UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
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. Employer Identification Number) |
| (Address of principal executive offices) | (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 Each 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 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 and post 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 definition 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 10, 2023, the registrant had shares of its Common Stock, no par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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 | 30 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41 |
| Item 4. | Controls and Procedures | 41 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 42 |
| Item 1A. | Risk Factors | 42 |
| Item 2. | Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 42 |
| Item 3. | Defaults Upon Senior Securities | 42 |
| Item 4. | Mine Safety Disclosures | 42 |
| Item 5. | Other Information | 43 |
| Item 6. | Exhibits | 43 |
| Signatures | 44 | |
| 2 |
PART I - Financial Information
Item 1. Financial Statements.
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2023 and December 31, 2022
(unaudited)
| As of | ||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Marketable Securities | ||||||||
| Prepaid Expenses | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Operating Lease Right-of-Use Assets | ||||||||
| Goodwill | ||||||||
| Investment in Oravax, Inc. | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Trade and Other Payables | $ | $ | ||||||
| Due to MyMD Florida Shareholders | ||||||||
| Operating Lease Liability | ||||||||
| Derivative Liabilities | ||||||||
| Warrant Liabilities | ||||||||
| Dividends Payable | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Operating Lease Liability, net of current portion | ||||||||
| Total Non-Current Liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
| Commitments and Contingencies | ||||||||
| Series
F Convertible Preferred Stock, | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock, | ||||||||
| Series D Convertible Preferred Stock, shares designated, | ||||||||
| Common stock, | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to these condensed consolidated financial statements.
| 3 |
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Product Revenue | $ | $ | $ | $ | ||||||||||||
| Product Cost of Sales | ||||||||||||||||
| Gross Income | ||||||||||||||||
| General and Administrative Expenses | ||||||||||||||||
| Research and Development Expenses | ||||||||||||||||
| Stock Based Compensation Expenses | ||||||||||||||||
| Warrant Issuance Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (Income) Expenses | ||||||||||||||||
| Interest and Dividend Income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Gain)/Loss on Sale of Marketable Securities | ||||||||||||||||
| Change in fair value of Marketable Securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of Derivatives Liabilities | ( | ) | ( | ) | ||||||||||||
| Change in fair value of Warrant Liabilities | ( | ) | ( | ) | ||||||||||||
| Casualty Loss/(Gain) | ( | ) | ||||||||||||||
| Total Other Income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income/(Loss) Before Income Tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Income Tax Benefit/( Provision) | ||||||||||||||||
| Net Income/(Loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Preferred Stock Dividends | ||||||||||||||||
| Net Income/(Loss) Attributable to Common Stockholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic net income/(loss) per common share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted net income/(loss) per common share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average basic common shares outstanding | ||||||||||||||||
| Weighted average diluted common shares outstanding | ||||||||||||||||
See accompanying notes to these 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, 2023 and 2022
(unaudited)
| Series F Convertible | Series D Convertible | Common Stock | ||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common | Accumulated | Total | ||||||||||||||||||||||||||||
| Shares | Series F | Shares | Series D | Shares | Stock No Par | Deficit | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | | $ | ( | ) | $ | ||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Issuance of
shares of Series F Convertible Preferred Stock, net of discount and offering costs of $ |
- | - | ||||||||||||||||||||||||||||||
| Series F Convertible Preferred Stock Dividend | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Conversion
of shares of Series F Convertible Preferred Stock, July 1, 2023 installment of $ |
( | ) | ( | ) | - | |||||||||||||||||||||||||||
| Conversion
of shares of Series F Convertible Preferred Stock, August 1, 2023 installment of $ |
( | ) | ( | ) | - | |||||||||||||||||||||||||||
| Series F Convertible Preferred Stock Dividend | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock for vested restricted stock units | - | - | ||||||||||||||||||||||||||||||
| Exercise of prepaid equity forward contract | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | |||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||
| Conversion
of shares of Series F Convertible Preferred Stock, September 1, 2023 installment of $ |
( | ) | ( | ) | - | |||||||||||||||||||||||||||
| Conversion
of shares of Series F Convertible Preferred Stock, October 1, 2023 installment of $ |
( | ) | ( | ) | - | |||||||||||||||||||||||||||
| Accelerated Conversion of shares of Series F Convertible Preferred Stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||
| Deemed Dividend for the true-up of the August 1, 2023 installment for the Series F Convertible Preferred Stock paid with common stock | - | - | ( | ) | ||||||||||||||||||||||||||||
| Series F Convertible Preferred Stock Dividend | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Series F Convertible | Series D Convertible | Common Stock | ||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common | Accumulated | Total | ||||||||||||||||||||||||||||
| Shares | Series F | Shares | Series D | Shares | Stock No Par | Deficit | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | | $ | ( | ) | $ | ||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Exercise of prepaid equity forward contracts for common stock | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | |||||||||||||||||||||||||||||
| Stock based compensation - restricted stock units | - | - | - | |||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | |||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net proceeds
from private placement of common shares, net of offering costs $ |
- | - | ||||||||||||||||||||||||||||||
| Stock-based compensation – restricted stock units | - | - | - | |||||||||||||||||||||||||||||
| Stock-based compensation – stock options | - | - | - | |||||||||||||||||||||||||||||
| Stock-based compensation – warrants | - | - | - | |||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ||||||||||||||||||||||||||||||
See accompanying notes to these condensed consolidated financial statements
| 5 |
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on sale of marketable securities | ||||||||
| Change in fair value of marketable securities | ( | ) | ||||||
| Change in fair value of derivatives | ( | ) | ||||||
| Change in fair value of warrants | ( | ) | ||||||
| Stock based compensation | ||||||||
| Options issued to directors | ||||||||
| Options issued to key employees | ||||||||
| Options issued to non-employees | ||||||||
| Restricted stock units to non-employees | ||||||||
| Warrants 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 (used in)/provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Net proceeds from the issuance of preferred stock | ||||||||
| Net proceeds from issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Financing and Investing Activities | ||||||||
| Accrual of Series F Convertible Preferred Stock Dividend | $ | $ | ||||||
| Operating lease right-of-use asset obtained in exchange for lease obligation | ||||||||
| Initial fair value of warrant liabilities pursuant to the issuance of Series F Convertible Preferred Stock and Warrants | $ | $ | ||||||
| Initial fair value of derivative liabilities pursuant to the issuance of Series F Convertible Preferred Stock and Warrants | $ | $ | ||||||
See accompanying notes to these condensed consolidated financial statements.
