Cautionary Note Regarding Forward-Looking Statements
This Report includes forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995, including statements regarding
our licenses and the development of product candidates thereunder, our ability
to resolve issues with holders of our unsecured note holders, our liquidity and
need for and ability to access capital and the expected terms of future
financings. The words "believe," "may," "estimate," "continue," "anticipate,"
"intend," "should," "plan," "could," "target," "potential," "is likely," "will,"
"expect" and similar expressions, as they relate to us, are intended to identify
forward-looking statements. We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might
not occur. Important factors, uncertainties and risks that may cause actual
results to differ materially from these forward-looking statements include those
described in this Report under "Item 1A - Risk Factors" and in our other filings
with the Securities and Exchange Commission (the "SEC"). We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as the result of new information, future events or otherwise. For more
information regarding some of the ongoing risks and uncertainties of our
business.
Overview
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations is intended to provide information necessary to understand
our audited consolidated financial statements for the two-year period ended
December 31, 2021, and highlight certain other information which, in the opinion
of management, will enhance a reader's understanding of our financial condition,
changes in financial condition and results of operations. In particular, the
discussion is intended to provide an analysis of significant trends and material
changes in our financial position and the operating results of our business
during the year ended December 31, 2021, as compared to the year ended December
31, 2020. This discussion should be read in conjunction with our consolidated
financial statements for the two-year period ended December 31, 2021, and
related notes included elsewhere in this Report. These historical financial
statements may not be indicative of our future performance. This Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains a number of forward-looking statements, all of which are based on our
current expectations and could be affected by the uncertainties and risks
described throughout this filing, particularly in "Item 1A. Risk Factors."
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Corporate Overview
Nature of Business
We are an emerging specialty biotech company that, to the extent that resources
and opportunities become available, is strategically evaluating its focus
including a return to a drug discovery and development company.
On July 28, 2021, we as licensee and MP2 as licensor entered into an exclusive
license agreement for the development, commercialization and exclusive license
of MLR-1019. MLR-1019 is being developed as a new class of therapeutic for
Parkinson's disease (PD) and is, to the best of our knowledge, the only drug
candidate today to address both movement and non-movement aspects of PD. Under
the Agreement, we were granted an exclusive license to use the MP Patents and
know-how to develop products in consideration for cash payments upon meeting
certain performance milestones as well as a royalty of 5% of gross sales.
On August 24, 2021, we as licensee entered into an exclusive license agreement
with MP1 for the development, commercialization and exclusive license of
MLR-1023 as a novel therapeutic for Type 1 diabetes.
On October 20, 2021, we as licensee expanded the MLR-1023 licensing agreement
with Melior Pharmaceuticals I, Inc. to include two additional clinical
indications for Non-Alcoholic Steatohepatitis (NASH) and pulmonary inflammation.
To the extent that resources have been available, we have continued to work with
our advisors in an effort to restructure our Company and to identify potential
strategic transactions, including the Melior transaction described above to
enhance the value of the Company. Because of our substantial unpaid debt, if we
do not raise substantial additional capital in the immediate future, it is
likely that the company will discontinue all operations or seek bankruptcy
protection.
Results of Operations
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31,
2020
Operating Expenses
Operating expenses were approximately $674,000 for the year ended December 31,
2021, a decrease of approximately $1.4 million compared to the same period in
2020. The following table summarizes our operating expenses for the years ended
December 31, 2021 and 2020
Year Ended
December 31,
(in thousands) 2021 December 31, 2020 Change
Sales and marketing $ 17 $ 839 $ (822 )
General and administrative 657 1,198 (541 )
Total operating expenses $ 674 $ 2,037 $ (1,363 )
Sales and Marketing
Sales and marketing expenses decreased by approximately $822,000, primarily due
to the termination of our commercial operations related to the sale of
Prestalia® in December 2019. Sales and marketing expenses for the year ended
December 31, 2020, were primarily related to regulatory costs incurred for
maintaining the Prestalia® NDA. Sales and marketing expenses for the year ended
December 31, 2021, were primarily related to the storage and destruction of
Prestalia® inventory.
