UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________to _____________
Commission File Number:
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Empl. Ident. No.) |
(Address of principal executive offices, Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
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.
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).
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 | ☐ |
☒ | 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
The number of shares outstanding of each of the issuer’s classes of common equity, as of May 3, 2023 is as follows:
Class of Securities |
| Shares Outstanding |
Common Stock Class A, $0.0001 par value |
| |
Common Stock Class B, $0.0001 par value |
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INNOVATION PHARMACEUTICALS INC.
FORM 10-Q
For the Quarter Ended March 31, 2023
TABLE OF CONTENTS
2 |
Table of Contents |
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. These forward-looking statements include, but are not limited to, any statements regarding our future financial performance, results of operations or sufficiency of capital resources to fund our operating requirements; statements relating to potential licensing, partnering or similar arrangements concerning our drug compounds; statements concerning our future drug development plans and projected timelines for the initiation and completion of preclinical and clinical trials; the potential for the results of ongoing preclinical or clinical trials; other statements regarding our future product development and regulatory strategies, including with respect to specific indications; and any other statements which are other than statements of historical fact. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include, but are not limited to, our ability to continue as a going concern and our capital needs; our ability to fund and successfully progress internal research and development efforts; our ability to create effective, commercially-viable drugs; our ability to effectively and timely conduct clinical trials; our ability to ultimately distribute our drug candidates; our ability to achieve certain future regulatory, development and commercialization milestones under our license agreement with Alfasigma S.p.A.; and compliance with regulatory requirements, as well as other factors described elsewhere in this report and our other reports filed with the Securities and Exchange Commission (the “SEC”). Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Forward-looking statements speak only as of the date on which they are made. Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. Readers are cautioned not to put undue reliance on forward-looking statements.
For further information about these and other risks, uncertainties and factors, please review the disclosure included in our Annual Report on Form 10-K under “Part I, Item 1A, Risk Factors” and in this report under “Part II, Item 1A, Risk Factors.”
3 |
Table of Contents |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INNOVATION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2023 AND JUNE 30, 2022
(Unaudited)
(Rounded to nearest thousand except for shares data)
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| March 31, |
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| June 30, |
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ASSETS |
| 2023 |
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| 2022 |
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Current Assets: |
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Cash |
| $ |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Equity investment |
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Other Assets: |
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Patents – net |
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Deferred offering costs - net |
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Security deposits |
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Total Other Assets |
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Total Assets |
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| $ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable - (including related party payables of approx. $ |
| $ |
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Accrued expenses - (including related party accruals of approx. $ |
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Accrued salaries and payroll taxes - (including related party accrued salaries of approx. $ |
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Operating lease - current liability |
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Convertible note payable - related party |
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Accrued dividend - Series B 5% convertible preferred stock |
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Total Current Liabilities |
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Other Liabilities: |
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Series B 5% convertible preferred stock liability at $ |
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Operating lease - long term liability |
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Total Liabilities |
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Commitments and contingencies (Note 10) |
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Stockholders’ Equity |
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Preferred stock, $ |
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Common Stock - Class A, $ |
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Common Stock - Class B, (10 votes per share); $ |
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Additional paid-in capital |
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Accumulated deficit |
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Treasury Stock, at cost ( |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
| $ |
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| $ |
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The accompanying notes are an integral part of these condensed consolidated financial statements
4 |
Table of Contents |
INNOVATION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
(Rounded to nearest thousand except for shares and per share data)
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| For the three Months Ended |
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| For the Nine Months Ended |
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| March 31, |
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| 2023 |
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Revenues |
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Operating expenses: |
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Research and development expenses |
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General and administrative expenses |
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Officers’ payroll and payroll tax expenses |
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Professional fees |
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Total operating expenses |
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Other operating income (expense) |
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Equity in loss from an investment |
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Total other operating income (expense) |
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Loss from operations |
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Other income (expense) |
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Other income |
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Interest expense - debt |
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Interest expense - preferred stock liability |
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| ( | ) |
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Other income (expense), net |
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Loss before provision for income taxes |
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Provision for income taxes |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Basic and diluted loss per share |
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attributable to common stockholders |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Weighted average number of common shares |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
Table of Contents |
INNOVATION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
(Rounded to nearest thousand, except for shares data)
For the Three and Nine Months Ended March 31, 2022
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| Additional |
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| Total |
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| Common Stock A |
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| Common Stock B |
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| Paid-in |
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| Accumulated |
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| Treasury Stock |
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| Stockholders’ |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Shares |
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| Amount |
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| Equity |
| |||||||||
Balance at June 30, 2021 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
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| $ | ( | ) |
| $ |
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Offering cost |
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| — |
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| — |
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| ( | ) |
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| — |
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| ( | ) | ||||
Restricted stock awards of common stock issued to employee for services |
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| — |
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| — |
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| — |
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Stock options issued to employee for services |
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| — |
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| — |
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| — |
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Stock options issued to consultants for services |
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| — |
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| — |
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Conversion of 3,036 shares of preferred stock into 18,939,080 shares of common stock |
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| — |
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| — |
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Net loss for the three months ended September 30, 2021 |
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| — |
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| — |
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Balance at September 30, 2021 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
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Offering cost |
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Restricted stock awards of common stock issued to employee for services |
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| — |
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| — |
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| — |
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Stock options issued to employee for services |
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| — |
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Stock options issued to consultants for services |
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Stock options issued to director for services |
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Conversion of 536 shares of preferred stock into 7,854,545 shares of common stock |
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Shares of common stock issued for exercise of options |
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Net loss for the three months ended December 31, 2021 |
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Balance at December 31, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
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Offering cost |
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Restricted stock awards of common stock issued to employee for services |
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Stock options issued to employee for services |
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Stock options issued to consultants for services |
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Stock options issued to director for services |
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Conversion of 335 shares of preferred stock into 11,463,081 shares of common stock |
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Net loss for the three months ended March 31, 2022 |
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| — |
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Balance at March 31, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
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| $ | ( | ) |
| $ |
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6 |
Table of Contents |
For the Three and Nine Months Ended March 31, 2023
|
| Common Stock A |
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| Common Stock B |
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| Additional |
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| Total |
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| Paid-in |
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| Accumulated |
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| Treasury Stock |
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| Stockholders’ |
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| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Equity |
| |||||||||
Balance at June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ | ( | ) |
| $ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering cost |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
| ( | ) |
|
|
|
|
| — |
|
|
|
|
|
| ( | ) | ||||
Restricted common stock award issued to employee for services |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| |||||||
Stock options issued to employee for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Stock options issued to consultants for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Stock options issued to director for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Net loss for the three months ended September 30, 2022 |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| ( | ) |
|
| — |
|
|
|
|
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ | ( | ) |
| $ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surrender of Shares by a Stockholder |
|
| — |
|
|
|
|
|
| ( | ) |
|
| ( | ) ) |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| |||||
Restricted common stock award issued to employee for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Stock options issued to employee for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Stock options issued to consultants for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Stock options issued to director for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Net loss for the three months ended December 31, 2022 |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| ( | ) |
|
| — |
|
|
|
|
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ | ( | ) |
| $ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted common stock award issued to employee for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Stock options issued to employee for services |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| ||||||
Conversion of 260 shares of preferred stock into 25,690,759 shares of common stock |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| |||||||
Net loss for the three months ended March 31, 2023 |
|
| — |
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| ( | ) |
|
| — |
|
|
|
|
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ | ( | ) |
| $ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7 |
Table of Contents |
INNOVATION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
(Rounded to nearest thousand)
|
| For the Nine Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to |
|
|
|
|
|
|
|
|
net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
| ||
Amortization of patent costs |
|
|
|
|
|
| ||
Gain on forgiveness of loans payable |
|
|
|
|
| ( | ) | |
Equity in loss from an investment |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Accounts payable |
|
|
|
|
| ( | ) | |
Accrued expenses |
|
| ( | ) |
|
| ( | ) |
Accrued salaries and payroll taxes |
|
|
|
|
| ( | ) | |
Accrued dividend |
|
|
|
|
|
| ||
Operating lease liability |
|
| ( | ) |
|
| ( | ) |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Patent costs |
|
| ( | ) |
|
| ( | ) |
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants to purchase Series B-2 5% convertible preferred stock |
|
|
|
|
|
| ||
Proceeds from exercise of options |
|
|
|
|
|
| ||
Repayment of note payable to officer |
|
| ( | ) |
|
| ( | ) |
Dividend paid to Preferred stockholders |
|
| ( | ) |
|
|
| |
Net cash provided by (used in) financing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH |
|
| ( | ) |
|
| ( | ) |
CASH, BEGINNING OF PERIOD |
|
|
|
|
|
| ||
CASH, END OF PERIOD |
| $ |
|
| $ |
| ||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
|
|
| ||
Cash paid for tax |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITY |
|
|
|
|
|
|
|
|
Surrender of Common Stock Class B by a Stockholder |
| $ |
|
| $ |
| ||
Conversion of preferred stock to common stock |
| $ |
|
| $ |
| ||
Deferred offering costs |
| $ |
|
| $ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8 |
Table of Contents |
INNOVATION PHARMACEUTICALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
1. Basis of Presentation and Nature of Operations
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements of Innovation Pharmaceuticals Inc. have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with our audited financial statements for the year ended June 30, 2022, included in our Annual Report on Form 10-K for the year ended June 30, 2022.
In the opinion of the management of Innovation Pharmaceuticals Inc., all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month and nine-month periods have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms “Company,” “Innovation,” “we,” “us” or “our” mean Innovation Pharmaceuticals Inc.
