United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM
For
the quarterly period ended:
Or
For the transition period ended:
(Exact name of Registrant as specified in its Charter)
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices)
(Registrant’s Telephone Number, including area code)
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate
by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted 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 and post such files).
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.
(1)
Yes ☒ No ☐; (2)
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:
| Large accelerated filer | ☐ | 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 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 ☐
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
As of November 11, 2022, the registrant had common shares outstanding.
Documents incorporated by reference: None.
QSAM BIOSCIENCES, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Report”), including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may”, “could” and variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. In particular, as discussed in greater detail below, our financial condition and results could be materially adversely affected by the continued impacts and disruptions caused by the novel coronavirus (COVID-19) global pandemic and governmental responses thereto. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth or anticipated in our forward-looking statements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under “Risk Factors”, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 24, 2022 (under the heading “Risk Factors” and in other parts of that report).
Exchange Act Reporting Requirements
Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act like we are to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to shareholders at a special or annual meeting thereof or pursuant to a written consent will require us to provide our shareholders with the information outlined in Schedules 14A (where proxies are solicited) or 14C (where consents in writing to the action have already been received or anticipated to be received) of Regulation 14, as applicable; and preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this information are forwarded to our shareholders. We are also required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on Form 8-K. All public filing made with the SEC are available via the SEC’s website on EDGAR at www.sec.gov.
| 3 |
PART I – FINANCIAL INFORMATION
Item 1: Financial StatementS
QSAM BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Deferred offering costs | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and related expenses | ||||||||
| Accrued Series B preferred stock dividends | ||||||||
| Convertible notes payable, net of discount | ||||||||
| Notes payable - related parties | ||||||||
| Debentures | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| Redeemable convertible preferred stock - Series A; $ par value, designated Series A, and shares issued and outstanding (liquidation preference of $ | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock, Series B, $ par value; shares authorized, shares issued and outstanding (liquidation preference of $ | ||||||||
| Preferred stock, Series E-1, $ par value; shares authorized, shares issued and outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Unearned deferred compensation | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See notes to the unaudited condensed consolidated financial statements.
| 4 |
QSAM BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Payroll and related expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Financing costs including interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on sale of equity method investment | ||||||||||||||||
| Loss on debentures and accrued expenses converted to common stock | ( | ) | ||||||||||||||
| Gain on forgiveness of debt from Paycheck Protection Program | ||||||||||||||||
| Loss on conversion of bridge notes and accrued interest | ( | ) | ||||||||||||||
| Total Other Expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME TAXES | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Series A preferred contractual dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Series B preferred contractual dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividend on conversion of Series A preferred stock to common stock | ( | ) | ||||||||||||||
| Deemed dividend on warrant modification | ( | ) | ( | ) | ( | ) | ||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS: BASIC AND DILUTED: | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED | ||||||||||||||||
See notes to the unaudited condensed consolidated financial statements.
| 5 |
QSAM BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
| Series B Preferred Stock | Series E-1 Preferred Stock | Common Stock | Deferred | Additional | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Shares | Par Value | Stock-based Compensation | Paid-In Capital | Stock Subscription | Accumulated Deficit | Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of debentures and accrued expenses | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of bridge notes and accrued interest to common stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A preferred stock to common stock | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Series A, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of Series B, preferred stock for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series B, conversion of notes payable to preferred stock | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation to employees and directors | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation for services and warrant modification | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Deemed dividend from warrant modification | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Series A, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation to employees and directors | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss period ended June 30, 2021 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B preferred stock to common stock | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of stock for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Incremental value from warrant modifications | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Cumulative contractual dividends of Series B Preferred Stock | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Series A, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Cumulative Contractual dividends of Series B preferred stock converted to common stock | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Compensation expense due to warrant modifications | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation to employees and directors | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2021 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for services, including a director | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of debentures | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Incremental value from warrant modifications | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Series A, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| 40:1 Reverse Split Fractional Shares Adjustment | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation to employees and directors | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss period for the three months ended March 31, 2022 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Series A, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Series B, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation to employees and directors | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss period for the three months ended June 30, 2022 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation for services | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Sale of common stock and warrants | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series A, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Series B, preferred stock contractual dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Accretion of stock-based compensation to employees and directors | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss period for the three months ended September 30, 2022 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
See notes to the unaudited condensed consolidated financial statements.