General and Administrative
General and administrative expenses decreased by approximately $541,000 for the
year ended December 31, 2021, as compared to the year ended December 31, 2020,
primarily due to a reduction in corporate governance expenses including
insurance, Board fees and other consulting fees incurred to maintain our public
company regulatory obligations.
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Other Expenses
The following table summarizes other expenses for the year December 31, 2021 and
2020:
Year Ended
December 31, December 31, Change
(in thousands) 2021 2020 Inc/(Dec)
Interest expense $ (1,035 ) $ (935 ) $ (100 )
Other income 45 (45 )
Initial and change in the fair value of
derivative liability (4,103 ) - (4,103 )
Loss on extinguishment of debt (141 ) - (141 )
Amortization of debt discount (398 ) (839 ) 441
Total other expense, net $ (5,677 ) $ (1,729 ) $ 3,948
Interest expense for the year ended December 31, 2021, increased by $100,000
compared to the year ended December 31, 2020 primarily due to an increase in the
issuance of convertible notes. The amortization of debt discount decreased by
$441,000 primarily due to the maturity of our outstanding convertible notes. The
$4.1 million increase in derivative expense was due to conversion features on
convertible notes and embedded conversion options that have been bifurcated due
to a lack of authorized shares that were classified as a derivative on our
balance sheet as of December 31, 2021. The loss on extinguishment of debt was
due to the conversion of principal and interest on our outstanding convertible
notes. Other income for the year ended December 31, 2020 was a result of fees
received from release of certain intellectual property rights from a third-party
vendor and fees received from the cancellation of a contractual obligation with
a third-party vendor.
Liquidity & Capital Resources
Cash Flows
The following table summarizes cash flows for the year ended December 31, 2021
and 2020:
Year Ended
December 31, December 31,
(in thousands) 2021 2020
Net cash used in operating activities $ (665 ) $ (588 )
Net cash used in investing activities
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Net cash provided by financing activities 739 539
Increase/(Decrease) in cash $ 74 $ (49 )
Net cash used in Operating Activities
Net cash used in operating activities was approximately $665,000 during the year
ended December 31, 2021. This was primarily due to our net operating loss of
approximately $6.4 million, partially offset by to our derivative expense of
approximately $4.1 million, non-cash interest expense related to term loans of
$1.0 million, non-cash amortization of debt discounts of $398,000, loss on
extinguishment of debt of approximately $141,000 and other changes in operating
assets and liabilities including an increase in prepaid expenses, accounts
payable and accrued expenses of approximately $10,000.
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Net cash used in operating activities was approximately $588,000 during the year
ended December 31, 2020. This was primarily due to a net loss of approximately
$3.8 million, partially offset by changes in operating assets and liabilities
and non-cash charges including approximately $935,000 of non-cash interest and
$839,000 of amortization of debt issuance and discount costs related to our 2021
term loans and other changes in operating assets and liabilities including an
increase in prepaid expenses, accounts payable and accrued expenses of
approximately $1.4 million.
Net cash used in Investing Activities
There was no cash used in or provided by investing activities during the years
ended December 31, 2021 or 2020.
Net cash provided by Financing Activities
Net cash provided by financing activities of approximately $739,000 during the
year ended December 31, 2021, was primarily due to the issuance of notes with
approximately $840,000 in proceeds, partially offset by debt issuance costs of
$101,000.
Net cash provided by financing activities of approximately $539,000 during the
year ended December 31, 2020, was primarily due to the issuance of approximately
$650,000 in promissory notes, partially offset by debt issuance costs of
$114,000.