Basis of Presentation
Innovation Pharmaceuticals Inc. was incorporated on August 1, 2005 in the State of Nevada. Effective June 5, 2017, the Company amended its Articles of Incorporation and changed its name from Cellceutix Corporation to Innovation Pharmaceuticals Inc. On February 15, 2019, the Company formed IPIX Pharma Limited (“IPIX Pharma”), a wholly-owned subsidiary incorporated under the Companies Act 2014 of Ireland. IPIX Pharma is a Private Company Limited by Shares. The subsidiary is intended to serve as a key hub for strategic collaboration with European companies and medical communities in addition to providing cost-saving efficiencies and flexibility with respect to developing Brilacidin under European Medicines Agency standards.
The Company is a clinical stage biopharmaceutical company. The Company’s common stock is quoted on the OTCQB, symbol “IPIX.”
Basis of Consolidation
These condensed consolidated financial statements include the accounts of Innovation Pharmaceuticals Inc., a Nevada corporation, and our wholly-owned subsidiary, IPIX Pharma, an Ireland limited company. All significant intercompany transactions and balances have been eliminated in consolidation. There was no translation gain and loss for the nine months ended March 31, 2023 and 2022.
Nature of Operations - Overview
We are in the business of developing or licensing innovative small molecule therapies to treat diseases with significant medical need, particularly in the areas of inflammatory diseases, cancer, dermatology and anti-infectives. Our strategy is to maximize the value of our drug compound Brilacidin by advancing indications along the regulatory pathway as well as seeking additional health care-related investment opportunities with the aim of diversifying the Company’s assets. Ongoing activities include Brilacidin drug manufacturing, scientific report writing, and supportive research activities. The Company also acquired a non-controlling interest in BT BeaMedical Technologies Ltd. (“BTL”), formerly known as Squalus Medical Ltd., a private company developing a novel image guided surgical laser platform. Management is focused on other avenues of business development, including, but not limited to, joint ventures, mergers and acquisitions, strategic investments, and licensing agreements, for the purpose of diversifying corporate assets. While no assurances are expressed or implied that any agreement will be consummated in the future, the Company is committed toward executing on opportunities at hand.
We currently own all development and marketing rights to our products, other than the license rights granted to Alfasigma S.p.A. in July 2019 for the development, manufacturing and commercialization of locally-administered Brilacidin for ulcerative proctitis/ulcerative proctosigmoiditis (“UP/UPS”). In order to successfully develop and market our products, we may have to partner with additional companies. Prospective partners may require that we grant them significant development and/or commercialization rights in return for agreeing to share the risk of development and/or commercialization.
9 |
Table of Contents |
2. Liquidity, Going Concern and Management’s Plan
Our financial statements were prepared assuming we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended March 31, 2023, the Company had a net loss of $
These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
3. Significant Accounting Policies and Recent Accounting Pronouncements
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include contract research accruals, recoverability of long-lived assets, valuation of equity grants and income tax valuation. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Basic and Diluted Loss per Share
Basic and diluted loss per share are computed based on the weighted-average common shares and common share equivalents outstanding during the period. Except with respect to certain voting, conversion and transfer rights and as otherwise expressly provided in the Company’s Articles of Incorporation or required by applicable law, shares of the Company’s Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably and are identical in all respects as to all matters. Accordingly, basic and diluted net income (loss) per share are the same for both classes. Common share equivalents consist of stock options, restricted stock, warrants, convertible related party notes payable, and convertible preferred stock. Common share equivalents were excluded from the computation of diluted earnings per share for the nine months ended March 31, 2023 and 2022, because their effect was anti-dilutive.
Weighted average shares of common stock outstanding used in the calculation of basic and diluted earnings per share were as follows:
|
| March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net loss per share, basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Class A common stock |
|
|
|
|
|
| ||
Class B common stock |
|
|
|
|
|
| ||
Total weighted average shares outstanding |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Antidilutive securities not included: |
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
| ||
Stock options arising from convertible note payable and accrued interest |
|
|
|
|
|
| ||
Restricted stock grants |
|
|
|
|
|
| ||
Convertible preferred stock |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
|
10 |
Table of Contents |
Treasury Stock
The Company accounts for treasury stock using the cost method. The
Treasury stock, representing shares of the Company’s common stock that have been acquired for payroll tax withholding on vested stock grants and to satisfy the exercise price on vested stock options, is recorded at its acquisition cost and these shares are not considered outstanding.
Revenue Recognition
The Company follows the guidance of accounting standard ASC 606, Revenue from Contracts with Customers, and all the related amendments.
The Company has acquired and further developed license rights to Functional Intellectual Property (“functional IP”) that it licenses to customers for defined license periods. A functional IP license is a license to intellectual property that has significant standalone functionality that does not include supporting or maintaining the intellectual property during the license period. The Company’s patented drug formulas have significant standalone functionality in their abilities to treat a disease or condition. Further, there is no expectation that the Company will undertake any activities to change the functionality of the drug formulas during the license periods (see Note 8. Exclusive License Agreement and Patent Assignment Agreement).
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.
Pursuant to ASC 606, a customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.
To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:
| (i) | identify the contract(s) with a customer; |
| (ii) | identify the performance obligations in the contract, including whether they are distinct in the context of the contract; |
| (iii) | determine the transaction price, including the constraint on variable consideration; |
| (iv) | allocate the transaction price to the performance obligations in the contract; and |
| (v) | recognize revenue when (or as) the Company satisfies each performance obligation. |
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If a promised good or service is not distinct, it is combined with other performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The terms of the Company’s licensing agreement include the following:
| (i) | up-front fees; |
| (ii) | milestone payments related to the achievement of development, regulatory, or commercial goals; and |
| (iii) | royalties on net sales of licensed products. |
License of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If not distinct, the license is combined with other performance obligations in the contract. For licenses that are combined with other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
11 |
Table of Contents |
Milestone Payments: At the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method. The Company also evaluates the milestone to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) in accordance with the royalty recognition constraint.
Accounting for Stock Based Compensation
The stock-based compensation expense incurred by the Company for employees, non-employees and directors in connection with its equity incentive plan is based on ASC 718, and the fair market value of the equity awards is measured at the grant date.
Awards with service-based vesting conditions only: Expense is recognized on a straight-line basis over the requisite service period of the award.
Awards with performance-based vesting conditions: Expense is not recognized until it is determined that it is probable the performance-based conditions will be met. When achievement of a performance-based condition is probable, a catch-up of expense will be recorded as if the award had been vesting on a straight-line basis from the award date. The award will continue to be expensed on a straight-line basis over the requisite service period basis until a higher performance-based condition is met, if applicable.
Awards with market-based vesting conditions: Expense recognized on a straight-line basis over the requisite service period, which is the lesser of the derived service period or the explicit service period if one is present. However, if the market condition is satisfied prior to the end of the requisite service period, the Company will accelerate all remaining expense to be recognized.
Awards with both performance-based and market-based vesting conditions: If an award vesting or exercisability is conditional upon the achievement of either a market condition or performance or service conditions, the requisite service period is generally the shortest of the explicit, implicit, and derived service period.
We have elected to use the Black-Scholes-Merton pricing model to determine the fair value of stock options on the dates of grant. Restricted stock units are measured based on the fair market values of the underlying stock on the dates of grant. The grant date is also the valuation date for the non-employee awards. We recognize stock-based compensation using the straight-line method.
Investments
For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. For those investments in which the Company does not have such significant influence, the Company applies the accounting guidance for certain investments in debt and equity securities.
12 |
Table of Contents |
4. Equity Investment
BT BeaMedical Technologies Ltd. (formerly known as Squalus Medical Ltd.)