| 6 |
QSAM BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
| For the nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Common stock issued for services | ||||||||
| Stock-based compensation to employees and directors | ||||||||
| Loss on conversion of bridge notes and accrued interest | ||||||||
| Loss on conversion of debentures and accrued expense to common stock | ||||||||
| Paid-in-kind interest - convertible bridge notes | ||||||||
| Amortization of debt discount | ||||||||
| Gain on forgiveness of debt | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Decrease (increase) in prepaid expenses and other current assets | ( | ) | ||||||
| (Decrease) increase in accounts payable and accrued expenses | ( | ) | ||||||
| Increase in accrued payroll and related expenses | ||||||||
| Increase in accrued interest – related parties | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayments on promissory notes – related parties | ( | ) | ||||||
| Deferred offering costs | ( | ) | ||||||
| Proceeds for the issuance of preferred stock – Series B | ||||||||
| Sale of common stock and warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH - Beginning of period | ||||||||
| CASH - End of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||
| Payment of interest in cash | $ | $ | ||||||
| Payment of income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Accrual of contractual Series A convertible preferred stock | $ | $ | ||||||
| Accrual of contractual dividends on Series B convertible preferred stock | $ | $ | ||||||
| Deemed dividend on conversion of Series A preferred stock to common stock | $ | $ | ||||||
| Deemed dividend on warrant modifications | $ | $ | ||||||
| Conversion of convertible bridge notes and accrued interest to 165,692 shares of common stock | $ | $ | ||||||
| Conversion of debentures and accrued expenses to common stock | $ | $ | ||||||
| Conversion of Series A preferred stock to common stock | $ | $ | ||||||
| Conversion of notes payable with related parties to Series B preferred stock and warrants | $ | $ | ||||||
See notes to the unaudited condensed consolidated financial statements
| 7 |
QSAM BIOSCIENCES INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
QSAM
Biosciences Inc. (hereinafter the “Company”, “we”, “our”, “us”), incorporated in Delaware
on August 26, 2004, is currently engaged in the business of developing a novel radiopharmaceutical drug candidate for the treatment of
bone cancer. This business line commenced in earnest in the fourth fiscal quarter of 2020 as a result of the separation and transfer
pursuant to an Omnibus Separation Agreement dated November 6, 2020 (the “Separation Agreement”) of the Company’s prior
business of managing compost and soil manufacturing facilities (the “Legacy Business”) through an unconsolidated investee
entity called Earth Property Holdings LLC, a Delaware limited liability company (“EPH”). Pursuant to the Separation Agreement,
the Company transferred to EPH all assets and related liabilities in connection with the Legacy Business in return for a forgiveness
of debt. The Company sold its entire equity interest in EPH to a third party in the first quarter of 2021 for $
In April 2020, the Company established QSAM Therapeutics Inc. (“QSAM”) as a wholly-owned subsidiary incorporated in the state of Texas, and through QSAM, executed a Patent and Technology License Agreement and Trademark Assignment (the “License Agreement”) with IGL Pharma, Inc. (“IGL”). The License Agreement provides QSAM with exclusive, worldwide and sub-licensable rights to all of IGL’s patents, product data and knowhow with respect to Samaium-153 DOTMP aka CycloSam® (the “Technology”), a clinical stage novel radiopharmaceutical meant to treat different types of bone cancer and related diseases.
In connection with the transition to the biosciences sector, the Company changed its name to QSAM Biosciences Inc. on September 4, 2020, and subsequently changed its stock symbol to QSAM, to better reflect its business moving forward.
On March 9, 2022, the Company completed a 40:1 reverse stock split of its common shares. All shares and share prices set forth in this report have been adjusted retroactively to present this reverse stock split as if it had occurred at the beginning of the period presented in these condensed consolidated financial statements.
Prior to 2017, the Company owned and licensed technology that converts waste fuels and heat to power, which it sold to a licensee in August of that year. Much of these operations were conducted through a wholly-owned subsidiary of the Company called Q2Power Corp. (“Q2P”), which still exists but has no current operations. Q2P and QSAM are sometimes referred to herein as the “Subsidiaries” collectively, or with respect to just QSAM, the “Subsidiary”. Formerly, the Company’s name was Q2Power Technologies, Inc., and before that, Anpath Group, Inc.
