidates.
Other Income (Expense)
Other income (expense) consists of interest expense on our convertible notes and changes in the fair value of a warrant liability. Interest expense decreased from $0.8 million for the nine months ended September 30, 2021 to $0 for the nine months ended September 30, 2022. Effective July 31, 2021, all of our convertible notes were either converted into W Warrants or repaid in cash. Accordingly, we had no further obligations under the convertible notes at any time from July 31, 2021 through September 30, 2022. Other income related to the change in fair value of warrant liability was $1,455,889 for the nine months ended September 30, 2021. There was no income or expense related to the warrant liability during the nine months ended September 30, 2022. This income during the nine months ended September 30, 2021 is associated with the decrease of a liability related to certain warrants issued in August and September 2020 which were reclassified from equity to warrant liability on June 25, 2021. Until their reclassification into equity on July 31, 2021, we were required to revalue warrants classified on our balance sheet as a liability at the end of each reporting period and reflect a gain or loss from the change in fair value in the period in which the change occurred. We calculated the fair value of such warrants using a Monte Carlo daily price simulation.
Net Loss
Our net losses were approximately $9.9 million and $20.4 million for the nine months ended September 30, 2022 and 2021, respectively, a decrease of approximately $10.6 million or 51.7%. We anticipate our net losses will continue as we advance our research and drug development activities and incur additional general and administrative expenses to meet the needs of our business.
25
Liquidity and Capital Resources
We have incurred losses since our inception and, as of September 30, 2022, we had an accumulated deficit of approximately $51.3 million. We anticipate that we will continue to incur losses for at least the next several years. Since April 18, 2017 (inception) through September 30, 2022, we have funded our operations principally with approximately $29.1 million in gross proceeds from the sale of convertible notes, common stock, warrants and units comprised of common stock and warrants, the exercise of a portion of such warrants, and units comprised of common stock and AIOs.
During the nine months ended September 30, 2022, we used approximately $7.7 million of cash in operations, which was attributable to our net loss of approximately $9.9 million, the changes in operating assets and liabilities of approximately $1.9 million, and approximately $0.3 million of non-cash expenses.
We are party to litigation in several matters as of the date hereof. Litigation is highly unpredictable and the costs of litigation, including legal fees and expenses, and the possible liabilities, including monetary damages, to which we could become subject could be significant. Any such liabilities could have a material adverse effect on us. Our existing capital resources will not be sufficient to fully implement our business plan, including the development of our drug candidates, while also continuing to be subject to or pursuing ongoing litigation.
We have received deficiency notification letters from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that we were not in compliance with certain Nasdaq listing rules relating to maintaining a minimum market value of listed securities of $50,000,000 (the “MVLS Requirement”), a minimum market value of publicly held shares of $15,000,000 (the “MVPHS Requirement”), and a minimum bid price of $1.00 for its common stock (the “Minimum Bid Price Requirement”). On July 13, 2022, we received an additional letter from Nasdaq stating that because we had not regained compliance with the MVLS Requirement as of July 12, 2022, trading of our common stock on Nasdaq would be suspended on July 22, 2022 and removed from listing and registration, unless we requested an appeal to a Nasdaq hearings panel by July 20, 2022, which we requested prior to such deadline. Such hearing occurred on August 25, 2022. In anticipation of the expiration of the MVPHS Requirement and Minimum Bid Price Requirement cure periods on August 30, 2022 and October 3, 2022, respectively, we addressed all three requirements as part of our compliance plan (“Compliance Plan”) during our hearing. By letter dated September 13, 2022, Nasdaq informed us of the Panel’s decision directing that our listing be transferred to the Nasdaq Capital Market, effective at the open of business on September 15, 2022, and our common stock will continue to be listed on that market subject to, among other things, us satisfying the Compliance Plan in full by no later than January 9, 2023. Our listing was transferred to the Nasdaq Capital Market on September 15, 2022 and we are actively working to implement the Compliance Plan. There can be no assurance that the Company will be able to implement all of the elements in the Compliance Plan in the time required thereunder. If the Company is in fact not able to implement the Compliance Plan as required, the Company will be de-listed from Nasdaq.
Our cash resources are extremely limited. As of September 30, 2022, we had cash and cash equivalents of $310,821. We have an immediate need for additional financing. Our ability to raise capital continues to be impeded by limited availability of authorized common stock and the current price of our common stock. Further, we are subject to certain Nasdaq requirements relating to, among other things, the amount and nature of the capital that we can raise. There can be no assurance that financing will be available to us on a timely basis and on satisfactory terms, or at all. We are subject to being delisted from Nasdaq if we are unable to raise the necessary capital in accordance with our Compliance Plan. Moreover, failure to obtain sufficient financing on satisfactory terms in the immediate future will have a material adverse effect on us, including possibly being required to substantially curtail or cease our operations.
