UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended:
OR
For the transition period from __________ to __________
Commission
File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(IRS Employer Identification No.) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| The
|
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 past 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, 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 ☐
As of November 5, 2021, there were shares outstanding of the registrant’s common stock.
EXPLANATORY NOTE
This report is the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 of MyMD Pharmaceuticals, Inc., which was formerly known as Akers Biosciences, Inc. prior to the consummation on April 16, 2021 of the merger described below.
On April 16, 2021, pursuant to the previously announced Agreement and Plan of Merger and Reorganization, dated November 11, 2020 (the “Original Merger Agreement”), as amended by Amendment No. 1 thereto, dated March 16, 2021 (the Original Merger Agreement, as amended by Amendment No. 1, the “Merger Agreement”), by and among MyMD Pharmaceuticals, Inc., a New Jersey corporation previously known as Akers Biosciences, Inc. (the “Company”), XYZ Merger Sub Inc., a Florida corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and MyMD Pharmaceuticals (Florida), Inc., a Florida corporation previously known as MyMD Pharmaceuticals, Inc. (“MyMD Florida”), Merger Sub was merged with and into MyMD Florida, with MyMD Florida continuing after the merger as the surviving entity and a wholly owned subsidiary of the Company (the “Merger”). At the effective time of the Merger, without any action on the part of any stockholder, each issued and outstanding share of pre-Merger MyMD Florida’s common stock, par value $0.001 per share (the “MyMD Florida Common Stock”), including shares underlying pre-Merger MyMD Florida’s outstanding equity awards, was converted into the right to receive (x) 0.7718 shares (the “Exchange Ratio”) of the Company’s common stock, no par value per share (the “Company Common Stock”), (y) an amount in cash, on a pro rata basis, equal to the aggregate cash proceeds received by the Company from the exercise of any options to purchase shares of MyMD Florida Common Stock outstanding at the effective time of the Merger assumed by the Company upon closing of the Merger prior to the second-year anniversary of the closing of the Merger (the “Option Exercise Period”), such payment (the “Additional Consideration”), and (z) potential milestone payments in shares of Company Common Stock up to the aggregate number of shares issued by the Company to pre-merger MyMD Florida stockholders at the closing of the Merger payable upon the achievement of certain market capitalization milestone events during the 36-month period immediately following the closing of the Merger. Immediately following the effective time of the Merger, the Company effected a 1-for-2 reverse stock split of the issued and outstanding Company Common Stock (the “Reverse Stock Split”). Upon completion of the Merger and the transactions contemplated in the Merger Agreement, (i) the former MyMD Florida equity holders owned approximately 77.05% of the outstanding equity of the Company on a fully diluted basis, assuming the exercise in full of the pre-funded warrants to purchase 986,486 shares of Company Common stock and including 4,188,315 shares of Company Common Stock underlying options to purchase shares of MyMD Florida Common Stock assumed by the company at closing and after adjustments based on the Company’s net cash at closing; and (ii) former Akers Biosciences, Inc. stockholders owned approximately 22.95% of the outstanding equity of the Company.
The Merger is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes. MyMD Florida is being treated as the accounting acquirer, as its stockholders control the Company after the Merger, even though Akers Biosciences, Inc. was the legal acquirer.
See Note 1 of the Unaudited Condensed Consolidated Financial Statements for additional information.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 34 |
| Item 4. | Controls and Procedures | 34 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 35 |
| Item 1A. | Risk Factors | 35 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 60 |
| Item 3. | Defaults Upon Senior Securities | 60 |
| Item 4. | Mine Safety Disclosures | 60 |
| Item 5. | Other Information | 60 |
| Item 6. | Exhibits | 61 |
| Signatures | 63 | |
| 2 |
PART I - Financial Information
Item 1. Financial Statements.