On June 9, 2022, the Company entered into a Series A Preferred Share Purchase Agreement (the “Purchase Agreement”) with BT BeaMedical Technologies Ltd. (formerly known as Squalus Medical Ltd.), a company established under the laws of the State of Israel (“BTL”), pursuant to which the Company purchased 55,556 shares of BTL’s Series A Redeemable Preferred Shares (the “Series A Shares”) and a warrant to purchase 27,778 Series
The Company’s equity in losses in excess of its investment are accounted for under the equity method and consisted of the following as of March 31, 2023 and June 30, 2022 (rounded in nearest thousand):
|
| March 31, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
BT BeaMedical Technologies Ltd. |
|
|
|
|
|
| ||
Ownership Interest |
|
| % |
|
| % | ||
Carrying Amount |
|
|
|
|
|
|
|
|
Total contributions |
|
|
|
|
|
| ||
Less: Share of the loss in investment in BTL |
|
| ( | ) |
|
| ( | ) |
Equity losses in excess of investment |
| $ |
|
| $ |
|
The Company invested approximately $4,000,000 in BTL in June, 2022. The cash balance in BTL at March 31, 2023 was approximately $
Summarized balance sheet information for the Company’s equity method investee BTL as of March 31, 2023 and June 30, 2022 is presented in the following table (rounded to nearest thousand):
|
| March 31, |
|
| June 30, |
| ||
BT BeaMedical Technologies Ltd. |
| 2023 |
|
| 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Short term investment |
|
|
|
|
| — |
| |
Other current assets |
|
|
|
|
|
| ||
Total current assets |
| $ |
|
| $ |
| ||
Long-term assets |
|
|
|
|
| — |
| |
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
Current liabilities |
| $ |
|
| $ |
| ||
Long-term liabilities |
|
|
|
|
| — |
| |
Total liabilities |
| $ |
|
| $ |
| ||
Equity |
|
|
|
|
|
|
|
|
Equity |
| $ |
|
| $ |
| ||
Accumulated deficits |
|
| ( | ) |
|
| ( | ) |
Total equity |
|
|
|
|
|
| ||
Total liabilities and equity |
| $ |
|
| $ |
|
13 |
Table of Contents |
Summarized income statement information for the Company’s equity method investee BTL is presented in the following table for the period from June 9, 2022 (date of acquisition) to June 30, 2022 and for the nine months ended March 31, 2023 (rounded to nearest thousand):
|
| For the nine months ended March 31, |
|
| For the period from June 9, 2022 (date of acquisition) to June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Net sales and revenue |
| $ |
|
| $ | — |
| |
|
|
|
|
|
|
|
|
|
Research and development costs |
| $ | 266,000 |
|
| $ |
| |
Administrative expenses |
|
|
|
|
|
| ||
Total operating expense |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Loss from operations |
| $ | ( | ) |
| $ | ( | ) |
Other income (expense) |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
5. Patents, net
Patents, net consisted of the following (rounded to nearest thousand):
|
| Useful life |
|
| March 31, |
|
| June 30, |
| |||
|
| (years) |
|
| 2023 |
|
| 2022 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Purchased Patent Rights- Brilacidin and related compounds |
|
|
|
| $ |
|
| $ |
| |||
Purchased Patent Rights-Anti-microbial- surfactants and related compounds |
|
|
|
|
|
|
|
|
| |||
Patents - Brilacidin and other compounds |
|
|
|
|
|
|
|
|
| |||
Total patents cost |
|
|
|
|
|
|
|
|
|
| ||
Less: Accumulated amortization |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Patents, net |
|
|
|
|
| $ |
|
|
|
|
The patents are amortized on a straight-line basis over the useful lives of the assets, determined to be
Amortization expense for the three months ended March 31, 2023 and 2022 was approximately $
At March 31, 2023, the future amortization period for all patents was approximately
14 |
Table of Contents |
6. Accrued Expenses - Related Parties and Other
Accrued expenses consisted of the following (rounded to nearest thousand):
|
| March 31, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Accrued research and development consulting fees |
| $ |
|
| $ |
| ||
Accrued rent - related parties (Note 11. Related Party Transactions) |
|
|
|
|
|
| ||
Accrued interest - related parties (Note 12. Convertible Note Payable - Related Party) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
|
|
|
7. Accrued Salaries and Payroll Taxes - Related Parties and Other
Accrued salaries and payroll taxes consisted of the following (rounded to nearest thousand):
|
| March 31, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Accrued salaries - related parties |
| $ |
|
| $ |
| ||
Accrued payroll taxes - related parties |
|
|
|
|
|
| ||
Withholding tax - payroll |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
|
|
|
8. Exclusive License Agreement and Patent Assignment Agreement
On July 18, 2019, the Company entered into an Exclusive License Agreement (the “License Agreement”) with Alfasigma S.p.A., a global pharmaceutical company (“Alfasigma”), granting Alfasigma the worldwide right to develop, manufacture and commercialize locally-administered Brilacidin for the treatment of UP/UPS.
Under the terms of the License Agreement, Alfasigma made an initial upfront non-refundable payment of $
On April 13, 2022, the Company entered a Patent Assignment Agreement with Fox Chase Chemical Diversity Center, Inc. (“FCCDC”), pursuant to which the Company assigned the title, rights and interest in and to the applications of certain patents in accordance with an earlier collaborative research agreement related to antifungal drug discovery work to which the Company had rights.
On May 3, 2022, the Company received payment of $
On January 18, 2023, the Company was notified by FCCDC that its third-party license with Basilea Pharmaceutica for development of broad-spectrum antifungals was terminated by the licensee.
15 |
Table of Contents |
9. Operating Leases
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.
The Company determined that the operating lease right-of-use asset was fully impaired on December 31, 2019. As such, the Company recognized an impairment loss of approximately $
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
|
| During the Nine Months Ended March 31, 2023 |
| |
Lease Cost |
|
|
| |
Operating lease cost (included in general and administrative in the Company’s condensed consolidated statement of operations) |
| $ |
| |
Variable lease cost |
|
|
| |
|
| $ |
| |
Other Information |
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for the nine months ended March 31, 2023 |
| $ |
| |
Weighted average remaining lease term – operating leases (in years) |
|
| 0.50 |
|
Average discount rate – operating leases |
|
| % |
The supplemental balance sheet information related to leases for the period is as follows:
|
| At March 31, 2023 |
| |
Operating leases |
|
|
| |
Short-term operating lease liabilities |
| $ |
| |
Long-term operating lease liabilities |
|
| — |
|
Total operating lease liabilities |
| $ |
|
The following table provides maturities of the Company’s lease liabilities at March 31, 2023 as follows:
|
| Operating Leases |
| |
Fiscal Year Ending June 30, |
|
|
| |
2023 |
| $ |
| |
2024 (remaining 3 months) |
|
|
| |
Total lease payments |
|
|
| |
Less: Imputed interest/present value discount |
|
| ( | ) |
|
|
|
|
|
Present value of lease liabilities |
| $ |
|
Operating lease cost for the three months and the nine months ended March 31, 2023 was approximately $
16 |
Table of Contents |
10. Commitments and Contingencies
Litigation
On January 22, 2020, the Company filed a complaint against Cummings Properties, LLC in the Superior Court of the Commonwealth of Massachusetts (C.A. No. 20-77CV00101), seeking, among other things, declaratory relief that the lease terminated in September 2018, as the Company’s prior principal executive offices did not automatically extend for an additional five years, return of the Company’s security deposit, and damages. The total lease amount is approximately $
Contractual Commitments
The Company has total non-cancellable contractual minimum commitments of approximately $
Contingent Liability - Disputed Invoices
The Company accrued payroll to Dr. Krishna Menon, ex-President of Research of approximately $
As of March 31, 2023 and June 30, 2022, all of the above disputed invoices were reflected as current liabilities.
11. Related Party Transactions
Pre-clinical Studies
The Company previously engaged KARD to conduct specified pre-clinical studies. The Company did not have an exclusive arrangement with KARD. All work performed by KARD needed prior approval by the executive officers of the Company, and the Company retained all intellectual property resulting from the services by KARD. The Company no longer uses KARD to conduct research study. At March 31, 2023 and June 30, 2022, the accrued research and development expenses payable to KARD was approximately $
Since September 1, 2013, the Company no longer leases space from KARD. As of March 31, 2023 and June 30, 2022, rent payables to KARD of approximately $
12. Convertible Note Payable - Related Party
The Ehrlich Promissory Note C is an unsecured demand note with Mr. Ehrlich, the Company’s Chairman and CEO, that originated in 2010, bears
On December 29, 2010, the Company issued
During the nine months ended March 31, 2023 and for year ended June 30, 2022, the Company repaid the principal of $
17 |
Table of Contents |
As of March 31, 2023 and June 30, 2022, the balance of accrued interest payable was $
As of March 31, 2023 and June 30, 2022, the total outstanding balances of principal and interest were approximately $
13. Loan payable
On May 10, 2020 and April 19, 2021, the Company received loan proceeds in the amount of approximately $
In December, 2021, the Company obtained the approval of the forgiveness of the above mentioned two loans, and the Company recorded the total loan forgiveness of $
14. Equity Incentive Plans, Stock-Based Compensation, Exercise of Options and Warrants Outstanding
Stock-based Compensation - Stock Options
2016 Equity Incentive Plan (the “2016 Plan”)
On June 30, 2016, the Board of Directors adopted the Company’s 2016 Plan. The 2016 Plan became effective upon adoption by the Board of Directors on June 30, 2016.
On February 23, 2020,
On October 10, 2021,
Stock Options
The fair value of options granted during the nine months ended March 31, 2022 was estimated on the date of grant using the Black-Scholes-Merton Model that uses assumptions noted in the following table. There was no option grant during the nine months ended March 31, 2023.