Working Capital
December 31, December 31,
(in thousands) 2021 2020 Change
Current assets $ 196 $ 1 $ 195
Current liabilities 25,302 14,774 10,528
Working capital (deficiency) $ (25,106 ) $ (14,773 ) $ (10,333 )
Negative working capital as of December 31, 2021, was approximately $25.1
million as compared to negative working capital of approximately $14.8 million
as of December 31, 2020. The increase in our working capital deficit is
primarily related to an increase in current liabilities of approximately $10.5
million including $7.7 million for a non-cash derivative liability related to
our convertible notes approximately $1.3 million in additional accrued
dividends, and $998,000 of additional accrued interest expense.
Liquidity
We will need to raise additional operating capital in 2022 and in future periods
in order to maintain our operations, continue our efforts to restructure the
Company and pursue our business plan. Without additional sources of cash we will
not have the cash resources to continue as a going concern.
Additionally, as of April 1, 2022, we have $9.4 million in outstanding
indebtedness including promissory notes and convertible notes, substantially all
of which are in default. We will need to raise substantial additional capital in
2022 in order to satisfy these obligations or delay their applicability and
mitigate their impact on our balance sheet, and if we are unable to do so we may
be forced to cease operations or pursue bankruptcy protection. In order to
induce our current lenders to agree to any such restructuring, we may be
required to issue additional debt or equity securities or submit the Company to
restrictive covenants and other terms with the potential to hinder or prevent
our planned operations and growth. See "Item 1A. - Risk Factors" of this current
report on Form 10-K.
While we have been negotiating with certain institutional investors on a
convertible note financing of up to $3.3 million, we cannot close that financing
unless the majority of holders of our $5.7 million of non-convertible notes
agree to forbear from collecting their notes until September 30, 2022. A
condition of the forbearance agreement is that we raise at least $2.0 million in
the financing. As of the date of this Report, we have not received the required
consents. Even if we do, we cannot assure you that we will close the new
convertible note financing. In addition, we will have to re-negotiate the terms
of the outstanding non-convertible notes which are currently in default as we
are not likely to have sufficient capital to pay them on terms that may not be
favorable to us. Assuming we raise at least $2.0 million in the convertible note
financing, we expect we will need to raise additional capital of approximately
$8.0 to $10.0 million to pursue clinical development of MLR-1019 and MLR-1023
and meet our working capital needs for the next 12 to 24 months. There can be no
assurances we will be successful in these endeavors.
On March 15. 2022, we borrowed $250,000 from an institutional investor and
issued an 11 month convertible promissory note. We also granted that investor
certain rights including a right of first refusal with respect to future debt
and equity financings. Because of this right, it may delay or hinder our ability
to close the proposed convertible note offering.
Going Concern
The accompanying consolidated financial statements have been prepared on the
basis that we will continue as a going concern, which contemplates realization
of assets and the satisfaction of liabilities in the normal course of business.
At December 31, 2021, we had a significant accumulated deficit of approximately
$53.0 million and negative working capital of approximately $25.1 million. For
the year ended December 31, 2021, we had a net loss of approximately
$6.4 million and negative cash flows from operations. Our operating activities
consume the majority of our cash resources. We have incurred recurring losses
and negative cash flows from operations since inception we have funded our
operating losses through the sale of common stock, preferred stock, warrants to
purchase common stock, convertible notes and secured promissory notes.
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Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any significant off-balance sheet
arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies and Estimates
In preparing the financial statements, we make estimates and assumptions that
have an impact on the assets, liabilities, revenue, and expenses reported. These
estimates can also affect supplemental information disclosed by us, including
information about contingencies, risk, and financial condition. We believe,
given current facts and circumstances, that our estimates and assumptions are
reasonable, adhere to GAAP, and are consistently applied. Inherent in the nature
of an estimate or assumption is the fact that actual results may differ from the
estimates, and estimates may vary as new facts and circumstances arise. Our
significant accounting policies are more fully described in the notes to our
financial statements included herein for the period ended December 31, 2021.
New and Recently Adopted Accounting Pronouncements
Any new and recently adopted accounting pronouncements are more fully described
in Note 2 to our financial statements included herein for the year ended
December 31, 2021.
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