| 6 |
MYMD PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1 – Organization and Description of Business
MyMD Pharmaceuticals, Inc. is a New Jersey corporation (“MyMD”). These condensed consolidated financial statements include two wholly owned subsidiaries as of September 30, 2023, Akers Acquisition Sub, Inc. and Bout Time Marketing Corporation, (together, the “Company”). All material intercompany transactions have been eliminated in consolidation.
On April 8, 2022, the MyMD Florida (as defined below) subsidiary was dissolved and merged into the New Jersey corporation MyMD Pharmaceuticals, Inc. pursuant to an Agreement and Plan of Merger dated April 8, 2022.
At the Company’s annual meeting of stockholders held on July 31, 2023, the stockholders approved a plan to merge the Company with and into a newly formed wholly-owned subsidiary, MyMD Pharmaceuticals, Inc., a Delaware corporation (“MyMD Delaware”), with MyMD Delaware being the surviving corporation, for the purpose of changing the Company’s state of incorporation from New Jersey to Delaware (the “Reincorporation”). As of the date of this Quarterly Report on Form 10-Q, MyMD Delaware has been formed in the State of Delaware and the Company is in the process of completing the Reincorporation.
MYMD-1 is an oral, next-generation TNF-α inhibitor with the potential to transform the way TNF-α based diseases are treated due to its selectivity and ability to cross the blood brain barrier. Its ease of oral dosing is a significant differentiator compared to currently available TNF-α inhibitors, all of which require delivery by injection or infusion. MYMD-1 has also been shown to selectively block TNF-α action where it is overactivated without preventing it from doing its normal job of responding to routine infection. MYMD-1 is doubly effective at inhibiting inflammation by blocking both TNF-a and IL-6 activity, whereas currently approved anti-TNF and anti-IL-6 treatments for RA can only target one or the other. In addition, in early clinical studies it has not been associated with serious side effects known to occur with traditional immunosuppressive therapies that treat inflammation.
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).
The accompanying unaudited condensed financial statements have been prepared by the Company. These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in Note 2 Significant Accounting Policies included in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 31, 2023 (the “2022 Annual Report”). Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2022 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the nine months ended September 30, 2023 may not be necessarily indicative of the operating results expected for the full year.
(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 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 for recording research and development expenses, impairment of intangible assets 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. Foreign Currency Transaction Gains or Losses, resulting from cash balances denominated in Foreign Currencies, are recorded in the Condensed Consolidated Statements of Comprehensive Income (Loss).
| 7 |
(d) Comprehensive Income (Loss)
The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220 in reporting comprehensive income (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 other comprehensive income (loss), comprehensive income (loss) is equal to net income (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
Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the three and nine months ended September 30, 2023. The carrying amounts of cash equivalents, accounts receivable, other current assets, accounts payable, and accrued expenses approximated their fair values as of September 30, 2023 due to their short-term nature. The fair value of the bifurcated embedded derivative related to the convertible preferred stock was estimated using a Monte Carlo simulation model, which uses as inputs the fair value of the Company’s common stock and estimates for the equity volatility and traded volume volatility of the Company’s common stock, the time to maturity of the convertible preferred stock, the risk-free interest rate for a period that approximates the time to maturity, dividend rate, a penalty dividend rate, and the probability of default. The fair value of the warrant liabilities was estimated using the Black Scholes Model which uses as inputs the following weighted average assumptions: dividend yield, expected term in years; equity volatility; and risk-free interest rate.
Fair Value Measurement
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 can 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.
The following is a description of the valuation methodologies used for assets measured at fair value as of September 30, 2023 and December 31, 2022.
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, 2023 | $ | $ | $ | |||||||||
| Marketable securities at December 31, 2022 | $ | $ | $ | |||||||||
Marketable securities are classified as available for sale and are valued at fair market value. Maturities of the securities are less than one year.
| 8 |
As
of September 30, 2023 and December 31, 2022, the Company held certain mutual funds, which, under FASB ASC 321-10, were considered equity
investments. As such, the change in fair value in the three months ended September 30, 2023 and 2022 were gains of $
Losses resulting from the sales of marketable securities were $
Proceeds
from the sales of marketable securities in the nine months ended September 30, 2023 and 2022 were $
Fair Value on a Recurring Basis
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The estimated fair value of the warrant liabilities and bifurcated embedded derivatives represent Level 3 measurements. The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis as of September 30, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | September 30, 2023 | ||||||
| Liabilities: | ||||||||
| Warrant liabilities (Note 3) | 3 | $ | ||||||
| Derivative liabilities (Note 3) | 3 | $ | ||||||
The following table sets forth a summary of the change in the fair value of the warrant liabilities that is measured at fair value on a recurring basis:
| Balance on December 31, 2022 | $ | |||
| Issuance of warrants reported at fair value | ||||
| Change in fair value of warrant liabilities | ( | ) | ||
| Balance on March 31, 2023 | ||||
| Change in fair value of warrant liabilities | ( | ) | ||
| Balance on June 30, 2023 | ||||
| Change in fair value of warrant liabilities | ( | ) | ||
| Balance on September 30, 2023 | $ |
The following table sets forth a summary of the change in the fair value of the derivative liabilities that is measured at fair value on a recurring basis:
| Balance on December 31, 2022 | $ | |||
| Issuance of convertible preferred stock with derivative liabilities | ||||
| Change in fair value of derivative liabilities | ||||
| Balance on March 31, 2023 | ||||
| Change in fair value of derivative liabilities | ||||
| Balance on June 30, 2023 | ||||
| Change in fair value of derivative liabilities | ( | ) | ||
| Balance on September 30, 2023 | $ |
(g) Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging.” If liability accounting is required, the Company’s derivative instruments are recorded at fair value at the issuance date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within twelve (12) months of the balance sheet date.