|
| Nine months ended March 31, |
| |
|
| 2022 |
| |
Expected term (in years) |
|
| ||
Expected stock price volatility |
| % | ||
Risk-free interest rate |
| % | ||
Expected dividend yield |
|
|
|
The components of stock-based compensation expense included in the Company’s Statements of Operations for the three months and nine months ended March 31, 2023 and 2022 are as follows (rounded to nearest thousand):
18 |
Table of Contents |
|
| Three months ended March 31 |
|
| Nine months ended March 31 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
General and administrative expenses |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Research and development expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total stock-based compensation expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
During the nine months ended March 31, 2023 and 2022
Directors and Employee
On October 10, 2021, the Compensation Committee approved the issuance of 1 million stock options to purchase shares of the Company’s common stock each to 2 independent directors of the Company, and
On October 10, 2021, the Company also issued to Ms. Jane Harness, the Senior Vice President, Clinical Sciences and Portfolio Management of the Company, 500,000 options to purchase common stock, which are exercisable for 10 years at $
On September 11, 2020, the Company issued to Ms. Harness
On September 1, 2019, the Company issued to Ms. Harness
On September 1, 2018, the Company issued to Ms. Harness
Consultants
On January 1, 2022, the Company agreed to issue stock options to purchase
19 |
Table of Contents |
On July 30, 2021, the Company agreed to issue stock options to purchase
On July 1, 2021, the Company agreed to issue stock options to purchase
On February 10, 2021, the Company agreed to issue stock options to purchase
On July 23, 2020, the Company agreed to issue stock options to purchase
Exercise of options
There was no exercise of options to purchase Class B common stock during the nine months ended March 31, 2023 and March 31, 2022. During the nine months ended March 31, 2022, the Company received approximately $
Forfeiture of options
There was forfeiture of 490,000 options to purchase Class A common stock during the nine months ended March 31, 2023, relating to the expiry of options of an officer and consultants. There was forfeiture of
Stock Options Issued and Outstanding
The following table summarizes all stock option activity under the Company’s equity incentive plans:
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
|
|
| $ |
|
|
|
|
|
| — |
| |||
Exercised |
|
| ( | ) |
| $ |
|
|
| — |
|
|
| — |
| |
Forfeited/expired |
|
| ( | ) |
| $ |
|
|
| — |
|
|
| — |
| |
Outstanding at June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ | — |
| |||
Granted |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| — |
|
Forfeited/expired |
|
| ( | ) |
| $ |
|
|
| — |
|
|
| — |
| |
Outstanding at March 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ | — |
| |||
Exercisable at March 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ | — |
| |||
Unvested stock options at March 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ | — |
|
20 |
Table of Contents |
Restricted Stock Awards Outstanding
The following summarizes our restricted stock activity:
|
|
|
| Weighted |
| |||
|
|
|
| Average |
| |||
|
| Number of |
|
| Grant Date |
| ||
|
| Shares |
|
| Fair Value |
| ||
Total unvested shares outstanding at June 30, 2021 |
|
|
|
| $ |
| ||
Total shares granted |
|
| — |
|
| $ | — |
|
Total shares vested |
|
| ( | ) |
| $ |
| |
Total shares forfeited |
|
| — |
|
| $ | — |
|
Total unvested shares outstanding at June 30, 2022 |
|
|
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Total shares granted |
|
| — |
|
| $ | — |
|
Total shares vested |
|
| ( | ) |
| $ |
| |
Total shares forfeited |
|
| — |
|
| $ | — |
|
Total unvested shares outstanding at March 31, 2023 |
|
|
|
| $ |
|
Scheduled vesting for outstanding restricted stock awards at March 31, 2023 is as follows:
|
| Year Ending June 30, |
| |||||||||
|
| 2023 |
|
| 2024 |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Scheduled vesting |
|
| — |
|
|
|
|
|
|
|
As of March 31, 2023, there was approximately $
15. Equity Transactions
$30 million Class A Common Stock Purchase Agreement with Aspire Capital
On July 31, 2020, the Company entered into the 2020 Stock Purchase Agreement (the “2020 Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $
During the period from July 1, 2022 to July 31, 2022 (date of expiration of the agreement), the Company did not sell any shares to Aspire Capital. During the period from July 31, 2020 to June 30, 2022, the Company generated proceeds of approximately $
Series B-2 5% convertible preferred stock (“2020 Series B-2 5% convertible preferred stock”)
On December 4, 2020, the Company entered into a securities purchase agreement (the “Series B-2 Securities Purchase Agreement”) with KIPS Bay Select LP for the sale of an aggregate of
21 |
Table of Contents |
The Series B-2 preferred stock is mandatorily redeemable under certain circumstances and, as such, is presented as a liability on the condensed consolidated balance sheets. The Company has elected to measure the value of its preferred stock using the fair value method with offsetting discounts associated with the fair value allocated to the warrants and for the intrinsic value attributed to the beneficial conversion feature (“BCF”). The fair value of the Series B-2 preferred stock (without the warrants) will be assessed at each subsequent reporting date with changes in fair value recorded in the profit and loss as a separate line item below the “loss from operations” section (See ASC 480-10-35-5).
The warrants issued in connection with the Series B-2 preferred stock are deemed to be free standing equity instruments and are recorded in permanent equity under additional paid in capital, based on a relative fair value allocation of proceeds, that is the warrants’ relative fair value to the Series B-2 preferred stock fair value (without the warrants), with an offsetting discount to the Series B-2 preferred stock. Given that the Series B-2 preferred stock is convertible at any time under these features, the underlying warrant discounts were accreted upon issuance and recorded as interest, resulting in no remaining discount to the Series B-2 preferred stock liability after the issuance.
The Company recorded the December 9, 2020 issuance of
The issuance costs associated with the Series B-2 preferred stock transaction were attributed to the Series B-2 preferred stock (without the warrants) and to the Series 1 and Series 2 warrants based on their relative fair values. The issuance costs attributed to the warrants of approximately $
The Company recorded the February 8, 2021 issuance of 2,036 shares Series B-2 Preferred Stock at approximately $
Underlying Series B-2 preferred stock dividends, paid quarterly, was accrued as interest (given the liability classification of the Series B-2 preferred stock) on a daily basis given fixed dividend terms under the Series B-2 preferred stock. The Company recorded 5% dividend accretion on total outstanding Series B-2 preferred stock and the total dividends accrued of approximately $
Terms of the 2020 Series B-2 5% convertible preferred stock
The rights and preferences of the preferred stock are set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series B-2 5% Convertible Preferred Stock filed with the Nevada Secretary of State on December 4, 2020 (the “Certificate of Designation”). Each share of preferred stock has an initial stated value of $
The holders of the preferred stock are limited in the amount of stated value of the preferred stock they can convert on any trading day. The conversion cap limits conversions by the holders to the greater of $
22 |
Table of Contents |
Redemption Rights
Following 90 days after the scheduled date for the second closing date, the Company may elect to redeem the preferred stock for
2020 Series B-2 5% convertible preferred stock warrants
Each share of preferred stock was sold together with two warrants: (i) a Series 1 warrant, which entitles the holder thereof to purchase one share of preferred stock at $
Subject to the satisfaction of certain circumstances, the Company may call for cancellation any or all of the warrants following 90 days after their issuance, for a payment in cash equal to
Exercise of 2020 Series B-2 5% convertible preferred stock warrants
During the nine months ended March 31, 2023, there was no exercise of warrants because all warrants were exercised since November 4, 2021.
During the nine months ended March 31, 2022, the Company issued
Conversion of 2020 Series B-2 5% convertible preferred stock to common stock
During the nine months ended March 31, 2023, the 2020 Series B-2 5% convertible preferred stockholder converted a total of
During the nine months ended March 31, 2022, the 2020 Series B-2 5% convertible preferred stockholder converted a total of
As of March 31, 2023 and June 30, 2022, Series B-2 5% convertible preferred stock liability was approximately $
The fair value of the Series B convertible preferred stock is measured in accordance with ASC 820 “Fair Value Measurement,” using option pricing methodologies, incorporating the following inputs:
|
| June 30, 2022 |
| |
|
|
|
| |
Expected dividend yield |
|
| % | |
Expected stock-price volatility |
|
| % | |
Risk-free interest rate |
|
| % | |
Stock price |
| $ |
| |
Exercise price |
| $ |
|
23 |
Table of Contents |
Treasury Stock
All treasury stock, representing shares of the Company’s common stock that have been acquired for payroll tax withholding on vested stock grants and to satisfy the exercise price on vested stock options, is recorded at its acquisition cost and these shares are not considered outstanding.
As of March 31, 2023 and June 30, 2022, the Company had the total of
Surrender of Shares
On December 29, 2022, Mr. Ehrlich entered into a Share Surrender Agreement with the Company pursuant to which Mr. Ehrlich permanently surrendered all legal right, title, and interest in
16. Fair Value Measurements
We disclose and recognize the fair value of our assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes three levels of the fair value hierarchy as follows:
Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2: Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3: Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
Our financial instruments consist of cash and cash equivalents, short-term and long-term investments, accounts payable, accrued liabilities and preferred stock liability. At March 31, 2023 and 2022, the carrying values of cash and cash equivalents, accounts payable, and accrued liabilities approximated fair value due to their short-term maturities.
The Company has elected to measure its preferred stock using the fair value method. The fair value of the preferred stock is the estimated amount that would be paid to redeem the liability in an orderly transaction between market participants at the measurement date. The Company calculates the fair value of the Series B-2 Preferred stock using a lattice model that takes into consideration the future redemption value on the instrument, which is tied to the Company’s stock price.
These valuations are considered to be Level 3 fair value measurements as the significant inputs are unobservable and require significant management judgment or estimation. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. Significant assumptions used in the fair value models include: the estimates of the redemption dates; credit spreads; dividend payments; and the market price of the Company’s common stock. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.
24 |
Table of Contents |
The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 Series B-2 preferred stock liability balance for the quarter ended March 31, 2023 and for the year ended June 30, 2022:
|
| FY 2022 |
| |
Balance, June 30, 2021 |
| $ | — |
|
Exercise of Series 1 and 2 warrants |
|
|
| |
Conversion of Series B-2 preferred stock to common stock |
|
| ( | ) |
Change in fair value of Series B-2 preferred stock (1) |
|
|
| |
Balance, June 30, 2022 |
| $ |
| |
|
|
|
|
|
Conversion of Series B-2 preferred stock to common stock |
|
| ( | ) |
Change in fair value of Series B-2 preferred stock (1) |
|
| — |
|
Balance, March 31, 2023 |
| $ |
|
(1) | Change in fair value of preferred stock is reported in interest expense-preferred stock. |
(2) | The 5% accrued dividend is reported in interest expense-preferred stock in the condensed consolidated statements of operation. The Company accrued |
17. Subsequent Events
The Company has evaluated events subsequent to March 31, 2023 through the issuance of these unaudited condensed consolidated financial statements and determined that there were no additional events requiring disclosure.