Our ability to fund our operations is dependent upon management’s plans, which include raising capital through issuances of debt and equity securities, securing research and development grants, and controlling our expenses. A failure to raise sufficient financing and/or control expenses, among other factors, will adversely impact our ability to meet our financial obligations as they become due and payable and to achieve our intended business objectives.
This evaluation is further impacted by the ongoing pandemic relating to the COVID-19 pandemic. While the extent of its impact depends largely on the spread and duration of the outbreak, the pandemic has and may still result in disruptions to capital raises, employees, and vendors which has and may still result in negative impacts to our operational and financial results.
Accordingly, based on the considerations discussed above, management has concluded there is substantial doubt as to the Company’s ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued.
26
Future Funding Requirements
We have not generated any revenue. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our drug candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue to research, develop, and seek regulatory approval for, our drug candidates. We expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our drug candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations.
As a result, we anticipate that we will need substantial additional funding in connection with our continuing operations to fund future clinical trials and pre-clinical testing for our drug candidates, our Compliance Plan for Nasdaq, general and administrative costs and public company and other expenses, including potential indemnification obligations and legal fees (primarily related to litigation). We expect to finance our cash needs primarily through the sale of our debt and equity securities. However, our ability to raise capital continues to be impeded by limited availability of authorized common stock and the current price of our common stock. Further, we are subject to certain Nasdaq requirements relating to, among other things, the amount and nature of the capital that we can raise. We may also raise capital through government or other third-party funding and grants, collaborations and development agreements, strategic alliances and licensing arrangements. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to estimate the amounts of additional capital outlays and operating expenditures necessary to complete the development of our drug candidates.
Our future capital requirements will depend on many factors, including:
| ● | the progress, costs, results and timing of our drug candidates’ future clinical studies and future pre-clinical trials, and the clinical development of our drug candidates for other potential indications beyond their initial target indications; |
| ● | the willingness of the FDA and the EMA to accept our future drug candidate clinical trials, as well as our other completed and planned clinical and pre-clinical studies and other work, as the basis for review and approval of our drug candidates; |
| ● | the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals; |
| ● | the number and characteristics of drug candidates that we pursue, including our drug candidates in future pre-clinical development; |
| ● | the ability of our drug candidates to progress through clinical development successfully; |
| ● | our need to expand our research and development activities; |
| ● | the costs of litigations with certain adverse parties; |
| ● | the costs associated with securing and establishing commercialization and manufacturing capabilities; |
| ● | the costs of acquiring, licensing or investing in businesses, products, drug candidates and technologies; |
| ● | our ability to maintain, expand and defend the scope of our licensed intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights; |
| ● | our need and ability to hire additional management and scientific and medical personnel; |
| ● | the effect of competing technological and market developments; |
| ● | our need to implement additional internal systems and infrastructure, including financial and reporting systems; |
27
| ● | the duration and spread of the COVID-19 pandemic, and associated operational delays and disruptions and increased costs and expenses; |
| ● | the economic factors, geopolitical risks and sanctions and other terms; and |
| ● | timing and success of any collaboration, licensing or other arrangements into which we may enter in the future. |
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of debt financings and equity offerings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of debt and equity securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.
Recent Accounting Pronouncements
As previously noted, we, as an emerging growth company, have elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards, which allows us to defer adoption of certain accounting standards until those standards would otherwise apply to private companies unless otherwise noted.
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
Effect of Inflation and Changes in Prices
Increased inflation and changes in prices may result in increased operating costs, including our labor costs and research and development costs, reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We do not hold any derivative instruments and do not engage in any hedging activities.
28
Item 4. Controls and Procedures.