The Company has determined that the Series F Convertible Preferred Stock warrants are derivatives that are required to be accounted for as liabilities. The Company has also determined that the following embedded features in the preferred stock are not clearly and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption event, 2) make-whole interest upon a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in the Certificate of Designation), and 4) variable share-settled installment conversion and as such are bifurcated from the preferred stock and accounted for as liabilities. The fair value of the warrants and embedded features are estimated using internal valuation models. The Company’s valuation models utilize inputs and other assumptions and may not be reflective of the price at which they can be settled.
(h) Prepaid Expenses
Prepaid expenses represent expenses paid prior to the date that the related services are rendered or used are comprised principally of prepaid insurance and research and development expenses.
(i) Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions and accounts receivable. At times, the Company’s cash in banks is in excess of the 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 as of September 30, 2023.
| 9 |
(j) 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 one brokerage firm.
(k) 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.
In accordance with FASB ASC 323, the Company recognizes investments in joint ventures based upon the Company’s ability to significantly influence the operational or financial policies of the joint venture. An objective judgment of the level of influence is made at the time of the investment based upon several factors including, but not limited to the following:
| a) | Representation on the Board of Directors | |
| b) | Participation in policy-making processes | |
| c) | Material intra-entity transactions | |
| d) | Interchange of management personnel | |
| e) | Technological dependencies | |
| f) | Extent of ownership and the ability to influence decision making based upon the makeup of other owners when the shareholder group is small. |
The Company follows the equity method for valuating investments in joint ventures when the existence of significant influence over operational and financial policy has been established, as determined by management; otherwise, the Company will valuate these investments using the cost method.
In accordance with FASB ASC 321-10-35-2, the Company has elected to measure its investment in Oravax Medical, Inc. (“Oravax”) (Note 3) as an equity security without a readily determinable fair value. Under this election, an equity security without a readily available fair value is reflected at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. At each reporting period, the Company is required to make a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. If deemed impaired, the Company is required to estimate the fair value of the investment and recognize an impairment loss equal to the difference between the fair value of the investment and its carry amount. As of September 30, 2023, the Company performed a qualitative assessment to evaluate whether the investment is impaired and determined that the investment was not impaired and thus no adjustment to fair market value was required as of September 30, 2023.
(l) Property, Plant and Equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within “other (income)/expense” in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Depreciation is recognized over the estimated useful lives of the property, plant and equipment. Leased assets are depreciated over the shorter of the lease term or their useful lives.
The estimated useful lives for the current and comparative periods are as follows:
| Useful Life | ||
| (in years) | ||
| Plant and equipment | ||
| Furniture and fixtures | ||
| Computer equipment & software | ||
| Leasehold Improvements |
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
(m) Intangible Assets
The Company’s long-lived intangible assets, other than goodwill, are assessed for impairment when events or circumstances indicate there may be an impairment. These assets were initially recorded at their estimated fair value at the time of acquisition and assets not acquired in acquisitions were recorded at historical cost. However, if their estimated fair value is less than the carrying amount, other intangible assets with indefinite lives are reduced to their estimated fair value through an impairment charge in the Condensed Consolidated Statements of Comprehensive Income (Loss).
| 10 |
Patents and Trade Secrets
Propriety protection for the Company’s products, technology and process is important to its competitive position. As of September 30, 2023, the Company has 16 issued U.S. patents, 63 foreign patents, three pending U.S. patent applications and 11 foreign patent applications pending in such jurisdictions as Australia, Canada, China, European Union, Israel, Japan and South Korea, which if issued are expected to expire between 2036 and 2041. Management intends to protect all other intellectual property (e.g. copyrights, trademarks and trade secrets) using all legal avenues available to the Company.
The Company records expenses related to the application for and maintenance of patents as a component of research and development expenses on the Condensed Consolidated Statement of Comprehensive Income ( Loss).
Patent Costs
Patents may be purchased from third parties. The costs of acquiring the patent are capitalized as patent costs if it represents a future economic benefit to the Company. Once a patent is acquired it is amortized over its remaining useful life and assessed for impairment when necessary.
Other Intangible Assets
Other intangible assets that are acquired by the Company, which have definite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses.
Amortization
Amortization is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:
| Useful Life | ||
| (in years) | ||
| Patents and trademarks |
(n) Goodwill
Goodwill is evaluated annually for impairment or whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value below its carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, economic factors (for example, the loss of key personnel), supply costs, unanticipated competitive activities, and acts by governments and courts.
(o) Recoverability of Long-Lived Assets
In accordance with FASB ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment.
| 11 |
The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets.
(p) Right-of-Use Assets
The
Company leased a facility in Tampa, Florida (“Hyde Park”) under an operating lease (“Hyde Park Lease”) with
annual rentals of $
The
Company leases a facility in Baltimore, Maryland (“2021 Wolfe St”) under an operating lease (“2021 Baltimore Lease”)
with annual rentals of $
The
Company leases a facility in Tampa, Florida (“Platt St”) under an operating lease (“Platt Street 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 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.
| 12 |
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 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.