25 |
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and plan of operations should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q and with our Annual Report on Form 10-K for the year ended June 30, 2022. This discussion includes forward-looking statements that involve risk and uncertainties. You should review our important note about forward-looking statements preceding the condensed consolidated financial statements in Item 1 of this Part I. As a result of many factors, such as those set forth under “Risk Factors” in our Annual Report on Form 10-K, actual results may differ materially from those anticipated in these forward-looking statements.
Management’s Plan of Operation
OVERVIEW OF OUR BUSINESS
Overview
Innovation Pharmaceuticals Inc. is a clinical stage pharmaceutical company developing innovative therapies with anti-infective, oncology, anti-inflammatory and dermatology applications. The Company’s lead drug candidate Brilacidin is in a class of compounds called defensin-mimetics, small compounds that mimic the structure and function of defensins, also known as host defense peptides. The Company’s efforts are primarily focused on business development for the advancement of Brilacidin in the treatment of infectious diseases and Oral Mucositis. Ongoing activities include Brilacidin drug manufacturing, scientific report writing, and supportive research activities. The Company also owns an interest in BT BeaMedical Technologies Ltd. (“BTL”), formerly known as Squalus Medical Ltd., a private company developing a novel image guided surgical laser platform. Management is focused on other avenues of business development, including, but not limited to, joint ventures, mergers and acquisitions, strategic investments, and licensing agreements, for the purpose of diversifying corporate assets, although there can be no assurances that any agreement will be consummated in the future.
Recent Developments
As of the date of this filing, Brilacidin is being studied by NIH/NIAID-affiliated and other independent researchers funded by US Government grants, as a potential broad-spectrum antifungal. We anticipate these studies to continue as long as researchers remain positive about the antifungal properties and therapeutic potential of Brilacidin and government funding is available.
On February 23, 2023, the Company announced a visit to the headquarters of BT BeaMedical Technologies (“BTL”), a company in which it maintains a minority stake. The development of BTL surgical laser technology for treatment of epilepsy and brain tumors is progressing toward multiple planned FDA submissions.
On March 15, 2023, the Company reported new preclinical antifungal testing of Brilacidin is planned by NIH/NIAID-affiliated and other academic researchers based on positive results obtained to date. Related, Brilacidin in vitro and in vivo antifungal data was presented at two antifungal conferences.
On April 17, 2023, the Company reported antifungal research published in Nature Communications, a peer-reviewed journal. The scientific paper discusses combinations of Brilacidin and other antifungal drugs toward improving treatment outcomes in fungal infections.
Business Development and Licensing
The Company is actively engaged in business development and licensing initiatives with specialty and global pharmaceutical companies. The Company may also seek to enter into agreements with other third-party entities for research, development, and commercialization of other types of technologies or products. The goal of these efforts is to diversify and add value to the Company’s assets. From time to time, the Company may be party to various indications of interest and term sheets and participate in preliminary discussions and negotiations regarding potential licensing or partnership arrangements. It remains the Company’s primary objective to complete licensing deals, territorial and/or global, to provide access to non-dilutive capital to advance clinical assets forward in the most expeditious and cost-effective manner. The Company can make no assurance that partnerships will occur, but is committed toward executing on these potential alliance and partnership opportunities.
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In July 2019, the Company entered into a license agreement with Alfasigma S.p.A. (“Alfasigma”), granting Alfasigma the worldwide right to develop, manufacture and commercialize rectally administered Brilacidin for ulcerative proctitis/ulcerative proctosigmoiditis (“UP/UPS”). The license agreement provides Alfasigma with a right of first refusal for Brilacidin for the treatment of more extensive forms of inflammatory bowel disease (IBD), such as ulcerative colitis and Crohn’s disease, as well as a right of first negotiation for Brilacidin in other gastrointestinal indications. Phase 1 studies in healthy volunteers using Brilacidin in a proprietary Alfasigma formulation have successfully completed. In late September 2022, Alfasigma notified the Company that a revised clinical development plan for UP/UPS, incorporating regulatory authority feedback, is being enacted. Alteration to treatment duration requires further preclinical research, and the Company was advised by Alfasigma that its Phase 2 multinational clinical trial conduct was estimated to start in 2H2023. In April 2023, Alfasigma did confirm some delay in the progress of the UP/UPS clinical program, which could move out the trial start beyond end of 2023. Brilacidin drug substance is manufactured under direction of the Company as part of the licensing agreement with Alfasigma. The Company is eligible to receive $24 million in upfront and milestone payments, and a 6 percent royalty (net sales) upon the successful marketing of Brilacidin for UP/UPS. There can be no assurance that Alfasigma will meet their estimated timeline.
The Company and Fox Chase Chemical Diversity Center, Inc. (“FCCDC”) have a collaborative research agreement related to an antifungal drug discovery program. In exchange for a six percent fee tied to all potential future proceeds, the Company granted FCCDC all discovery, intellectual property and commercialization rights related to its share of this joint antifungal drug program which is for a compound other than Brilacidin. On May 3, 2022, the Company received payment of $18,000 from FCCDC based on FCCDC’s third-party license of this compound. Subsequently in January 2023, this third party license was terminated.
Development Programs
Compound | Target/Indication | Clinical Status |
Brilacidin | Oral Mucositis (OM) | Phase 2 Study (completed) Phase 3 planned, contingent upon sufficient funding |
| Inflammatory Bowel Disease (IBD) | Phase 2 UP/UPS Proof of Concept Study (completed) Phase 1 Safety/toleration/PK of oral dosage form (completed) |
| ABSSSI (Acute Bacterial Skin and Skin Structure Infection) | Phase 2 (completed) |
We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Milestone payments from our licensee are also dependent on clinical/regulatory milestones. We are actively engaged in business development for partnering Brilacidin. Developing pharmaceutical products, however, is a lengthy and very expensive process and there can be no assurance that we will complete such development or commercialize such pharmaceutical products for several years, if ever. Advancement of our Brilacidin clinical programs is dependent on securing sufficient working capital.
The Company devotes most of its efforts and resources on Brilacidin. We expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required for a promising compound to be identified and brought into clinical trials.
Set forth below is an overview of our most recent research and development efforts on Brilacidin through the date of this Quarterly Report on Form 10-Q:
Brilacidin
COVID-19 (SARS-CoV-2), Additional Viruses
In December 2020, the U.S. Food and Drug Administrations (FDA) approved the Company’s Investigational New Drug (IND) application to proceed with initiation of a randomized, placebo-controlled Phase 2 clinical trial (NCT04784897) of Brilacidin in moderate-to-severe hospitalized patients with COVID-19. Similar regulatory approval was obtained from the Russian Ministry of Health. This Phase 2 clinical trial of intravenously-administered Brilacidin (3- and 5-day dosing) for COVID-19 conducted at sites in the United States and Russia has since completed (n=120). While the trial’s primary endpoint of time to sustained recovery through Day 29 was not met, patients who started study treatment within fewer than 7 days of onset of COVID-19 symptoms achieved sustained recovery more quickly (Brilacidin 5-dose group versus pooled placebo, p=0.03). Other beneficial treatment effects based on the trial’s primary endpoint of sustained recovery were also observed in subgroups of patients with the highest (upper quartile) baseline values for key COVID-19 biomarkers. On two secondary endpoints, more patients treated with Brilacidin (5-dose group) achieved clinical improvement by 10 days as measured by National Emergency Warning Score 2 (NEWS2) criteria, and the mean change from baseline in NEWS2 was greater for Brilacidin treatment groups at all assessment timepoints. Additionally, under compassionate use of Brilacidin in critical cases of COVID-19, where Brilacidin was administered more frequently and over a longer duration than in the Phase 2 trial, investigators reported positive changes to subject status. Pursing a biomarker-driven approach, increasing Brilacidin dosing, targeting different patient populations, testing Brilacidin in combination with other drugs (e.g., remdesivir, given synergistic in vitro data) -- all are areas under consideration for potential future Brilacidin COVID-19 clinical trials pending obtaining government, partnership-based or other financial support. Antiviral data on Brilacidin in non-SARS-CoV-2 viruses has been generated and presented at scientific conferences. Results from the Brilacidin COVID-19 clinical trial, as well as findings from in vitro testing of Brilacidin in multiple viruses, are being prepared for publication.
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IBD, Ulcerative Proctitis/Proctosigmoiditis (UP/UPS) study - A Phase 2a trial has previously been completed by the Company, comprised of three sequential cohorts, with progressive dose escalation by cohort: cohort A (6 patients) - 50 mg, cohort B (6 patients) - 100 mg, and cohort C (5 patients) - 200 mg, respectively. Treatment with Brilacidin by daily enema administration was performed for 42 days. The primary efficacy endpoint of clinical remission (accounting for stool frequency, rectal bleeding and endoscopy findings subscores) was met by the majority of patients across the cohorts. Brilacidin was generally well-tolerated. Patient quality of life (as assessed by the short inflammatory bowel disease questionnaire, or SIBDQ) showed notable improvements. Limited systemic exposure to Brilacidin was demonstrated as measured by plasma Brilacidin concentrations. In July 2019, the Company entered into a license agreement with Alfasigma, granting Alfasigma the worldwide right to develop, manufacture and commercialize rectally administered Brilacidin for UP/UPS. Phase 1 studies in healthy volunteers using Brilacidin in a proprietary Alfasigma formulation have successfully completed, and Alfasigma has advised the Company that the Phase 2 study start timing may move beyond end of 2023. There can be no assurance that Alfasigma will meet their estimated timeline.