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2021 and December 31, 2020
| As of | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | (restated) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Marketable Securities | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Operating Lease Right-of-Use Asset | ||||||||
| Goodwill | ||||||||
| Investment in Oravax, Inc. | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Trade and Other Payables | $ | $ | ||||||
| Notes Payable | ||||||||
| Operating Lease Liability | ||||||||
| PPP Loan Payable | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Line of Credit Payable – Related Party, net of discount | $ | $ | ||||||
| Operating Lease Liability, net of current portion | ||||||||
| Total Non-Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred
Stock, | ||||||||
| Series
C Convertible Preferred Stock, shares designated, | ||||||||
| Series
D Convertible Preferred Stock, shares designated, | ||||||||
| Series
E Junior Participating Preferred Stock, shares designated, | ||||||||
| Common
stock, | ||||||||
| Common
stock, par $ | ||||||||
| Additional Paid in Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 3 |
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Product Revenue | $ | $ | $ | $ | ||||||||||||
| Product Cost of Sales | ||||||||||||||||
| Gross Income | ||||||||||||||||
| Administrative Expenses | ||||||||||||||||
| Research and Development Expenses | ||||||||||||||||
| Interest Expense and Debt Discount | ||||||||||||||||
| Amortization of Intangible Assets | ||||||||||||||||
| Stock Option Modification Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (Income) Expenses | ||||||||||||||||
| Interest and Dividend Income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Gain)/Loss on Sale of Marketable Securities | ( | ) | ||||||||||||||
| Unrealized Loss on Marketable Securities | ||||||||||||||||
| Loss on Currency Conversions | ||||||||||||||||
| Uninsured Casualty Loss | ||||||||||||||||
| Gain on Debt Forgiveness | ( | ) | ||||||||||||||
| Total Other (Income) Expense | ( | ) | ( | ) | ||||||||||||
| Loss Before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income Tax Benefit | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and Diluted loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average basic and diluted common shares outstanding | ||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
| 4 |
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the Nine Months Ended September 30, 2021 and 2020
| Series D | Common Stock | |||||||||||||||||||||||||||||||
| Convertible | Common | |||||||||||||||||||||||||||||||
| Preferred Stock | Common | Stock | Additional | |||||||||||||||||||||||||||||
| Shares | Series D | Shares | Stock
| Par $ | Paid-In Capital | Accumulated Deficit | Total Equity | |||||||||||||||||||||||||
| Balance at December 31, 2020 (restated) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2021 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Reverse merger with Akers Biosciences Inc effective April 16, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Modification
of the terms of | - | - | ||||||||||||||||||||||||||||||
| Exercise of prepaid equity forward contracts for common stock | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at June 30, 2021 (unaudited) | ( | ) | ||||||||||||||||||||||||||||||
| Stock based compensation for services | - | |||||||||||||||||||||||||||||||
| Exercise of warrants for common stock | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2021 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Series D | Common Stock | |||||||||||||||||||||||||||||||
| Convertible | Common | |||||||||||||||||||||||||||||||
| Preferred Stock | Common | Stock | Additional | |||||||||||||||||||||||||||||
| Shares | Series D | Shares | Stock No Par | Par $0.0001 | Paid-In Capital | Accumulated Deficit | Total
Equity | |||||||||||||||||||||||||
| Balance at December 31, 2019 (restated) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Common shares issued for the acquisition of Supera Pharmaceuticals, Inc. a company under common control | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Effect of the adoption of Topic 842 effective as of January 1, 2019 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at December 31, 2019 (restated) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Private placement of common shares | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2020 (unaudited) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Stock based compensation for services | - | |||||||||||||||||||||||||||||||
| Stock options issued for debt issuance | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2020 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Private placement of common shares | - | |||||||||||||||||||||||||||||||
| Stock options issued for services | - | - | ||||||||||||||||||||||||||||||
| Stock options issued for debt issuance | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2020 (unaudited) | - | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
| 5 |
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2021 and 2020
(unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Accrued interest/dividends | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of intangible assets | ||||||||
| Gain on sale of marketable securities | ( | ) | ||||||
| Unrealized loss on marketable securities | ||||||||
| Gain on forgiveness of debt | ( | ) | ||||||
| Stock based compensation | ||||||||
| Options modification expense | ||||||||
| Options issued for debt issuance | ||||||||
| Shares issued for services | ||||||||
| Change in assets and liabilities | ||||||||
| Prepaid Expenses | ( | ) | ||||||
| Trade and Other Payables | ( | ) | ( | ) | ||||
| Operating Leases | ( | ) | ||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of marketable securities | ( | ) | ||||||
| Proceeds from sale of marketable securities | ||||||||
| Net cash received in business combination | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities | ||||||||
| Consumed by the payoff of the line of credit – related party | ( | ) | ||||||
| Net proceeds from line of credit - related party | ||||||||
| Net proceeds from note payable | ||||||||
| Net proceeds from the Payroll Protection Program | ||||||||
| Net proceeds from the exercise of warrants | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| Net cash (used in)/provided by financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Financing and Investing Activities | ||||||||
| Operating lease right-of-use asset obtained in exchange for lease obligation | $ | $ | ||||||
| Investment in Oravax, Inc. | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 6 |
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Organization and Description of Business
MyMD Pharmaceuticals, Inc., previously known as Akers Biosciences, Inc., is a New Jersey corporation (“MyMD”). These consolidated financial statements include four wholly owned subsidiaries as of September 30, 2021, MyMD Pharmaceuticals (Florida), Inc. (“MyMD Florida”), XYZ Merger Sub, Inc. (“Merger Sub”), Akers Acquisition Sub, Inc. and Bout Time Marketing Corporation, (together, the “Company”). All material intercompany transactions have been eliminated in consolidation.