The recent outbreak of the novel coronavirus (COVID-19) is impacting worldwide economic activity. COVID-19 poses the risk that we or our employees and our other partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease or shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the full impact that COVID-19 could have on our business, the continued spread of COVID-19 could disrupt our research and development of the Technology and other related activities, which could have a material adverse effect on our business, financial condition and results of operations. In addition, a severe or prolonged economic downturn could result in a variety of risks to the business. While we have not yet experienced any material disruptions in our business or other negative consequences relating to COVID-19, the extent to which the COVID-19 pandemic impacts our results will depend on future developments that are highly uncertain and cannot be predicted.
| 8 |
NOTE 2 – BASIS OF PRESENTATION AND GOING CONCERN
The accompanying unaudited condensed financial statements are prepared in accordance with Rule 8-01 of Regulation S-X of the Securities Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures included in these unaudited condensed financial statements are adequate to make the information presented not misleading. The unaudited condensed financial statements included in this document have been prepared on the same basis as the annual financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with US GAAP and SEC regulations for interim financial statements. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that the Company will have for any subsequent period or for the calendar year ended December 31, 2022. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes to those statements for the year ended December 31, 2021 which was filed with the SEC on February 24, 2022.
The
Company’s convertible debentures of $
For
the nine months ended September 30, 2022, the Company used net cash in its operating activities of $
The
Company has supported operations through the issuance of common stock, preferred stock and debt over the last 12 months. This includes
the current common stock and warrant offering authorized up to $ million of which the first tranche of $ closed on September
30, 2022, the $
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. There is no guarantee whether the Company will be able to generate revenue and/or raise capital sufficient to support its operations. The ability of the Company to continue as a going concern is dependent on management’s plans which include implementation of its business model to develop and commercialize its drug candidate, seek strategic partnerships to advance clinical trials and other research endeavors which could provide additional capital to the Company, and continue to raise funds for the Company through equity or debt offerings. There is no assurance, however, that the Company will be successful in raising the needed capital and, if funding is available, that it will be available on terms acceptable to the Company. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The unaudited condensed financial statements include the accounts of the Company and its Subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. References herein to the Company include the Company and its Subsidiaries unless the context otherwise requires.
| 9 |
Cash and Cash Equivalents
The
Company considers cash, short-term deposits, and other investments with original maturities of no more than ninety days when acquired
to be cash and cash equivalents for the purposes of the statement of cash flows. The Company maintains cash balances at one financial
institution and has experienced no losses with respect to amounts on deposit. The Company held
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers (“ASC 606”) and all the related amendments.
The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than previously required under U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
The
Company had
The Company applies the fair value method of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Share Based Payment”, in accounting for its stock-based compensation with employees and non-employees. This standard states that compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. The Company values stock-based compensation at the market price for the Company’s common stock and other pertinent factors at the grant date.
The Black-Scholes option pricing valuation method is used to determine fair value of stock options consistent with ASC 718, “Share Based Payment”. Use of this method requires that the Company make assumptions regarding stock volatility, dividend yields, expected term of the awards and risk-free interest rates.
Research and Development
Research
and development costs are expensed as incurred. Research and development costs were $
Equity Method Investment
Investments in partnerships, joint ventures and less-than majority-owned subsidiaries in which we have significant influence are accounted for under the equity method. The Company’s consolidated net income includes the Company’s proportionate share of the net income or loss of our equity method investee. When we record our proportionate share of net income, it increases income (loss) — net in our consolidated statements of operations and our carrying value in that investment. Conversely, when we record our proportionate share of a net loss, it decreases income (loss) — net in our consolidated statements of income and our carrying value in that investment. The Company’s proportionate share of the net income or loss of our equity method investees includes significant operating and nonoperating items recorded by our equity method investee. These items can have a significant impact on the amount of income (loss) — net in our consolidated statements of operations and our carrying value in those investments. The Company divested its investment in its equity method investee in March 2021.
| 10 |
Income Taxes
Income
taxes are accounted for under the asset and liability method as stipulated by FASB ASC 740, “Income Taxes” (“ASC
740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities
or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated
amounts to be realized by the use of a valuation allowance.