IBD, Ulcerative Colitis (UC) - Brilacidin has also been developed as a treatment in more extensive forms of IBD. Development of a delayed release oral formulation has been in progress, with development work expanding into immediate release formulations due to unexpected findings encountered. Such findings appear due to the inherent physiochemical properties of the compound, and those of polymers used to achieve delayed release. An immediate release, multi-particulate, capsule formulation has been developed, although further work has since been halted due to instability of that formulation being identified. Hence, further advancement in the indication of ulcerative colitis requires conduct of additional formulation development work prior to Phase 1 testing of that oral formulation. Completion of formulation/analytical development work, clinical trial supply manufacturing, and subsequent progression into clinical trials, are pending securing sufficient drug supply and working capital.
Oral Mucositis (OM) study - In a randomized, double-blind Phase 2 study of Brilacidin for the prevention and control of OM in patients receiving chemoradiation for treatment of Head and Neck Cancer (HNC), Brilacidin (administered three times daily as an oral rinse) markedly reduced the rate of severe OM (WHO Grade ≥ 3), delayed onset of severe OM and decreased duration of severe OM. The Company and the FDA have completed an End-of-Phase 2 meeting concerning the continuing development of Brilacidin oral rinse to decrease the incidence of severe OM in HNC patients receiving chemoradiation. Both parties agreed to an acceptable Brilacidin Phase 3 development pathway, including studying Brilacidin oral rinse effects on severe OM when cisplatin, the preferred chemotherapy regimen in HNC care, is administered in higher concentrations (80-100 mg/m2) every 21 days, and at lower concentrations (30-40 mg/m2) administered weekly as part of the chemoradiation regimen.
An optimized oral rinse formulation has been developed, and 12-month stability testing shows it to be stable. Further advancement in the indication of oral mucositis requires additional drug formulation/analytical work, followed by clinical trial supply manufacturing prior to progressing to Phase 3 clinical trials. Given the low price per share of our common stock and the many multiple million dollar costs associated with a Phase 3 program, at this time clinical trial supply manufacturing and Phase 3 clinical trial conduct are delayed, with such activities pending securing sufficient working capital and/or partnership.
ABSSSI - In February 2016, the Company submitted a Special Protocol Assessment (SPA) request, along with a final protocol, to the FDA, for a Phase 3 clinical trial of Brilacidin for the treatment of Acute Bacterial Skin and Skin Structure Infection (ABSSSI) caused by gram-positive bacteria, including methicillin-resistant Staphylococcus aureus (MRSA). We received from the FDA comments and considerations for incorporation into our study design. Management decided to delay its response to the FDA due to the low price per share of our common stock and the many multiple million dollar costs associated with a Phase 3 program. Our strategy, for now, is to achieve success with other trials and attract partnering opportunities that may provide significant upfront payments and milestone payments, which can then be used to fund the ABSSSI program. We see ABSSSI as the appropriate gateway indication in infectious diseases, enabling potential further studies of Brilacidin’s use for implant coating and biofilm infections.
Antifungal - Recent data generated from independent researchers suggest Brilacidin has potential to be developed as a novel antifungal agent. Brilacidin converted caspofungin from a fungistatic into a fungicidal drug, enabling it to overcome both drug resistance and biofilm formation. Brilacidin exerted, to a lesser degree, synergistic effects with voriconazole in A. fumigatus. Further in vitro testing showed Brilacidin synergized with caspofungin in C. albicans, C. auris and C. neoformans. In an A. fumigatus immunosuppressed mouse model in invasive pulmonary aspergillosis, Brilacidin plus caspofungin cleared infection in the lungs by almost 95 percent, compared to ~50 percent when each compound was administered individually. In an A. fumigatus mouse model in keratitis, compared to control, Brilacidin reduced fungal burden and disease severity, while also improving corneal thickness. Brilacidin also showed in vitro an additive inhibitory effect when combined with posaconazole in several species of Mucorales, the main etiological agents of mucormycosis, commonly referred to as black fungus. Brilacidin further showed potent in vitro stand-alone efficacy in C. neoformans, a major driver of illness in people living with HIV/AIDS. Brilacidin antifungal data has been presented at scientific conferences. Additional Minimum Inhibitory Concentration (MIC) in vitro testing, via NIH-NIAID-affiliated researchers and a third-party vendor, has shown promising Brilacidin activity in other hard-to-treat fungal pathogens, with further preclinical testing planned.
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Expenditures on Brilacidin were approximately $0.1 million and $0.6 million during the three months ended March 31, 2023 and 2022, respectively, and approximately $0.3 million and $2.9 million during the nine months ended March 31, 2023 and 2022, respectively.
We have no product sales to date and we will not receive any product revenue until we receive approval from the FDA or equivalent foreign regulatory agencies to begin marketing a pharmaceutical product. Developing pharmaceutical products, however, is a lengthy and very expensive process and there can be no assurance that we will complete such development or commercialize such for several years, if ever.
Management’s Plan of Operation
The Company historically devoted most of its efforts and resources on business development, regulatory matters, and clinical trials. Presently, the Company does not have sufficient financial resources to advance our drug candidates meaningfully. Contingent upon sufficient funding, we anticipate that our efforts would primarily focus on advancement of our drug candidate Brilacidin for decreasing the incidence of severe oral mucositis as a complication of chemoradiation in Oral Mucositis. The antiviral and antifungal properties of Brilacidin also present potential clinical development opportunities going forward should sufficient funding be obtained via grants and/or pharmaceutical company partnerships. In general, we expect to concentrate on product development and engage in a limited way in product discovery, avoiding the significant investment of time and financial resources that is generally required for a promising compound to be identified and brought into clinical trials.
In the ordinary course of business, we engage in a continual review of opportunities to license our drug compound(s)/ indications and enter into partnering, joint development or similar arrangements with other companies. We may generally at any time have such opportunities in various stages of active review, including, for example, entry into indications of interest and term sheets and participation in preliminary discussions and negotiations. Any such transaction could be material to us.
The Company is monitoring BTL’s progress in advancing its novel laser-based thermal ablation technology platform targeting epilepsy and oncology procedures. BTL will use the FDA 510(k) pathway to achieve its goal of marketing approval in the United States. BTL recently received certification of ISO13485 for their new facility. ISO 13485 is the medical industry’s medical device standard, which is designed to ensure that all medical devices meet the proper regulatory compliance laws and customer needs.
Critical Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States (“GAAP”) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses in the financial statements and accompanying notes. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the Company. Based on this definition, we have the critical accounting estimates identified below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results which are found in Note 2 – Significant Accounting Policies of our 2022 Annual Report on Form 10-K and Note 2 – Significant Accounting Policies in the accompanying financial statements. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
Recently Issued Accounting Pronouncements
See Note 3. Significant Accounting Policies and Recent Accounting Pronouncements to the condensed consolidated financial statements, for a discussion of recent accounting pronouncements and their effect, if any, on our financial statements.
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Results of Operations
We expect to incur losses from operations for the next few years. Contingent upon sufficient funding, we expect to incur increasing research and development expenses, including expenses related to additional clinical trials for our proprietary programs. We currently anticipate that future budget expenditures will be approximately $1.9 million for the next 12 months, including approximately $0.7 million for development activities, supportive research, and drug manufacturing. However, continuing operations for the next 12 months from the date of this filing is very much dependent upon our ability to raise capital from existing or new financing sources. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
For the three months ended March 31, 2023 and 2022
Revenue
We generated no revenue and incurred operating expenses of approximately $0.6 million and $1.5 million for the three months ended March 31, 2023 and 2022, respectively.
Research and Development Expenses for Proprietary Programs
Below is a summary of our research and development expenses for our proprietary programs by categories of costs (rounded to nearest thousand):
|
| For the three months ended |
|
| Change |
| ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Clinical studies and development research, net of reimbursement from vendors |
| $ | 107,000 |
|
| $ | 677,000 |
|
| $ | (570,000 | ) |
|
| (84 | )% |
Employees payroll and payroll tax expenses related to R&D Department |
|
| 119,000 |
|
|
| 119,000 |
|
|
| — |
|
| — | % | |
Stock-based compensation - employee |
|
| 4,000 |
|
|
| 30,000 |
|
|
| (26,000 | ) |
|
| (87 | )% |
Stock-based compensation - consultants |
|
| — |
|
|
| 10,000 |
|
|
| (10,000 | ) |
|
| (100 | )% |
Depreciation and amortization expenses |
|
| 93,000 |
|
|
| 95,000 |
|
|
| (2,000 | ) |
|
| (2 | )% |
Total |
| $ | 323,000 |
|
| $ | 931,000 |
|
| $ | (608,000 | ) |
|
| (65 | )% |
Research and development expenses for proprietary programs decreased during the three months ended March 31, 2023 compared with the three months ended March 31, 2022, primarily due to less spending on our Brilacidin program for the three months ended March 31, 2023.
Employees payroll and payroll tax expenses was consistent during the three months ended March 31, 2023 due to no change in salary paid during the three months ended March 31, 2023 compared with the three months ended March 31, 2022.
Stock-based compensation for employees decreased during the three months ended March 31, 2023 due to no new issuance of stock options during the three months ended March 31, 2023 compared with the three months ended March 31, 2022.