The Company’s operating leases are comprised of the 2021 Baltimore Lease, the Hyde Park Lease and the Platt Street Lease on the Condensed Consolidated Balance Sheet. The information related to these leases are presented below:
| As of September 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||
| Platt Street | 2021 Baltimore | Platt Street | 2021 Baltimore | |||||||||||||||||||||
| Balance Sheet Location | Lease | Lease | Total | Lease | Lease | Total | ||||||||||||||||||
| Operating Lease | ||||||||||||||||||||||||
| Lease Right of Use | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Lease Payable, current | ||||||||||||||||||||||||
| Lease Payable - net of current | ||||||||||||||||||||||||
The following provides details of the Company’s lease expense:
Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||
| Platt Street | 2021 Baltimore | Hyde Park | Platt Street | 2021 Baltimore | ||||||||||||||||||||||||
| Lease Expenses | Lease | Lease | Total | Lease | Lease | Lease | Total | |||||||||||||||||||||
| Operating Leases | ||||||||||||||||||||||||||||
| Lease Costs | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||
| Platt Street | 2021 Baltimore | Hyde Park | Platt Street | 2021 Baltimore | ||||||||||||||||||||||||
| Lease Expenses | Lease | Lease | Total | Lease | Lease | Lease | Total | |||||||||||||||||||||
| Operating Leases | ||||||||||||||||||||||||||||
| Lease Costs | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| 13 |
Other information related to leases is presented below:
| Platt Street | 2021 Baltimore | |||||||||||
| Other Information | Lease | Lease | Total | |||||||||
| Operating Leases | ||||||||||||
| Operating cash used | $ | $ | $ | |||||||||
| Average remaining lease term | ||||||||||||
| Average discount rate | % | % | % | |||||||||
As of September 30, 2023, the annual minimum lease payments of the Company’s operating lease liabilities were as follows:
| Platt Street | 2021 Baltimore | |||||||||||
| Lease | Lease | Total | ||||||||||
| For Years Ending December 31, | ||||||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| Total future minimum lease payments, undiscounted | $ | $ | $ | |||||||||
| Less: Imputed interest | ||||||||||||
| Present value of future minimum lease payments | $ | $ | $ | |||||||||
(q) Revenue Recognition
The Company will recognize revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
| 1) | Identify the contract with the customer | |
| 2) | Identify the performance obligations in the contract | |
| 3) | Determine the transaction price | |
| 4) | Allocate the transaction price to the performance obligations in the contract | |
| 5) | Recognize revenue when the company satisfies a performance obligation |
(r) 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. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of September 30, 2023 and December 31, 2022, no liability for unrecognized tax benefits was required to be reported.
| 14 |
There was income tax expense recorded for the net income for the three months ended September 30, 2023, as the Company can utilize net operating losses to offset the taxable income.
There was income tax benefit recorded for the losses for the nine months ended September 30, 2023 and the three and nine months ended September 30, 2022 since management determined that the realization of the net deferred tax assets is not more likely than not to be realized and has recorded a full valuation allowance on the net deferred tax assets.
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 expenses. There were
Tax years from 2020 through 2022 remain subject to examination by federal and state jurisdictions.
Basic earnings per common share are 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 income (loss) per share is computed using the weighted average number of shares of Common Stock and dilutive potential Common Stock outstanding during the period. Diluted earnings per common share was the same as basic earnings per common share for the three months ended September 30, 2023 as the average market price of the common share during this period is lower than the exercise price of the potential common shares.
As the Company reported a net loss for the nine months ended September 30, 2023 and the three and nine months ended September 30, 2022, Common Stock equivalents were anti-dilutive.
| For
the Three Months Ended September 30, | For
the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Stock Options | ||||||||||||||||
| Warrants to purchase common stock | ||||||||||||||||
| Pre-funded Warrants to purchase common stock | ||||||||||||||||
| Unvested Restricted Stock Units | ||||||||||||||||
| Series C Convertible Preferred Warrants | ||||||||||||||||
| Series D Preferred Convertible Stock | ||||||||||||||||
| Series F Convertible Preferred Stock | ||||||||||||||||
| Total potentially dilutive shares | ||||||||||||||||
The Company accounts for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (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. In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (the “2018 Update”). The amendments in the 2018 Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. Prior to the 2018 Update, Topic 718 applied only to share-based transactions to employees. 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.
The Company has elected to account for forfeiture of stock-based awards as they occur.
| 15 |
(u) 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.
(v) Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements Adopted
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges or Freestanding Equity - Classified Written Call Options. The amendments in this Update clarify an issuer’s accounting for modifications or exchanges of freestanding equity - classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. The adoption of this ASU had no material impact on the Company’s condensed consolidated financial statements and related disclosure.
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard establishes an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in a timelier recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument. Measurement of expected credit losses are to be based on relevant forecasts that affect collectability. The scope of financial assets within the CECL methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. Different components of the guidance require modified retrospective or prospective adoption.
In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit losses standard. Instead, entities would need to apply other U.S. GAAP, namely Topic 842 (Leases), to account for changes in the collectability assessment for operating leases. Other than operating lease receivables, Partnership trade receivables include receivables from finance leases and equipment sales. Under Topic 606 (Revenue from Contracts with Customers), revenue is recognized when, among other criteria, it is probable that the entity will collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that finance lease receivables are recorded, they become subject to the CECL model and estimates of expected credit losses over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. Trade receivables derived from equipment sales are of short duration and there is not a material difference between incurred losses and expected losses.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which amends and clarifies several provisions of Topic 326. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which amends Topic 326 to allow the fair value option to be elected for certain financial instruments upon adoption. ASU 2019-10 extended the effective date of ASU 2016-13 until December 15, 2022. The Company adopted this new guidance, including the subsequent updates to Topic 326, on January 1, 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
| 16 |
Recently Issued Accounting Pronouncements Not Adopted
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the Company’s condensed consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
Note 3 – Recent Developments, Liquidity and Management’s Plans
Closing of the Merger and Reverse Stock Split
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, a New Jersey corporation previously known as Akers Biosciences, Inc., XYZ Merger Sub, Inc. (“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 $ 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 the Company’s Common Stock, no par value per share (the “Company Common Stock” or “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 (the “Milestone Events”) during the 36-month period immediately following the closing of the Merger (the “Milestone Period”). The Milestone Events and corresponding Milestone Payments are set forth in the table below.