MyMD Florida was formed in 2014 and is a Florida-based clinical development stage biopharmaceutical company that is developing its product candidate, MyMD-1, as an immunometabolic regulator to treat autoimmune diseases, ageing-related diseases. Substantive operations began in 2016 and the Company’s Investigative New Drug application was filed with the U.S. Food and Drug Administration in December 2018. MyMD Florida completed its first-in-human Phase 1 clinical trial in December 2019. Phase 2 clinical trials for autoimmune diseases are planned. MyMD Florida’s intellectual property portfolio consists of 12 granted patents (11 US and 1 foreign), 35 pending applications (6 US, 28 foreign, and 1 international application).
Supera Pharmaceuticals, Inc. (“Supera”) was formed in September 2018 and is a Florida based development company that is developing its product candidate “Supera-CBD” as an FDA-approved synthetic derivative of naturally grown cannabidiols. Substantially all of Supera’s research and development activities in 2019 and 2020 were related to intellectual property development and securing patents, along with product manufacturing and planning initial pre-clinical development activities. During the three months ended September 30, 2021, these activities included preclinical work on Supera-CBD confirming it effectiveness in treating anxiety. The preclinical data was presented at the 4th Annual International Cannabinoid Summit describing the superior potency of Supera-CBD.
On
April 16, 2021, pursuant to the previously announced Agreement and Plan of Merger and Reorganization, dated November 11, 2020 (the “Original
Merger Agreement”), as amended by Amendment No. 1 thereto, dated March 16, 2021 (the Original Merger Agreement, as amended by Amendment
No. 1, the “Merger Agreement”), by and among MyMD, Merger Sub and MyMD Florida), Merger Sub was merged with and into MyMD
Florida, with MyMD Florida continuing after the merger as the surviving entity and a wholly owned subsidiary of MyMD (the “Merger”).
At the effective time of the Merger, without any action on the part of any stockholder, each issued and outstanding share of pre-Merger
MyMD Florida’s common stock, par value $ per share (the “MyMD Florida Common Stock”), including shares underlying
pre-Merger MyMD Florida’s outstanding equity awards, was converted into the right to receive (x) shares (the “Exchange
Ratio”) of MyMD’s common stock, no par value per share (the “Company Common Stock”), (y) an amount in cash, on
a pro rata basis, equal to the aggregate cash proceeds received by the Company from the exercise of any options to purchase shares of
MyMD Florida Common Stock outstanding at the effective time of the Merger assumed by the Company upon closing of the Merger prior to
the second-year anniversary of the closing of the Merger (the “Option Exercise Period”), such payment (the “Additional
Consideration”), and (z) potential milestone payment in shares of Company Common Stock up to the aggregate number of shares issued
by the Company to pre-Merger MyMD Florida stockholders at the closing of the Merger (the “Milestone Payments”) payable upon
the achievement of certain market capitalization milestone events during the 36-month period immediately following the closing of the
Merger (the “Milestone Period”). Immediately following the effective time of the Merger, the Company effected a
On April 16, 2021, MyMD Florida entered into an Asset Purchase Agreement with Supera, a related company through common control, in which Supera was acquired by MyMD Florida through the issuance of shares of pre-Merger MyMD Florida’s common stock. The Supera entity was dissolved pursuant to this transaction.
In connection with the closing of the Merger, the Company changed its name to MyMD Pharmaceuticals, Inc. and the Company’s Common Stock listed on The Nasdaq Capital Market, previously trading through the close of business on April 16, 2021 under the trading symbol “AKER”, commenced trading on The Nasdaq Capital Market, on a post-Reverse Stock Split adjusted basis, under the trading symbol “MYMD” on April 19, 2021.
| 7 |
Note 2 – Significant Accounting Policies
(a) Basis of Presentation
The Condensed Consolidated Financial Statements of the Company are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States of America (US GAAP).
Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed. As such, the information included in these financial statements should be read in conjunction with the audited financial statements as of and for the years ended December 31, 2020 and 2019 included in the Company’s 2020 Form 10-K, as filed on March 1, 2021. In the opinion of the Company’s management, these condensed consolidated financial statements include all adjustments, which are only of a normal and recurring nature, necessary for a fair statement of the financial position of the Company as of September 30, 2021 and its results of operations for the three and nine months ended September 30, 2021 and 2020 and cash flows for the nine months ended September 30, 2021 and 2020. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2021.
The unaudited condensed combined balance sheet as of December 31, 2020 combines the audited balance sheets of pre-Merger MyMD Florida and Supera as of December 31, 2020, giving effect to the Supera Purchase and the adoption of ASU No. 2016-02, Leases, as if they were consummated on January 1, 2020.
The unaudited combined consolidated statement of comprehensive loss for the three and nine months ended September 30, 2020 combines the unaudited condensed statements of comprehensive loss for the three and nine months ended September 30, 2020 of MyMD Florida and Supera giving effect to the Supera Purchase and the adoption of ASU no. 2016-02, Leases, as if they were consummated on January 1, 2020.
The unaudited condensed consolidated balance sheet as of September 30, 2021 comprises the unaudited balance sheets of MyMD Florida, Supera and MyMD as of September 30, 2021, giving effect to the Supera Purchase as if they were consummated on January 1, 2020 and the reverse merger with MyMD on April 16, 2021 with all material intercompany balances eliminated and recording goodwill upon consolidation.
The unaudited condensed consolidated statement of comprehensive loss for the three and nine months ended September 30, 2021 comprises the unaudited statements of comprehensive loss of MyMD Florida and Supera for the three and nine months ended September 30, 2021 and the statement of comprehensive loss for MyMD for the post-acquisition period April 17, 2021 through September 30, 2021.
The
Company effected a
(b) Use of Estimates and Judgments
The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes related to business combinations, loss contingencies and the valuation of share-based payments.
(c) Functional and Presentation Currency
These condensed consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency. All financial information has been rounded to the nearest dollar.
| 8 |
(d) Comprehensive Loss
The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220 in reporting comprehensive loss. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since the Company has no items of comprehensive income, comprehensive loss is equal to net loss.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments, which include short-term bank deposits (up to three months from date of deposit) that are not restricted as to withdrawal date or use, to be cash equivalents.
(f) Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, marketable securities, receivables and trade and other payables. The carrying value of cash and cash equivalents, receivables and trade and other payables approximate their fair value because of their short maturities.
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:
| Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. |
| Level 2 | Inputs to the valuation methodology include: |
| ● | quoted prices for similar assets or liabilities in active markets; | |
| ● | quoted prices for identical or similar assets or liabilities in inactive markets; | |
| ● | inputs other than quoted prices that are observable for the asset or liability; | |
| ● | inputs that are derived principally from or corroborated by observable market data by correlation or other means |
| If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. |
| Level 3 | Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
| 9 |
(f) Fair Value of Financial Instruments, continued
The following is a description of the valuation methodologies used for assets measured at fair value as of September 30, 2021 and December 31, 2020.
Marketable Securities: Valued using quoted prices in active markets for identical assets.
| Quoted
Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted
Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant
Unobservable Inputs (Level 3) |
||||||||||
| Marketable securities at September 30, 2021 | $ | $ | $ | |||||||||
| Marketable securities at December 31, 2020 | $ | $ | $ | |||||||||
Marketable securities are classified as available for sale and are valued at fair market value.
As of September 30, 2021, the Company held certain mutual funds, which, under FASB ASC 321-10, were considered equity investments.
Gains
and losses resulting from the sales of marketable securities were a realized loss of $
Proceeds
from the sales of marketable securities in the three and nine months ended September 30, 2021 were $
(g) Prepaid Expenses
Expenses paid prior to the date that the related services are rendered or used are recorded as prepaid expenses which are comprised principally of various insurance expenses.
(h) Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions. At times, the Company’s cash in banks is in excess of the Federal Despot Insurance Corporation (“FDIC”) insurance limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained with three banks.
(i) Risk Management of Cash and Investments
It is the Company’s policy to minimize the Company’s capital resources to investment risks, prioritizing the preservation of capital over investment returns. Investments are maintained in securities, primarily publicly traded, short-term money market funds based on highly rated federal, state and corporate bonds, that minimize the risk to the Company’s capital resources and provide ready access to funds.