Stock-based compensation – consultants decreased during the three months ended March 31, 2023 due to no new issuance of stock options during the three months ended March 31, 2023 compared with the three months ended March 31, 2022.
Our research and development expenses include costs related to preclinical and clinical trials, outsourced services and consulting, officers’ payroll and related payroll tax expenses, other wages and related payroll tax expenses, stock-based compensation, depreciation and amortization expenses. Clinical studies and development expenses may decrease in future reporting periods depending on the Company’s current and future financial liquidity. We manage our proprietary programs based on scientific data and achievement of research plan goals. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on an individual program basis.
General and Administrative Expenses
General and administrative expenses consist mainly of compensation and associated fringe benefits not included in the cost of research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.
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Below is a summary of our general and administrative expenses (rounded to nearest thousand):
|
| For the three months ended |
|
| Change |
| ||||||||||
|
| March 31, |
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| 2023 vs. 2022 |
| ||||||||||
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| 2023 |
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| 2022 |
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| $ |
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| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
D&O, health and clinical insurance expense |
| $ | 57,000 |
|
| $ | 68,000 |
|
| $ | (11,000 | ) |
|
| (16 | )% |
Directors’ fees |
|
| 38,000 |
|
|
| 38,000 |
|
|
| — |
|
| — | % | |
Rent and utility expense |
|
| 9,000 |
|
|
| 17,000 |
|
|
| (8,000 | ) |
|
| (47 | )% |
Stock-based compensation expense – Officers & Directors |
|
| — |
|
|
| 166,000 |
|
|
| (166,000 | ) |
|
| (100 | )% |
Business development expense |
|
| — |
|
|
| 4,000 |
|
|
| (4,000 | ) |
|
| (100 | )% |
Other G&A |
|
| 40,000 |
|
|
| 27,000 |
|
|
| 13,000 |
|
|
| 48 | % |
Total |
| $ | 144,000 |
|
| $ | 320,000 |
|
| $ | (176,000 | ) |
|
| (55 | )% |
General and administrative expenses decreased during the three months ended March 31, 2023, primarily due to a decrease in stock-based compensation expense – Officers & Directors of $166,000 and a decrease in rent and utility expense during the three months ended March 31, 2023.
Officers’ Payroll and Payroll Tax Expenses
Below is a summary of our Officers’ payroll and payroll tax expenses (rounded to nearest thousand):
|
| For the three months ended |
|
| Change | ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 | ||||||||||
|
| 2023 |
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| 2022 |
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| $ |
|
| % | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Officers’ payroll expenses |
| $ | 117,000 |
|
|
| 117,000 |
|
| $ | — |
|
| — | % |
Payroll tax expenses |
|
| 9,000 |
|
|
| 9,000 |
|
|
| — |
|
| — | % |
|
| $ | 126,000 |
|
| $ | 126,000 |
|
| $ | — |
|
| — | % |
There was no change in officers’ payroll expenses and payroll tax expense during the three months ended March 31, 2023.
Professional Fees
Below is a summary of our Professional fees (rounded to nearest thousand):
|
| For the three months ended |
|
| Change |
| ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 |
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| 2023 |
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| 2022 |
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| $ |
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| % |
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| ||||
Audit, legal and professional fees |
| $ | 48,000 |
|
| $ | 81,000 |
|
| $ | (33,000 | ) |
|
| (41 | )% |
Professional fees decreased during the three months ended March 31, 2023 primarily related to decrease in legal fees and other professional fees in 2023.
Other Operating Income (Expense)
There was an increase in other operating expense which represents equity in loss from an investment of approximately $38,000 and $0 for the three months ended March 31, 2023 and 2022, respectively (see Note 4. – Equity Investment).
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Other Income (Expense)
Below is a summary of our other income (expense) (rounded to nearest thousand):
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| For the three months ended |
|
| Change |
| ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 |
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| 2023 |
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| 2022 |
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| $ |
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| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — | % |
Interest expense – debt |
|
| (12,000 | ) |
|
| (11,000 | ) |
|
| 1,000 |
|
|
| 9 | % |
Interest expense – preferred stock liability |
|
| (7,000 | ) |
|
| (17,000 | ) |
|
| (10,000 | ) |
|
| (59 | )% |
Other Income (Expense), net |
| $ | (19,000 | ) |
| $ | (28,000 | ) |
| $ | (9,000 | ) |
|
| (32 | )% |
Interest expense – debt increased during the three months ended March 31, 2023 primarily due to an increase in interest paid to a finance company, and offset by a decrease in interest paid on the note payable – related party, because the Company partially paid the note payable balance due to Mr. Ehrlich, the Company’s Chairman and CEO (see Note 12. Convertible Note Payable – Related Party of the Notes to Condensed Consolidated Financial Statements).
Interest expense – preferred stock liability decreased during the three months ended March 31, 2023 primarily due to less accrued dividend for less Series B 5% convertible preferred stock outstanding as of March 31, 2023 compared with March 31, 2022. There was 5% accrued dividend of $7,000 and $17,000 during the three months ended March 31, 2023 and 2022, respectively (see Note 16. – Fair Value Measurement).
Net Losses
We incurred net losses of $0.7 million and $1.5 million for the three months ended March 31, 2023 and 2022, respectively, because of the above-mentioned factors.
For the nine months ended March 31, 2023 and 2022
Revenue
We generated no revenue and incurred operating expenses of approximately $2.4 million and $5.5 million for the nine months ended March 31, 2023 and 2022, respectively.
Research and Development Expenses for Proprietary Programs
Below is a summary of our research and development expenses for our proprietary programs by categories of costs (rounded to nearest thousand):
|
| For the nine months ended |
|
| Change |
| ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 |
| ||||||||||
|
| 2023 |
|
| 2022 |
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| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Clinical studies and development research, net of reimbursement from vendors |
| $ | 908,000 |
|
| $ | 3,185,000 |
|
| $ | (2,277,000 | ) |
|
| (71 | )% |
Refunds of unused project deposits |
|
| (175,000 | ) |
|
| — |
|
|
| (175,000 | ) |
| — | % | |
Reimbursement for Brilacidin manufacturing expenses |
|
| (238,000 | ) |
|
| — |
|
|
| (238,000 | ) |
| — | % | |
Employees payroll and payroll tax expenses related to R&D Department |
|
| 343,000 |
|
|
| 524,000 |
|
|
| (181,000 | ) |
|
| (35 | )% |
Stock-based compensation – employee |
|
| 40,000 |
|
|
| 69,000 |
|
|
| (29,000 | ) |
|
| (42 | )% |
Stock-based compensation – consultants |
|
| 2,000 |
|
|
| 51,000 |
|
|
| (49,000 | ) |
|
| (96 | )% |
Depreciation and amortization expenses |
|
| 279,000 |
|
|
| 286,000 |
|
|
| (7,000 | ) |
|
| (2 | )% |
Total |
| $ | 1,159,000 |
|
| $ | 4,115,000 |
|
| $ | (2,956,000 | ) |
|
| (72 | )% |
Research and development expenses for proprietary programs decreased during the nine months ended March 31, 2023 compared with the nine months ended March 31, 2022, primarily due to less spending on our Brilacidin program, increase in refunds of unused project deposits of $175,000, and increase in reimbursement for Brilacidin manufacturing expenses of $238,000 for the nine months ended March 31, 2023.
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Employees payroll and payroll tax expenses decreased during the nine months ended March 31, 2023 due to no bonus paid during the nine months ended March 31, 2023 compared with the nine months ended March 31, 2022.
Stock-based compensation for employee decreased during the nine months ended March 31, 2023 due to no new issuance of stock options during the nine months ended March 31, 2023 compared with the nine months ended March 31, 2022.
Stock-based compensation - consultants decreased during the nine months ended March 31, 2023 due to no new issuance of stock options during the nine months ended March 31, 2023 compared with the nine months ended March 31, 2022.
Our research and development expenses include costs related to preclinical and clinical trials, outsourced services and consulting, officers’ payroll and related payroll tax expenses, other wages and related payroll tax expenses, stock-based compensation, depreciation and amortization expenses. Clinical studies and development expenses may decrease in future reporting periods depending on the Company’s current and future financial liquidity. We manage our proprietary programs based on scientific data and achievement of research plan goals. Accordingly, the accurate assignment of time and costs to a specific project is difficult and may not give a true indication of the actual costs of a particular project. As a result, we do not report costs on an individual program basis.
General and Administrative Expenses
General and administrative expenses consist mainly of compensation and associated fringe benefits not included in the cost of research and development expenses for proprietary programs and include other management, business development, accounting, information technology and administration costs, including patent filing and prosecution, recruiting, consulting and professional services, travel and meals, sales commissions, facilities, depreciation and other office expenses.
Below is a summary of our general and administrative expenses (rounded to nearest thousand):
|
| For the nine months ended |
|
| Change |
| ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
D&O, health and clinical insurance expense |
| $ | 228,000 |
|
| $ | 208,000 |
|
| $ | 20,000 |
|
|
| 10 | % |
Directors’ fees |
|
| 113,000 |
|
|
| 113,000 |
|
|
| — |
|
| — | % | |
Rent and utility expense |
|
| 33,000 |
|
|
| 58,000 |
|
|
| (25,000 | ) |
|
| (43 | )% |
Stock-based compensation expense – Officers & Directors |
|
| 161,000 |
|
|
| 277,000 |
|
|
| (116,000 | ) |
|
| (42 | % |
Business development expense |
|
| 4,000 |
|
|
| 29,000 |
|
|
| (25,000 | ) |
|
| (86 | )% |
Other G&A |
|
| 87,000 |
|
|
| 86,000 |
|
|
| 1,000 |
|
|
| 1 | % |
Total |
| $ | 626,000 |
|
| $ | 771,000 |
|
| $ | (145,000 | ) |
|
| (19 | )% |
General and administrative expenses decreased during the nine months ended March 31, 2023, primarily due to a decrease in stock-based compensation expense – Officers & Directors of $116,000 and a decrease in rent and utility expense during the nine months ended March 31, 2023.