| Milestone Event | Milestone Payment | |
| $ | ||
| $ | ||
| $ | ||
| $ |
For purposes of the table above, “market capitalization” means, with respect to any trading day, the product of (i) the total outstanding shares of the combined company Common Stock and (ii) the volume weighted average trading price for the combined company Common Stock for such trading day.
| 17 |
Immediately
following the effective time of the Merger,
Effective as of 4:05 pm Eastern Time on April 16, 2021, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to effect the Reverse Stock Split. As a result of the Reverse Stock Split, immediately following the effective time of the Merger, every two shares of our Common Stock held by a stockholder immediately prior to the Reverse Stock Split were combined and reclassified into one share of our Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Each stockholder who did not have a number of shares evenly divisible pursuant to the Reverse Stock Split ratio and who would otherwise be entitled to receive a fractional share of our Common Stock was entitled to receive an additional share of our Common Stock.
The February 2023 Offering
On
February 21, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited
investors (the “Investors”), pursuant to which it agreed to sell to the Investors (i) an aggregate of shares of the
Company’s newly-designated Series F convertible preferred stock with a stated value of $
Series F Convertible Preferred Stock
The
Preferred Shares are convertible into Common Stock (the “Conversion Shares”) at the election of the holder at any time
at an initial conversion price of $
The
holders of the Preferred Shares are entitled to dividends of
Notwithstanding the foregoing, the Company’s ability to settle conversions and make amortization and dividend make-whole payments using shares of Common Stock is subject to certain limitations set forth in the Certificate of Designations. Further, the Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares of Common Stock issuable upon conversion of, or as part of any amortization payment or dividend make-whole payment under, the Certificate of Designations or Warrants.
| 18 |
The Certificate of Designations includes certain Triggering Events (as defined in the Certificate of Designations), including, among other things, the Company’s failure to pay any amounts due to the holders of the Preferred Shares when due. In connection with a Triggering Event, each holder of Preferred Shares will be able to require the Company to redeem in cash any or all of the holder’s Preferred Shares at a premium set forth in the Certificate of Designations.
The
Preferred Shares were determined to be more akin to a debt-like host than an equity-like host. The Company identified the following embedded
features that are not clearly and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption event,
2) make-whole interest upon a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in the Certificate
of Designation), and 4) variable share-settled installment conversion. These features were bundled together, assigned probabilities of
being affected and measured at fair value. Subsequent changes in fair value of these features are recognized in the Condensed Consolidated
Statement of Comprehensive Income (Loss). The Company estimated at issuance the $
The
discount to the fair value is included as a reduction to the carrying value of the Preferred Shares. During the nine months ended September
30, 2023, the Company recorded a total discount of $
During
the three and nine months ended September 30, 2023, the Company recorded a gains of $
During
the three months ended September 30, 2023, the Company converted $
During the nine months ended September 30, 2023, the
Company converted $
Common Stock Warrants
Pursuant
to the February 2023 Offering, the Company issued to investors Warrants to purchase
The
Warrants were determined to be within the scope of ASC 480-10 as they are puttable to the Company at Holders’ election upon the
occurrence of a Fundamental Transaction (as defined in the agreements). As such, the Company recorded the Warrants as a liability at
fair value with subsequent changes in fair value recognized in earnings. The Company utilized the Black Scholes Model to calculate the
value of these warrants issued during the nine months ended September 30, 2023. The fair value of the Warrants of $
Transaction
costs incurred attributable to the issuance of the Warrants of $
During
the three and nine months ended September 30, 2023, the Company recorded a gain of $
Liquidity
As
of September 30, 2023, the Company’s cash on hand was $
The Company evaluated the current cash requirements for operations in conjunction with management’s strategic plan and believes that the Company’s current financial resources as of the date of the issuance of these condensed consolidated financial statements are sufficient to fund its current operating budget and contractual obligations as of September 30, 2023 as they fall due within the next twelve-month period, alleviating any substantial doubt raised by the Company’s historical operating results and satisfying its estimated liquidity needs for twelve months from the issuance of these condensed consolidated financial statements.
| 19 |
Note 4 – Trade and Other Payables
Trade and other payables consist of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Accounts Payable – Trade | $ | $ | ||||||
| Accrued Expenses | ||||||||
| $ | $ | |||||||
Equity incentive Plans
2013 Stock Incentive Plan
On January 23, 2014, the Company adopted the 2013 Stock Incentive Plan (“2013 Plan”). The 2013 Plan was amended by the Board on January 9, 2015 and September 30, 2016, and such amendments were ratified by shareholders on December 7, 2018. The 2013 Plan provides for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2023, grants of restricted stock and options to purchase shares of Common Stock have been issued pursuant to the 2013 Plan, and shares of Common Stock remain available for issuance.
2016 Stock Incentive Plan
On December 21, 2016, the shareholders approved, and the Company adopted the 2016 Stock Incentive Plan (“2016 Plan”). The 2016 Plan provides for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2023, grants of any kind remain outstanding pursuant to the 2016 Plan, and shares of Common Stock remain available for issuance.
2017 Stock Incentive Plan
On August 7, 2017, the shareholders approved, and the Company adopted the 2017 Stock Incentive Plan (“2017 Plan”). The 2017 Plan provides for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2023, grants of restricted stock and options to purchase shares of Common Stock have been issued pursuant to the 2017 Plan, and shares of Common Stock remain available for issuance.
2018 Stock Incentive Plan
On December 7, 2018, the shareholders approved, and the Company adopted the 2018 Stock Incentive Plan (“2018 Plan”). On August 27, 2020, the 2019 Plan was modified to increase the total authorized shares. The 2018 Plan, as amended, provides for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2023, grants of RSUs and restricted stock to purchase shares of Common Stock have been issued pursuant to the 2018 Plan, and shares of Common Stock remain available for issuance.
| 20 |
2021 Stock Incentive Plan
On April 15, 2021, the shareholders approved, and the Company adopted the 2021 Stock Incentive Plan (“2021 Plan”). The 2021 Plan provides for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2023, grants of RSUs and stock options to purchase shares of Common Stock have been issued pursuant to the 2021 Plan, and shares of Common Stock remain available for issuance.