In the event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves for uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained upon examination or if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of September 30, 2022 and December 31, 2021, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. Interest and penalties related to any unrecognized tax benefits is recognized in the unaudited condensed consolidated financial statements as a component of income taxes.
Net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period plus any potentially dilutive shares related to the issuance of stock options, shares from the issuance of stock warrants, shares issued from the conversion of convertible preferred stock and shares issued for the conversion of convertible debt.
| Shares from common stock options | ||||
| Shares from common stock warrants | ||||
| Shares from the conversion of convertible notes and accrued interest | ||||
| Shares from the conversion of Series A Stock inclusive of cumulative dividends | ||||
| Shares from the conversion of Series B Preferred Stock inclusive of dividends | ||||
As of September 30, 2021, there were the following potentially dilutive securities that were excluded from diluted net loss per share because their effect would be anti-dilutive (all shares adjusted to reflect a 40:1 reverse stock split effected on March 9, 2022):
| Shares from common stock options | ||||
| Shares from common stock warrants | ||||
| Shares from the conversion of debentures | ||||
| Shares from the conversion of Series A Stock | ||||
| Shares from the conversion of Series B Preferred Stock | ||||
| Shares from the conversion of Series E-1 Preferred Stock | ||||
Significant Estimates
U.S. Generally Accepted Accounting Principles (“GAAP”) requires the Company to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the period. On an on-going basis, the Company reviews and evaluates its estimates and assumptions, including, but not limited to, those that relate to the fair value of stock-based compensation, and a valuation allowance on deferred tax assets. Actual results could differ from these estimates.
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Recent Accounting Pronouncements
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, 2022 for public business entities that are not smaller reporting companies and for all other entities, fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The standard should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. Effective January 1, 2021, the Company adopted ASU 2020-06 and noted no material impact to the consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its unaudited financial statements.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform to the 2022 presentation. These reclassifications had no effect on net loss or loss per share as previously reported and primarily related to the reclassification of stock based compensation from general and administrative expenses to payroll and related expenses.
Concentration of Risk
The
Company expects cash to be the asset most likely to subject the Company to concentrations of credit risk. The Company’s bank deposits
may at times exceed federally insured limits. The Company’s policy is to maintain its cash with high credit quality financial institutions
to limit its risk of loss exposure. The Company’s cash balance as of September 30, 2022, is in excess of FDIC limits in the amount
of approximately $
The Company is subject to a number of risks similar to those of other companies at a clinical-stage for radiopharmaceutical drug candidates, including dependence on key individuals; the need to develop commercially viable therapeutics; competition from other companies, many of which are larger and better capitalized; intellectual property risks; and the need to obtain adequate additional financing to fund the development of its products. The Company currently depends on third-party, suppliers for key materials and services used in its research and development manufacturing process, and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply the Company with adequate materials and services.
Fair Value of Financial Instruments
In accordance with Accounting Standards Codification (“ASC”) 825, Financial Instruments, disclosures of fair value information about financial instruments are required, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Cash is carried fair value.
Other financial instruments, including accounts payable, accrued liabilities and short-term debt, are carried at cost, which approximates fair value given their short-term nature.
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Deferred Offering Cost
Costs incurred prior to an equity offering are capitalized until the offering occurs. Upon the equity offering, all accumulated costs are charged against proceeds. If the Company determines that the equity offering will not occur, the accumulated costs are charged to operations.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company views its operations and manages its business as one segment.
