REBUS HOLDINGS, INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding our business development plans, pre-clinical and clinical studies, regulatory reviews, timing, strategies, expectations, anticipated expenses levels, business prospects and positioning with respect to market, demographic and pricing trends, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies or predictions. These forward-looking statements are based on a number of assumptions and currently available information and are subject to a number of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Special Note Regarding Forward-Looking Statements" and under "Risk Factors" and elsewhere in this annual report. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this annual report.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
? Company Overview - Discussion of our business plan and strategy in order
to provide context for the remainder of MD&A.
? Critical Accounting Policies - Accounting policies that we believe areimportant to understanding the assumptions and judgments incorporated in
our reported financial results and forecasts.
? Results of Operations - Analysis of our financial results comparing the
year ended December 31, 2020 to the year ended December 31, 2019 .
? Liquidity and Capital Resources - Liquidity discussion of our financial
condition and potential sources of liquidity.
Company Overview
Business
Inspyr Therapeutics, Inc is a pharmaceutical company focused on the research and
development of novel targeted precision therapeutics for the treatment of
cancer. Our approach utilizes our proprietary delivery technology to better
enhance immuno-modulation for improved therapeutic outcomes. Our potential
first-in-class immune-oncology lead asset, RT-AR001, an adenosine A2B receptor
antagonist, is differentiated by its intratumoral delivery of nano- or
microparticle formulations that allows for better tumor infiltration. The
adenosine A2 Receptor is one of many T-cell surface immune checkpoint proteins.
Our patented portfolio of adenosine receptor antagonists provides flexibility to
optimize treatment based on the specific adenosine targets found in each type of
cancer.
Adenosine Receptor Modulators
The adenosine receptor modulators include A2B and dual A2A/A2B antagonists, that have broad development applicability including indications within immuno-oncology. Very high concentrations of adenosine are produced in the tumor microenvironment which prevents the host's own immune cells from attacking the tumor. Adenosine receptor antagonists as single-agents and in combination with other existing immuno-oncology agents may overcome this immunosuppression, and boost the host immune response leading to enhanced anti-tumor activity as well as inhibition of metastasis. Preclinical data has shown effects with our drug candidates in animal models utilizing a novel platform delivery system. While we believe that the data from our nonclinical studies appear encouraging, the outcome of our ongoing or future studies may ultimately be unsuccessful.
Inspyr / Ridgeway Licensing Agreement
Pursuant to our recent termination of license withRidgeway Therapeutics, Inc. , we reacquired the rights to certain intellectual property, discussed above, and are currently focusing on a pipeline of small molecule adenosine receptor modulators. InOctober 2020 , pursuant to the cancellation of a license agreement whereby we previously licensed US Patent 9,593,118, we reacquired the exclusive right to such patent that covers both A2B and dual A2A/A2B antagonists. Accordingly, going forward our major focus will be to: (i) further characterization of the anti-cancer activity of our unique pipeline delivery platform containing A2B and dual A2A/A2Bantagonists, leading to selection of a clinical candidate or candidates for an Investigative New Drug or IND enabling studies; and (ii) licensing and/or partnering our delivery platform and the A2B and dual A2A/A2B antagonists for further development. 24
DuringMarch 2020 , we sold$250,000 of debt securities for cash, inOctober 2020 , we sold$500,000 of debt securities for cash, and inJanuary 2021 , we sold$500,000 of debt securities for cash. We are currently using such funds to maintain ourSEC reporting requirements, pay outstanding invoices to our independent registered accounting firm, legal fees, and to retain consultants and other personnel in preparation for an IND filing related to our unique delivery platform and portfolio of adenosine A2R antagonists for the treatment of certain solid tumors. Should we fail to further raise sufficient funds to execute our business plan, our priority would be to maintain our intellectual property portfolio and seek business development opportunities with potential development partners and/or acquirors. Pre-Revenue
We are a pre-revenue, early-stage company that has not achieved profitability, and has no product revenues. Additionally, we have no approved products for sale.
Recent Developments
? On January 12, 2021 , we completed the private placement of $500,000 of
non-interest bearing senior convertible debentures.
? On October 23, 2020 , we completed the private placement of $600,000 of
non-interest bearing senior convertible debentures in exchange for
$500,000 in cash and the cancellation of $100,000 in obligations
? On October 6, 2020 , our stockholders approved an increase in our
authorized shares of Common Stock from one hundred fifty million
(150,000,000) to one billion (1,000,000,000) shares, as well asauthorizing a reverse stock split of our Common Stock at the discretion of
the Board of not less than 1-for-2 and not greater than 1-for-200 at any
time prior to October 5, 2021 .