Stock Options
| Weighted | ||||||||||||||||||||
| Average | ||||||||||||||||||||
| Weighted | Weighted | Remaining | ||||||||||||||||||
| Number | Average | Average | Contractual | Aggregate | ||||||||||||||||
| of | Exercise | Grant Date | Term | Intrinsic | ||||||||||||||||
| Shares | Price | Fair Value | (years) | Value | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | |||||||||||||||||
| Granted | $ | - | ||||||||||||||||||
| Exercised | - | - | ||||||||||||||||||
| Forfeited | - | - | ||||||||||||||||||
| Canceled/Expired | ( | ) | - | - | ||||||||||||||||
| Balance at September 30, 2023 | $ | |||||||||||||||||||
| Exercisable as of September 30, 2023 | $ | |||||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $ for the Company’s common shares on September 30, 2023 and the closing stock price of $ for the Company’s common shares on December 31, 2022.
On
April 4, 2023, the Company issued options to a key employee. The cumulative fair market value of $
On
June 7, 2023, the Company issued options to the directors and key employees. The cumulative fair market value of $
On
September 6, 2023, the Company issued options to a key employee. The cumulative fair market value of $
The fair-market value of the options will be recognized in the period the vesting event is achieved. As of September 30, 2023, none of the vesting events have occurred.
On
September 6, 2023, the Company issued
options to a key employee. The cumulative fair market value of $
During
the three months ended September 30, 2023 and 2022, the Company incurred stock option expenses totaling $
The unamortized stock option expenses as of September 30, 2023 and 2022 totaled $ and $, respectively.
| 21 |
Restricted Stock Units
On October 14, 2021, the Compensation Committee of the Board of Directors approved grants totaling Restricted Stock Units to the Company’s six directors and seven key employees. Each RSU had a grant date fair value of $ which will be amortized upon vesting into administrative expenses within the Condensed Consolidated Statement of Comprehensive Income (Loss). Such RSUs were granted under the 2021 Plan. Vesting of each RSU is:
| ● | . | |
| ● | . | |
| ● | . | |
| ● | In the event that (i) a change in control occurs or (ii) the participant incurs a termination of service by the Company without cause or due to the participant’s death or total and permanent disability, then all unvested units shall become vested units immediately upon the occurrence of such event. |
As of September 30, 2023, none of the vesting milestones have been met.
On June 28, 2023, vested restricted stock units were exchanged for shares of the Company Common Stock.
The following is the status of outstanding unvested restricted stock units outstanding as of September 30, 2023 and the changes for the nine months ended September 30, 2023:
| Weighted | ||||||||
| Average | ||||||||
| Number of | Grant Date | |||||||
| RSUs | Fair Value | |||||||
| Balance at December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Canceled/Expired | ||||||||
| Balance at September 30, 2023 | $ | |||||||
As of September 30, 2023, the unamortized value of the RSUs was $.
Note 6 – Equity
Authorized Capital Stock
The
Company’s authorized capital stock consists of
Preferred Stock
The holders of preferred shares or preferred warrants are entitled to vote per share, as limited by the certificate of designation for each class of preferred shares or warrants, at meetings of the Company.
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Series D Convertible Preferred Stock
The following are the principal terms of the Series D Preferred Stock:
Rank
The Series D Preferred Stock ranks (1) on parity with Common Stock on an “as converted” basis, (2) senior to any series of our capital stock hereafter created specifically ranking by its terms junior to the Series D Preferred Stock, (3) on parity with any series of our capital stock hereafter created specifically ranking by its terms on parity with the Series D Preferred Stock, and (4) junior to any series of our capital stock hereafter created specifically ranking by its terms senior to the Series D Preferred Stock in each case, as to dividends or distributions of assets upon our liquidation, dissolution or winding up whether voluntary or involuntary.
Conversion Rights
A
holder of Series D Preferred Stock is entitled at any time to convert any whole or partial number of shares of Series D Preferred Stock
into shares of our Common Stock, determined by dividing the stated value equal to $ by the conversion price of $
Dividend Rights
In addition to stock dividends or distributions for which proportionate adjustments will be made, holders of Series D Preferred Stock are entitled to receive dividends on shares of Series D Preferred Stock equal, on an as-if-converted-to-common-stock basis, to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. No other dividends are payable on shares of Series D Preferred Stock.
Voting Rights
Subject to the Series D Beneficial Ownership Limitation, on any matter presented to our stockholders for their action or consideration at any meeting of our stockholders (or by written consent of stockholders in lieu of a meeting), each holder, in its capacity as such, shall be entitled to cast the number of votes equal to the number of whole shares of our Common Stock into which the Series D Preferred Stock beneficially owned by such holder are convertible as of the record date for determining stockholders entitled to vote on or consent to such matter (taking into account all Series D Preferred Stock beneficially owned by such holder). Except as otherwise required by law or by the other provisions of the Certificate of Designation of Series D Convertible Preferred Stock (the “Series D Certificate of Designation”), the holders of Series D Preferred Stock, in their capacity as such, shall vote together with the holders of our Common Stock and any other class or series of stock entitled to vote thereon as a single class.
Liquidation Rights
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Series D Preferred Stock are entitled to receive, pari passu with the holders of Common Stock, out of the assets available for distribution to stockholders an amount equal to such amount per share as would have been payable had all shares of Series D Preferred Stock been converted into Common Stock immediately before such liquidation, dissolution or winding up, without giving effect to any limitation on conversion as a result of the Series D Beneficial Ownership Limitation, as described above.