NOTE 4 – EQUITY METHOD INVESTMENT
During
November 2018, the Company invested $
NOTE 5 – RELATED PARTY TRANSACTIONS
The
Company currently has a License Agreement with IGL Pharma, Inc., an entity in which the Company’s Executive Chairman serves as
President, holds options to purchase less than a
During
the year ended December 31, 2020, the Company received $
NOTE 6 – DEBENTURES, CONVERTIBLE BRIDGE NOTES, AND CONVERTIBLE PROMISSORY NOTES
Debentures
The
Company has Original Issue Discount Senior Secured Convertible Debentures (the “Debentures”) in the aggregate amount of $
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Convertible Bridge Notes
In
2017, 2018 and 2019, the Company issued a total of $
Convertible Notes Payable
In
the fourth quarter of 2021, the Company issued a total of $
NOTE 7 – COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common Stock
Effective
March 9, 2022, the Company effected a
| Stock based compensation for services | ||||
| Issuance of common stock for cash | ||||
| Total common stock issued during the three months ended September 30, 2022 |
In the three month period ended September 30 2021, the Company issued the following shares of common stock:
| Issuance of common stock for conversion of Series B Preferred stock | ||||
| Issuance of common stock for services performed | ||||
| Total common stock issued during the three months ended September 30, 2022 |
During the nine months ended September 30, 2022, the Company issued the following shares of common stock:
| Stock based compensation for services | ||||
| Stock based compensation for services performed by one prior Director | ||||
| Conversions of debentures | ||||
| Issuance of Common stock for cash | ||||
| Total common stock issued during the nine months ended September 30, 2022 |
During the nine months ended September 30, 2021, the Company issued the following shares of common stock:
| Stock based compensation for services | ||||
| Conversions of debentures and accrued expenses | ||||
| Conversion of Bridge Notes | ||||
| Conversion of Series A Stock | ||||
| Conversion of Series B Stock | ||||
| Total common stock issued during the nine months ended September 30, 2021 |
During
the nine-month period ended September 30, 2022, $
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During
the nine-month period ended September 30, 2021, $
For the three-month periods ended September 30, 2022 and 2021, the Company recognized $ and $, respectively, of stock-based compensation expense for shares of common stock issued as consideration under several service agreements. For the nine-month periods ended September 30, 2022 and 2021, the Company recognized $ and $ of stock-based compensation expense for shares of common stock issued as consideration under several service agreements. For stock issued as compensation for service agreements, the stock market price at the time of issuance was used to determine the appropriate fair value of the stock issued.
Series A Redeemable Convertible Preferred Stock (“Series A Stock”)
The
Company has shares of Series A Stock issued and outstanding as of September 30, 2022, which currently are convertible at $
The
Series A Stock has price protection provisions in the case that the Company issues any shares of stock not pursuant to an “Exempt
Issuance” at a price below the Conversion Price. Exempt Issuances include: (i) shares of Common Stock or common stock equivalents
issued pursuant to the original merger of the company or any funding contemplated by that transaction; (ii) any common stock or convertible
securities outstanding as of the date of closing; (iii) common stock or common stock equivalents issued in connection with strategic
acquisitions; (iv) shares of common stock or equivalents issued to employees, directors or consultants pursuant to a plan, subject to
limitations in amount and price; and (v) other similar transactions. The Certificate of Designation contains restrictive covenants not
to incur certain debt, repurchase shares of common stock, pay dividends or enter into certain transactions with affiliates without consent
of holders of
Management
has determined that the Series A Stock is more akin to a debt security than equity primarily because it contains a mandatory
The
Series A Stock carries a
As
of December 31, 2021, the Series A Stock was in technical default for failure of the Company to redeem. On March 9, 2022, the Company
entered into a conversion notice and reservation of rights agreement with the two Series A Stockholders whereby such holders waived all
default interest, penalties and fees from the Company’s failure to redeem the Series A Stock, and agreed to convert such preferred
shares into common stock contingent upon the completion of the Company’s underwritten equity offering and uplisting to Nasdaq;
provided however, if such offering is completed at a lower price than $
Series B Convertible Preferred Stock (“Series B Preferred Stock”)
In
December 2020, the Company filed an amendment to its Articles of Incorporation to authorize the issuance of up to shares of Series
B Preferred Stock, par value $ per share, pursuant to a Certificate of Designation. The Series B Preferred Stock provides the holders
a
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In
January 2021, the Company closed a private offering of its Series B Preferred Stock for $ per share, raising a total of $
Series E-1 Preferred Stock
On
December 3, 2020, the Company filed an amendment to its Articles of Incorporation to authorize the issuance of up to shares of
Series E-1 Preferred Stock (the “Series E-1 Stock”) pursuant to a Certificate of Designation; however, all shares of Series
E-1 Stock issued in 2020 and 2021 were retired in 2021 and none currently are outstanding, as discussed below. The shares of Series E-1
Stock were incentive-based, vesting and forfeitable securities that provided the holders the right in the aggregate to receive an “earnout”
equal to 20% of the total consideration received by the Company in the instance of a sale or sub-license of its core licensed radiopharmaceutical
Technology, or sale or merger of the Company, which is paid on a priority, senior basis. In addition, the holders of the Series E-1 Stock
were able to convert their vested preferred stock at anytime or after an event resulting in an earnout payment, such as an acquisition
of the Company, into an aggregate of
On December 30, 2020, shares of Series E-1 Stock were issued to five individuals, including the Company’s Executive Chairman, CEO and General Counsel which vest starting in July 2021 through January 2023 and are forfeitable by the holders prior to vesting. In February 2021, the remaining shares of Series E-1 Stock were issued to one newly-appointed director, vesting half in February 2022 and the balance in February 2023.