Officers’ Payroll and Payroll Tax Expenses
Below is a summary of our Officers’ payroll and payroll tax expenses (rounded to nearest thousand):
|
| For the nine months ended |
|
| Change |
| ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Officers’ payroll expenses |
| $ | 350,000 |
|
|
| 350,000 |
|
| $ | — |
|
| — | % | |
Payroll tax expenses |
|
| 12,000 |
|
|
| (42,000 | ) |
|
| 54,000 |
|
|
| 129 | % |
|
| $ | 362,000 |
|
| $ | 308,000 |
|
| $ | 54,000 |
|
|
| 18 | % |
There was no change in officers’ payroll expenses during the nine months ended March 31, 2023. Payroll tax expense increased during the nine months ended March 31, 2023, primarily due to the adjustment to the over-provision for payroll taxes in 2022.
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Professional Fees
Below is a summary of our Professional fees (rounded to nearest thousand):
|
| For the nine months ended |
|
| Change |
| ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Audit, legal and professional fees |
| $ | 209,000 |
|
| $ | 301,000 |
|
| $ | (92,000 | ) |
|
| (31 | )% |
Professional fees decreased during the nine months ended March 31, 2023 primarily related to decrease in legal fees and other professional fees in 2023.
Other Operating Income (Expense)
There was an increase in other operating expense which represents equity in loss from an investment of approximately $83,000 and $0 for the nine months ended March 31, 2023 and 2022, respectively (see Note 4. – Equity Investment).
Other Income (Expense)
Below is a summary of our other income (expense) (rounded to nearest thousand):
|
| For the nine months ended |
|
| Change |
| ||||||||||
|
| March 31, |
|
| 2023 vs. 2022 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income |
| $ | — |
|
|
| 172,000 |
|
| $ | (172,000 | ) |
|
| (100 | )% |
Interest expense – debt |
|
| (24,000 | ) |
|
| (61,000 | ) |
|
| (37,000 | ) |
|
| (61 | )% |
Interest expense – preferred stock liability |
|
| (24,000 | ) |
|
| (31,000 | ) |
|
| (7,000 | ) |
|
| (23 | )% |
Other Income (Expense), net |
| $ | (48,000 | ) |
| $ | 80,000 |
|
| $ | (128,000 | ) |
|
| (270 | )% |
There was a decrease in other income that was forgiveness of PPP Loan in 2022.
There was a decrease in interest paid on the note payable – related party, because the Company partially paid the note payable balance due to Mr. Ehrlich, the Company’s Chairman and CEO (see Note 12. Convertible Note Payable – Related Party of the Notes to Condensed Consolidated Financial Statements).
Interest expense – preferred stock liability decreased during the nine months ended March 31, 2023 primarily due to less accrued dividend for less Series B 5% convertible preferred stock outstanding as of March 31, 2023 compared with March 31, 2022. There was 5% accrued dividend of $24,000 and $31,000 during the three months ended March 31, 2023 and 2022, respectively (see Note 16. – Fair Value Measurement).
Net Losses
We incurred net losses of $2.5 million and $5.4 million for the nine months ended March 31, 2023 and 2022, respectively, because of the above-mentioned factors.
Liquidity, Going Concern and Capital Resources
Projected Future Working Capital Requirements - Next 12 Months
As of March 31, 2023, we had approximately $1.9 million in cash compared to $3.8 million of cash as of June 30, 2022, and as of the date of this filing, we have approximately $1.7 million in cash. Contingent upon sufficient funding, we currently anticipate that future budget expenditures will be approximately $1.9 million for the next 12 months, including approximately $0.7 million for development activities, supportive research, and drug manufacturing.
This assessment is based on current estimates and assumptions regarding our clinical development programs and business needs. Actual working capital requirements could differ materially from this above working capital projection.
Our ability to successfully raise sufficient funds through the sale of equity securities, when needed, is subject to many risks and uncertainties and even if we are successful, future equity issuances would result in dilution to our existing stockholders. Our risk factors are described under the heading “Risk Factors” in Part I, Item 1A and elsewhere in our Annual Report on Form 10-K.
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In the event that we are unable to raise additional funds from others, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our future business, operating results, financial condition and long-term prospects. The Company expects to seek to obtain additional funding through business development activities (for example licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available to us.
Going Concern
Our financial statements were prepared assuming we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have negative working capital of $2.9 million and have incurred losses since inception of $124.6 million. We expect to incur further losses in the development of our business and have been dependent on raising capital to fund operations from inception. These conditions raise substantial doubt about our ability to continue as a going concern. Management’s plans include continuing to finance operations through the private or public placement of debt and/or equity securities and the reduction of expenditures. However, no assurance can be given at this time as to whether we will be able to achieve these objectives. The financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Shelf Registration Statement - Current Status
The Company does not satisfy the conditions for use of Form S-3 for primary offerings of securities, and as a result, the Company generally may only utilize Form S-1 to register the sale of its securities. Form S-1 offers less flexibility on the timing and types of offerings compared to Form S-3.
Cash Flows
The following table provides information regarding our cash position, cash flows and capital expenditures for the nine months ended March 31, 2023 and 2022 (rounded to nearest thousand):
|
| Nine Months Ended |
|
| Change |
| ||||||
|
| March 31, |
|
| Increase/ |
| ||||||
|
| 2023 |
|
| 2022 |
|
| (Decrease) |
| |||
|
|
|
|
|
|
|
| % |
| |||
Net cash used in operating activities |
| $ | (1,737,000 | ) |
| $ | (5,322,000 | ) |
|
| (67 | )% |
Net cash used in investing activities |
|
| (48,000 | ) |
|
| (50,000 | ) |
|
| (4 | )% |
Net cash provided by (used in) financing activities |
|
| (82,000 | ) |
|
| 3,973,000 |
|
|
| (102 | )% |
Net decrease in cash |
| $ | (1,867,000 | ) |
| $ | (1,399,000 | ) |
|
| 33 | % |
Operating Activities
Net cash used in operating activities for the nine months ended March 31, 2023 and 2022 was $1.7 million and $5.3 million, a decrease of $3.6 million. For the nine months ended March 31, 2023 operating cash flows reflect our net loss of $2.5 million, noncash charges (stock-based compensation expense, amortization expense and equity in loss from investment) of $0.6 million and a net increase from changes in operating assets and liabilities of approximately $0.2 million.
Changes in operating assets and liabilities include increase in accounts payable of $0.1 million and a decrease in prepaid expenses and other assets of $0.1 million, offset by a decrease in operating lease liability of $0.1 million.
Investing Activities
Net cash used in our investing activities for the nine months ended March 31, 2023, as compared to net cash used in our investing activities in 2022, decreased by approximately $2,000. The decrease was due primarily to a decrease in patent costs.
Financing activities
Net cash used in financing activities for the nine months ended March 31, 2023, as compared to net cash provided by our financing activities in 2022, decreased by approximately $4.1 million. The decrease was due primarily to decreases in proceeds from exercise of warrants to purchase Series B Preferred stock.
During the nine months ended March 31, 2023, the Company did not raise any funds and repaid a note payable of $12,000 and paid dividends on preferred stock of $70,000.
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During the nine months ended March 31, 2022, the Company raised $5.0 million in net cash proceeds, from exercise of warrants to purchase preferred stock and repaid $1.0 million of a note payable to officer.
Requirement for Additional Working Capital
The Company, contingent on future sales of its securities, currently expects to incur total operating expenses of approximately $1.9 million for the next 12 months, including approximately $0.7 million for development activities, supportive research, and drug manufacturing. The Company has limited experience with pharmaceutical product development. As such, this budget estimate may change in the future. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or a change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget and on our projected timeline of drug development.
In the event that we are unable to raise additional funds from others, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our future business, operating results, financial condition and long-term prospects. The Company expects to seek to obtain additional funding through business development activities (for example licensing and partnerships) and future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available to us.
Commitments and Contingencies
Please see Note 10. Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q, for a discussion of recent contractual commitments and contingent liability - disputed invoices.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, as defined in Item 304(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As of March 31, 2023, management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on such evaluation, as of March 31, 2023, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures are effective.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 10. Commitments and Contingencies in the accompanying condensed consolidated financial statements.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2022, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended June 30, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(a) Exhibit index
(1) The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
EXHIBIT INDEX
Exhibit No. |
| Title |
| Method of Filing |
|
|
|
|
|
|
| Filed herewith | ||
|
|
|
|
|
|
| Furnished herewith | ||
|
|
|
|
|
101 |
| The following materials from the Company’s Quarterly Report on Form 10-Q for the nine months ended March 31, 2023 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related notes |
| Filed herewith |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| Filed herewith |
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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.
| INNOVATION PHARMACEUTICALS INC. |
| |
|
|
|
|
Dated: May 15, 2023 | By: | /s/ Leo Ehrlich |
|
| Name: | Leo Ehrlich |
|
| Title: | Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and Secretary |
|
38 |