Exchange Listing
Series D Preferred Stock is not listed on the Nasdaq, any national securities exchange or other nationally recognized trading system. Our Common Stock issuable upon conversion of the Series D Preferred Stock is listed on the Nasdaq under the symbol “MYMD”.
Failure to Deliver Conversion Shares
Compensation for Series D Buy-In on Failure to Timely Deliver Shares
If we fail to timely deliver the Series D Conversion Shares to the holder, and if after the required delivery date the holder is required by its broker to purchase (in an open market transaction or otherwise) or the holder or its brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the holder of the Series D Conversion Shares which the holder anticipated receiving upon such conversion or exercise (a “Series D Buy-In”), then we are obligated to (A) pay in cash to such holder (in addition to any other remedies available to or elected by such holder) the amount, if any, by which (x) such holder’s total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of Series D Conversion Shares that such holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such holder, either reissue (if surrendered) the shares of Series D Preferred Stock equal to the number of shares of Series D Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such holder the number of Series D Conversion Shares that would have been issued if we had timely complied with its delivery requirements.
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As of September 30, 2023, the Company had shares of Series D Convertible Preferred Stock outstanding which represent underlying shares of the Company Common Stock.
Series F Convertible Preferred Stock
The following are the principal terms of the Series F Preferred Stock:
Dividends
The
holders of the Series F Preferred Stock are entitled to dividends of
Voting Rights
The Series F Preferred Stock has no voting rights, except as required by law (including without limitation, the New Jersey Business Corporation Act (the “BCA”)) and as expressly provided in the Series F Certificate of Designation. To the extent that under the BCA the vote of the holders of shares of Series F Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of a majority of the outstanding shares of Series F Preferred Stock, voting together in the aggregate and not in separate series unless required under the BCA, represented at a duly held meeting at which a quorum is presented or by written consent of such majority (except as otherwise may be required under the BCA) shall constitute the approval of such action by both the class or the series, as applicable. To the extent that under the BCA holders of shares of Series F Preferred Stock are entitled to vote on a matter with holders of shares of Common Stock, voting together as one class, each share of Series F Preferred Stock shall entitle the holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible (subject to certain beneficial ownership limitations) using the record date for determining the stockholders of the Company eligible to vote on such matters as the date as of which the Conversion Price is calculated.
Liquidation
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the each holder shares of the Series F Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount per share of Series F Preferred Stock equal to the greater of (A) 125% of the stated value of such share of Series F Preferred Stock (plus any applicable make-whole amount, unpaid late charge or other applicable amount) on the date of such payment and (B) the amount per share such holder would receive if such holder converted such share of Series F Preferred Stock into Common Stock immediately prior to the date of such payment. All shares of capital stock of the Company shall be junior in rank to all shares of Series F Preferred Stock with respect to the preferences as to payments upon the liquidation.
Conversion
The
Series F Preferred Stock is convertible into shares of Common Stock (the “Conversion Shares”). The initial conversion price,
subject to adjustment as set forth in the Series F Certificate of Designation, is $
The
Company is required to redeem the shares of Series F Preferred Stock in 12 equal monthly installments, commencing on July 1, 2023.
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Exchange Cap
The
Company was initially restricted from issuing shares of Common Stock upon conversion of the Series F Preferred Stock or exercise of the
associated warrants in excess of
Optional Conversion
The Series F Preferred Stock can be converted at the option of the holder at any time and from time to time after the original issuance date. Holders shall effect conversions by providing us with the form of conversion notice (the “Notice of Conversion”) specifying the number of shares of Series F Preferred Stock to be converted, the number of shares of Series F Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable holder delivers by email such Notice of Conversion to us.
Mandatory Conversion
Beneficial Ownership Limitation
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Common Stock
The holders of common shares are entitled to one vote per share at meetings of the Company.
As of September 30, 2023, the Company had shares of Common Stock issued and outstanding. During the nine months ended September 30, 2023 issued shares of common stock as installment conversions for the Series F Convertible Preferred.
Common Stock Warrants
The table below summarizes the warrant activity for the nine months ended September 30, 2023:
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Warrants | Price | Term (years) | Value | |||||||||||||
| Balance at December 31, 2022 | $ | $ | ||||||||||||||
| Issued | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | - | - | ||||||||||||||
| Canceled/Expired | - | - | ||||||||||||||
| Balance at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2023 | $ | $ | ||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $ for the Company’s common shares on September 30, 2023 and the closing stock price of $ for the Company’s common shares on December 31, 2022. All warrants were vested on date of grant.
Pursuant
to the February 2023 Offering, the Company issued to investors Warrants to purchase
Pre-funded Common Stock Warrants
The table below summarizes the pre-funded warrant activity for the nine months ended September 30, 2023:
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Warrants | Price | Term (years) | Value | |||||||||||||
| Balance at December 31, 2022 | $ | $ | ||||||||||||||
| Issued | - | - | ||||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||
| Forfeited | - | - | ||||||||||||||
| Canceled/Expired | - | - | ||||||||||||||
| Balance at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2023 | $ | $ | ||||||||||||||
All pre-funded warrants were vested on date of grant and are exercisable at any time. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying award and the closing stock price of $ for the Company’s common shares on September 30, 2023 and the closing stock price of $ for Common Stock on December 31, 2022.
On
April 27, 2023, a holder exercised pre-funded warrants for shares of Company Common Stock for net proceeds of $
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Series C Convertible Preferred Stock Warrants
The table below summarizes the warrant activity for the nine months ended September 30, 2023:
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Warrants | Price | Term (years) | Value | |||||||||||||
| Balance at December 31, 2022 | $ | $ | ||||||||||||||
| Issued | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | - | - | ||||||||||||||
| Canceled/Expired | - | - | ||||||||||||||
| Balance at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2023 | $ | $ | ||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $ for the Company’s common shares on September 30, 2023 and the closing stock price of $ for the Company’s common shares on December 31, 2022. All Series C Convertible Preferred Stock Warrants were vested on date of grant.