? On October 5, 2020 , in exchange for the issuance of (i) 65,000,000 sharesof Common Stock and (ii) 8,000 shares of Series F 0% Convertible Preferred
Stock, we entered into an agreement to terminate an outstanding license
agreement with
licensed certain immune-oncology delivery technologies for the treatment
of cancer to Ridgeway Therapeutics ("License Termination"). As a result of
the License Termination, the Company announced on
would be refocusing its efforts on a novel-immuno-oncology delivery
technology targeting adenosine receptor antagonists for the treatment of
cancer.
? On March 6, 2020 , we completed the private placement of $250,000 of
non-interest bearing senior convertible debentures.
Financial
To date, we have devoted substantially all of our efforts and financial resources to the development of our proposed drug candidates. We have not received FDA approval to market, distribute or sell any products. We have recently begun working on developing IND approved studies for our adenosine receptor technology platform.
Since our inception in 2003, we have generated no revenue from product sales and have funded our operations principally through the private and public sales of our equity securities. We have never been profitable and as ofDecember 31, 2020 we had an accumulated deficit of approximately$67 million . We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our product candidates and advance them through clinical trials. Our cash and restricted cash balances atDecember 31, 2020 were approximately$404,000 representing 100% of total assets. InOctober 2020 , we completed a private placement of$500,000 in cash of our debt securities and inJanuary 2021 , we completed another private placement of$500,000 in cash of our debt securities. Based on our current expected level of operating expenditures and current cash balance as of the date of this report, we expect to be able to fund our operations into the second quarter of 2022. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen events. 25 We anticipate raising additional cash through the private or public sales of equity or debt securities, collaborative arrangements, licensing agreements or a combination thereof, to continue to fund our operations and the development of our product candidates. There is no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay or stop our ongoing pre-clinical studies and potential clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding from any source. Going Concern Our auditors' report on ourDecember 31, 2020 consolidated financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. During February of 2018, we curtailed our operations due to our lack of cash, but upon the cancellation of the Ridgeway license, we resumed preclinical development. Notwithstanding our recent financing in January of 2021 whereby we raised$500,000 , our current cash level raises substantial doubt about our ability to continue as a going concern. If we do not obtain additional funds, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment. Critical Accounting Policies We have prepared our financial statements in conformity with accounting principles generally accepted inthe United States , which requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. We base these significant judgments and estimates on historical experience and other applicable assumptions we believe to be reasonable based upon information presently available. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Actual results could materially differ from our estimates under different assumptions, judgments or conditions. All of our significant accounting policies are discussed in Note 3, Summary of Critical Accounting Policies and Use of Estimates, to our financial statements, included elsewhere in this annual report. We have identified the following as our critical accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.
We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:
Use of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying disclosures. Significant estimates include the fair value of
derivative instruments, stock-based compensation, recognition of clinical trial
costs and other accrued liabilities. Actual results may differ from those
estimates.
Derivative Liability - The Company has financial instruments that are considered
derivatives or contain embedded features subject to derivative accounting.
Embedded derivatives are valued separately from the host instrument and are
recognized as derivative liabilities in the Company's balance sheet. The Company
measures these instruments at their estimated fair value and recognizes changes
in their estimated fair value in results of operations during the period of
change. The Company values its derivative liabilities using the Black-Scholes
option valuation model. The resulting liability is valued at each reporting date
and the change in the liability is reflected as change in derivative liability
in the statement of operations.
26
Fair Value of Financial Instruments - Derivative liabilities consist of certain
of our preferred stock and warrants with anti-dilution provisions, and are
valued using option pricing models which incorporate the Company's stock price,
volatility, U.S. risk-free rate, dividend rate, and estimated life.
Recent Accounting Pronouncements
With the exception of those discussed below, there have not been any recent
changes in accounting pronouncements and Accounting Standards Update (ASU)
issued by the
InDecember 2019 , the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes." This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning afterDecember 15, 2020 , with early adoption permitted. We do not expect that the adoption of this standard will have a material impact on the Company's consolidated financial statements. Result of Operations
Year Ended
Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue during the years endingDecember 31, 2020 and 2019. We do not anticipate generating any revenues during 2021. Net loss for 2020 and 2019 were$6,295,000 and$934,000 , respectively, resulting from the operational activities described below. Operating Expenses Operating expense totaled$2.5 million and$0.6 million during 2020 and 2019, respectively. The increase in operating expenses is the result of the following factors. Year Ended Change in 2020 December 31, Versus 2019 2020 2019 $ % (amount in thousands) Operating Expenses Research and development $ 18$ 44 $ (26 ) (60 )% License termination cost 1,969 - 1,969 100 % General and administrative 494 565 (71 ) (13 )% Total operating expense$ 2,481 $ 609 $ 1,872 307 % 27 Research and Development
Research and development expenses totaled$18,000 and$44,000 for the years ended 2020 and 2019, respectively. The decrease of$26,000 , or 60%, in 2020 compared to 2019 was primarily due to the termination of storage costs related to Mipsagargin, which was being developed prior to the curtailment of operations in February of 2018, partially offset by the engagement of consultants to develop the adenosine A2R antagonists and in preparation for an IND filing.