The Company computed the total grant date fair value of the Series E-1 Stock to be approximately $ using an option pricing model and the following assumptions: (1) with respect to the shares granted in 2020: expected term of , dividend yield of --%, volatility of%, and a risk-free rate of %; and (2) with respect to the shares granted in 2021: expected term of , dividend yield of %, volatility of %, and a risk-free rate of %. The value of these shares will be recognized as stock-based compensation expense over the vesting period through February 2023.
On
December 6, 2021, the Company entered into an Exchange Agreement and Plan of Reorganization (the “Exchange Agreement”) with
all E-1 Stockholders pursuant to which all shares of Series E-1 Stock were exchanged into an aggregate of shares of common stock
of the Company. The fair value of the Series E-1 Stock was determined to be approximately $
During the nine months ending September 30, 2022, the Company recognized stock-based compensation to employees and directors totaling $ related to the vesting of the Series E-1 Stock converted to shares of common stock, which is included in payroll and related expenses on the condensed consolidated statements of operations. As of September 30, 2022, $ of unrecognized compensation remains which will be recognized over a and has been included in deferred compensation on the condensed consolidated balance sheets.
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Warrants
The
Company issued
The following is a summary of all outstanding common stock warrants as of September 30, 2022:
| Number of Warrants | Exercise price per share | Average remaining term in years | ||||||||
| Warrants issued in connection with issuance of Series B Preferred Stock to lead investor | $ | |||||||||
| Warrants issued in connection with convertible notes | $ | |||||||||
| Warrants issued in connection with the issuance of Common Stock | $ | |||||||||
In 2016 to compensate officers, directors and other key service providers with equity grants, the Board approved the 2016 Omnibus Equity Incentive Plan (“2016 Plan”), which initially allowed for shares of common stock, stock options, stock rights (restricted stock units), or stock appreciation rights to be granted by the Board in its discretion. This authorized amount was increased multiple times by Board resolution, most recently to shares on January 13, 2022. There are currently no shares available under the 2016 Plan for future issuance; however, the Board may increase the authorized shares under the 2016 Plan each year.
The Company issued stock options to purchase common stock to officers and directors of the Company during the nine months ended September 30, 2022. These options have a year term. The options have the following vesting schedules:
| Vesting Description | Number of Options | |||
| % | ||||
| % | ||||
| % | ||||
| Performance conditions set by Board of Directors | ||||
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term in Years | Aggregate Intrinsic Value | |||||||||||||
| Outstanding as of December 31, 2021 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Outstanding as of September 30, 2022 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2022 | $ | $ | ||||||||||||||
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The aggregate intrinsic value of options exercised is the difference between the fair market value of the Company’s closing price of our common stock at each reporting date, less the exercise price multiplied by the number of options granted which was nil at September 30, 2022.
As of September 30, 2022, the unrecognized stock-based compensation of $ is expected to be expensed over the next to months based on the option vesting requirements. The weighted average fair value of options granted was $ per share for the nine months ended September 30, 2022. For the nine-month period ended September 30, 2022, the stock-based compensation expense for options expected to vest was $ which is included in compensation and related expenses.
We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing model using the fair market value of our common stock on the date of grant and a number of other assumptions. These assumptions include estimates regarding the expected term of the awards, estimates of the stock volatility over a duration that approximates the expected term of the awards, estimates of the risk-free rate, and estimates of expected dividend rates.
| Expected term (years) | ||||
| Expected volatility | % - | % | ||
| Risk-free interest rate | % - | % | ||
| Expected dividend yield | % |
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Employment Agreements