(a) | Evaluation of Disclosure Controls and Procedures |
The Company, including its principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based upon the evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective. Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include controls and procedures designed to reasonably ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) | Changes in Internal Control over Financial Reporting |
The Company, including its principal executive officer and principal financial officer, reviewed the Company’s internal control over financial reporting, pursuant to Rule 13(a)-15(e) under the Exchange Act and concluded that there was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
29
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We continue to be involved in a number of litigation matters, which we have previously disclosed (see Note 8 – Legal Proceedings to our condensed consolidated financial statements). There have been limited activities relating to such matters during the three-month period ended September 30, 2022. However, we anticipate a higher level of activity in 2023, including relating to a proceeding in the Delaware Court of Chancery scheduled to begin in May 2023. Such proceeding has been subject to several postponements. Litigation is highly unpredictable and the costs of litigation, including legal fees, costs and expenses, and the possible liabilities, including monetary damages, to which we could become subject could be significant. Any such liabilities would have a material adverse effect on us. Our existing capital resources are extremely limited and are insufficient to fund our business and/or litigation. There can be no assurance that financing will be available to us on a timely basis and on satisfactory terms, or at all. Failure to obtain sufficient financing on satisfactory terms in the immediate future will have a material adverse effect on us, including being possibly required to substantially curtail or cease our operations.
Item 1A. Risk Factors.
Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1A of our 2021 Form 10-K. The risks described in our 2021 Form 10-K are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer. Set forth below is an updated risk factor relating to the listing of our common stock on Nasdaq.
We have received several notices from Nasdaq (“Nasdaq Notices”) identifying deficiencies in compliance with Nasdaq listing standards, which, if we are unable to successfully address, would result in the delisting of our common stock from Nasdaq.
As a result of the decline in the trading price for our common stock and the composition of the Board resulting from the Proxy Contest and subsequent resignations of certain directors, the Company received the Nasdaq Notices. The Nasdaq Notices identify deficiencies with respect to requirements for (i) the minimum Market Value of Listed Securities (“MVLS Requirement”), (ii) the minimum Market Value of Publicly Held Shares (“MVPHS Requirement”), (iii) majority of independent directors (“Majority Independent Requirement”), (iv) Audit and Compensation Committee composition (“Committees Requirement”), and (v) minimum closing bid price (“Bid Price Requirement”). Under Nasdaq rules, the Company has a cure period of 180 days from the date of each respective Nasdaq Notice to regain compliance with the MVLS Requirement, the MVPHS Requirement and Bid Price Requirement. Such 180-day cure periods expired on July 12, 2022, August 30, 2022 and October 3, 2022, respectively. On each of July 13, 2022, August 31, 2022, and October 4, 2022, the Company received additional letters from Nasdaq stating that the Company had not regained compliance with the MVLS Requirement, the MVPHS Requirement, and Bid Price Requirement as of the expiration of their respective cure periods. On August 25, 2022, the Company had a hearing with a Nasdaq panel (the “Panel”), which considered the Company’s plan for regaining compliance (“Compliance Plan”) with the MVLS Requirement, the MVPHS Requirement, and Bid Price Requirement. By letter dated September 13, 2022, Nasdaq informed the Company of the Panel’s decision directing that the Company’s listing be transferred to the Nasdaq Capital Market, effective at the open of business on September 15, 2022, and the Company’s common stock will continue to be listed on that market subject to, among other things, the Company satisfying the Compliance Plan in full by no later than January 9, 2023. While the Company believes that it can regain compliance to maintain its Nasdaq listing, there can be no assurance that the Company will be able to implement such plan within prescribed periods, or at all. Failure to regain compliance with listing requirements would result in the delisting of our common stock from Nasdaq, which would likely have a material adverse effect on the value and trading of shares of our common stock.
30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
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| Incorporated by |
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Exhibit |
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Number |
| Exhibit Description |
| Form |
| Exhibit |
| Filing Date |
| Herewith |
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31.1* |
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| X | ||||||
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31.2* |
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| X | ||||||
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32.1** |
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| X | ||||||
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32.2** |
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| X | ||||||
101.INS* |
| XBRL Instance Document | X | |||||||
101.SCH* |
| XBRL Taxonomy Extension Schema Document | X | |||||||
101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document | X | |||||||
101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase Document | X | |||||||
101.LAB* |
| XBRL Taxonomy Extension Label Linkbase Document | X | |||||||
101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document | X | |||||||
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | X | ||||||||
| * | Filed herewith |
| ** | Furnished herewith |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SCOPUS BIOPHARMA INC. | |
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| |
Date: November 21, 2022 | By: | /s/ Joshua R. Lamstein |
Joshua R. Lamstein | ||
|
| Chairman and Director |
|
| (Principal Executive Officer) |
Date: November 21, 2022 | By: | /s/ Robert J. Gibson |
Robert J. Gibson | ||
|
| Vice Chairman, Secretary, Treasurer and Director |
| (Principal Financial Officer and Principal Accounting Officer) |
33
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