Our future research and development expenses will consist primarily of expenditures related to consultants and other personnel and costs required to develop the adenosine A2R antagonists and in preparation for an IND filing related to our unique delivery platform and portfolio of adenosine A2R antagonists for the treatment of certain solid tumors.
License Termination Cost License termination cost relates to the termination of a licensing agreement previously entered into onAugust 3, 2018 , as more fully described elsewhere in this filing. We incurred noncash expense of approximately$1,944,000 related to the issuance of 65 million shares of common stock and 8,000 shares of Series F 0% Convertible Preferred Stock. Additionally, we have assumed certain expenses and costs of approximately$25,000 . General and Administrative
General and administrative expenses totaled
Other Income (Expense)
Other income (expense) totaled approximately
Year Ended Change in 2020
December 31, Versus 2019
2020 2019 $ %
(amount in thousands)
Gain (loss) on change in fair value of
derivative liability $ (3,846 ) $ 327 $ (4,173 ) (1,276 )%
Gain on conversion of debt 334 125 209 167 %
Interest (expense), net (302 ) (777 ) 475 61 %
Total other income (expense) $ (3,814 ) $ (325 ) $ (3,489 ) (1,074 )%
Loss on change in fair value of derivative liability
As a result of a change in the fair value of our derivative liability, we realized loss of$3.8 million and gain of$0.3 million during the years endedDecember 31, 2020 and 2019, respectively. The change in the fair value of our derivative liability was the result of our convertible debentures and notes issued inSeptember 2017 ,July 2018 ,December 2018 ,July 2019 ,October 2019 ,November 2019 ,March 2020 andOctober 2020 , where we issued convertible notes with variable conversion rates, and to the issuance of our Series F preferred stock inOctober 2020 , which is convertible into a variable number of shares of common stock. Refer to Note 7 in our Consolidated Financial Statements for further discussion on our derivative liability. Gain on conversion of debt
There was a gain on conversion of debt of approximately$0.3 million during the year endedDecember 31, 2020 , with a gain of approximately$0.1 million during the year endedDecember 31, 2019 . Gain on conversion of debt results from the difference between the fair value of common stock issued upon conversion and the carrying amount of the debt converted. 28 Interest income (expense)
We had$0.3 million net interest expense in 2020, compared to$0.8 million of expense in 2019. The decrease of$0.5 million was attributable to a decrease in the cost associated with derivative instruments issued with a value in excess of proceeds received.
Liquidity and Capital Resources
We have incurred losses since our inception in 2003 as a result of significant expenditures for operations and research and development and the lack of any approved products to generate revenue. We have an accumulated deficit of approximately$67 million as ofDecember 31, 2020 and anticipate that we will continue to incur additional losses for the foreseeable future. ThroughDecember 31, 2020 , we have funded our operations through the private sale of our equity securities, convertible debt and exercise of options and warrants, resulting in gross proceeds of$38.1 million . Cash atDecember 31, 2020 was approximately$404,000 . Our auditors' report on ourDecember 31, 2020 financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Based on our current level of expected operating expenditures, we expect to be able to fund our operations into the second quarter of 2022. This assumes that we spend minimally on general operations and only continue conducting our ongoing clinical trials, and that we do not encounter any unexpected events or other circumstances that could shorten this time period. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment. We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell shares of equity or debt securities, or enter into collaborative, strategic and/or licensing transactions. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise. If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease development of our product candidates, or
cease
operations altogether.
Year Ended
December 31,
2020 2019
(amounts in thousands)
Cash and restricted cash at beginning of year
(374 ) (313 )
Net cash provided by investing activities - -
Net cash provided by financing activities 755 5
Cash and restricted cash at end of year
Net cash used in operating activities was$0.4 million and$0.3 million during 2020 and 2019, respectively. The increase of$0.1 million in cash used during 2020 compared to 2019 was primarily attributable to a decrease in changes in accounts payable and accrued expense of approximately$97,000 , partially offset by a decrease in net loss (after adjusting for noncash items) of approximately$36,000 .
Cash provided by investing activities was
Net Cash Provided by Financing Activities
During 2020, we received net proceeds of
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