The Company’s investment portfolios are regularly monitored for risk and are held with a brokerage firm.
| 10 |
(j) Investments
Investments recorded using the cost method will be assessed for any decrease in value that has occurred that is other than temporary and the other than temporary decrease in value shall be recognized. As and when circumstances and facts change, the Company will evaluate the Company’s ability to significantly influence operational and financial policy to establish a basis for converting the investment accounted for using the cost method to the equity method of valuation in accordance with FASB ASC 323.
(k) Research and Development Costs
In accordance with FASB ASC 730, research and development costs are expensed as incurred and consist of fees paid to third parties that conduct certain research and development activities on the Company’s behalf.
(l) Income Taxes
The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse.
The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax
benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities.
| 11 |
There is no income tax benefit for the losses for the three and nine months ended September 30, 2021 and 2020 since management has determined that the realization of the net deferred assets is not assured and has created a valuation allowance for the entire amount of such tax benefits.
The
Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general
and administrative expense. There were
Tax years from 2017 through 2020 remain subject to examination by federal and state jurisdictions.
Basic earnings per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered anti-dilutive.
Diluted net loss per share is computed using the weighted average number of shares of common and dilutive potential common stock outstanding during the period.
As the Company reported a net loss for the three and three months ended September 30, 2021 and 2020, common stock equivalents were anti-dilutive.
| For
the Three Months Ended September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Stock Options | ||||||||||||||||
| Warrants to purchase common stock | ||||||||||||||||
| Pre-funded Warrants to purchase common stock | ||||||||||||||||
| Series D Preferred Convertible Stock | ||||||||||||||||
| Warrants to purchase Series C Preferred stock | ||||||||||||||||
| Total potentially dilutive shares | ||||||||||||||||
The Company accounts for stock-based compensation under the provisions of FASB ASC 718, “Compensation - Stock Compensation”, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.
| 12 |
The Company has elected to account for forfeiture of stock-based awards as they occur.
(o) Reclassifications
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
(p) Right-of-Use Assets
The
Company leases a facility in Tampa, Florida (the “Hyde Park”) under an operating lease (“Hyde Park Lease”) with
annual rentals of $
The
Company leased an aircraft under an operating lease (“Supera Aviation”) with annual rentals of $
The
Company leases a facility in Baltimore, Maryland (the “N Wolfe St.”) under an operating lease (“Baltimore Lease”)
with annual rentals of $
On January 1, 2019 (“Effective Date”), the Company adopted FASB ASC, Topic 842, Leases (“ASC 842”), which increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new guidance requires the recognition of the right-of-use (“ROU”) assets and related operating and finance lease liabilities on the balance sheet. The Company adopted the new guidance using the modified retrospective approach on January 1, 2019.
The
adoption of ASC 842 resulted in the recognition of operating lease ROU assets of $
The Company elected the package of practical expedients permitted within the standard, which allows an entity to forgo reassessing (i) whether a contract contains a lease, (ii) classification of leases, and (iii) whether capitalized costs associated with a lease meet the definition of initial direct costs. Also, the Company elected the expedient allowing an entity to use hindsight to determine the lease term and impairment of ROU assets and the expedient to allow the Company to not have to separate lease and non-lease components. The Company has also elected the short-term lease accounting policy under which the Company would not recognize a lease liability or ROU asset for any lease that at the commencement date has a lease term of twelve months or less and does not include a purchase option that the Company is more than reasonably certain to exercise.
For contracts entered into on or after the Effective Date, at the inception of a contract, the Company will assess whether the contract is, or contains, a lease. The Company’s assessment is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtained the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. Leases entered into prior to January 1, 2020, which were accounted for under ASC 840, were not reassessed for classification.
For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments. The Company generally uses its incremental borrowing rate as the discount rate for leases, unless an interest rate is implicitly stated in the lease. The present value of the lease payments is calculated using the incremental borrowing rate for operating leases, which was determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor. All ROU assets are reviewed for impairment.
Lease expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term.
| 13 |
The Company’s operating leases are comprised of the Supera Aviation, the Hyde Park and the N Wolfe St. Condensed Consolidated Balance Sheet information related to its leases are presented below:
| As of September 30, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||
| Supera | Hyde | N Wolfe | Supera | Hyde | N Wolfe | |||||||||||||||||||||||||||
| Balance Sheet Location | Aviation | Park | Street | Total | Aviation | Park | Street | Total | ||||||||||||||||||||||||
| Operating Leases | ||||||||||||||||||||||||||||||||
| Lease Right of Use | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Lease Payable, current | ||||||||||||||||||||||||||||||||
| Lease Payable - net of current | ||||||||||||||||||||||||||||||||