Note 7 – Commitments and Contingencies
Scientific Advisory Board
On
February 1, 2021, the Company formed the Scientific Advisory Board to (i) provide strategic advice and make recommendations to management
regarding current and planned research and development programs, (ii) advise management regarding the scientific merit of technology
or products involved in licensing and acquisition opportunities and (iii) provide strategic advice to management regarding emerging science
and technology issues and trends. During the three months ended September 30, 2023 and 2022, the Company incurred costs of $
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Litigation and Settlements
Raymond Akers Actions
On April 14, 2021, Raymond F. Akers, Jr., Ph.D. filed a lawsuit against MyMD Pharmaceuticals, Inc. (p/k/a Akers Biosciences, Inc.) in the Superior Court of New Jersey, Law Division, Gloucester County (the “First Raymond Akers Action”). Mr. Akers asserts one common law whistleblower retaliation claim against the Company.
On September 23, 2021, the Court granted MyMD Pharmaceutical, Inc.’s (“MyMD’s”) Motion to Dismiss Plaintiff’s Amended Complaint and dismissed Plaintiff’s Amended Complaint. The Court indicated that Mr. Akers is “free to file another complaint, however, tort-based ‘Pierce’ allegations, and/or CEPA claims are barred by the statute of limitations.”
On March 1, 2022, Mr. Akers filed a second action against MyMD in the Superior Court of New Jersey, Law Division, Gloucester County (the “Second Raymond Akers Action”) again asserting one common law whistleblower retaliation claim against the Company. The Company plans to vigorously defend the claims made in the Second Raymond Akers Action.
On May 27, 2022, the Court granted-in-part and denied-in-part MyMD’s Motion to Dismiss Plaintiff’s Complaint. The Court reaffirmed the ruling in the First Raymond Akers Action that any tort-based Pierce claims are time-barred. However, the Court denied the Motion as it pertained to Plaintiff’s contract-based Pierce claim and “Repayment of Monies Owed” claim. On July 29, 2022, MyMD filed its Answer, which included affirmative defenses. As of September 30, 2023, the Second Raymond Akers Action is in the discovery phase.
All legal fees incurred were expensed as and when incurred.
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Note 8 – Related Parties
SRQ Patent Holdings and SRQ Patent Holdings II
MyMD is a party to two Amended and Restated Confirmatory Patent Assignment and Royalty Agreements, both dated November 11, 2020, with SRQ Patent Holdings and SRQ Patent Holdings II, under which MyMD (or its successor) will be obligated to pay to SRQ Patent Holdings or SRQ Patent Holdings II (or its designees) certain royalties on product sales or other revenue received on products that incorporate or are covered by the intellectual property that was assigned to MyMD. The royalty is equal to 8% of the net sales price on product sales and, without duplication, 8% of milestone revenue or sublicense compensation. SRQ Patent Holdings and SRQ Patent Holdings II are affiliates of Mr. Jonnie Williams, Sr. No revenue has been received subject to these agreements as of September 30, 2023 and 2022.
MIRA Pharmaceuticals Limited License Agreement
MyMD is a party to an Amended and Restated Limited License Agreement, dated June 27, 2022 and amended on April 20, 2023, with MIRA Pharmaceuticals, Inc. (Nasdaq: MIRA), under which the parties agreed to share technical information and know-how pertaining to the synthetic manufacture and formulation of the parties’ respective Supera-CBD™ and MIRA1a™ product candidates. MyMD, which holds patent rights to MIRA1a™ in 22 foreign countries, was granted a perpetual, non-exclusive, royalty-free license to use improvements to MIRA1a™ made under the agreement, and MIRA was granted a limited, perpetual, worldwide, non-exclusive, royalty-free license to use Supera-CBD™ as a synthetic intermediate in the manufacture of MIRA1a™. MyMD’s President and Chief Medical Officer, Chris Chapman, M.D., is Executive Chairman of MIRA; and MyMD’s Chief Scientific Officer, Adam Kaplin, M.D., Ph.D., is President and Chief Scientific Officer of MIRA.
Note 9 – Employee Benefit Plan
The
Company maintains a defined contribution benefit plan under section 401(k) of the Internal Revenue Code covering substantially all qualified
employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company matches
The
Company made matching contributions to the 401(k) Plan during the three months ended September 30, 2023 and 2022 of $
Note 10—Patent Assignment and Royalty Agreement
In November 2016, the Company entered into an agreement with the holders of certain intellectual property relating to the Company’s current product candidate. Under the terms of the agreement, the counterparty assigned its rights and interest in certain patents to the Company in exchange for future royalty payments based on a fixed percentage of future revenues, as defined. The agreement is effective until the later of (1) the date of expiration of the assigned patents or (2) the date of expiration of the last strategic partnership or licensing agreement including the assigned patents. revenue has been received subject to these agreements as of September 30, 2023 and 2022.
Note 11—Subsequent Events
NASDAQ Capital Market Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard
The letter has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on The Nasdaq Capital Market, subject to the Company’s compliance with the other listing requirements of The Nasdaq Capital Market
Platt Street Lease
Effective
October 31, 2023, the Company cancelled the Platt Street Lease without penalty. As of October 31, 2023, Lease Right-of-Use assets were reduced by $
Reduction in Workforce
During October 2023, the Company implemented a reduction in workforce, eliminating three of the Company’s ten employees. Separated employees were granted a severance package equal to one-quarter of their annual salary and will result in the recognition of $in personnel expenses in October 2023.
On June 7, 2023, the Company granted the employees options to purchase an aggregate of shares of Common Stock with an exercise price of $ per share. As consideration for a waiver and release in their separation agreements, the Company amended the employees’ respective June 7, 2023 option agreements to accelerate vesting of the portion of optioned shares that otherwise would have vested upon the first and second anniversaries of the date of grant. The options have an exercise period of twelve months from the date of separation.
Executive Officer Contract Amendments and Separations
Effective November 13, 2023, the Company entered into a mutual employment separation agreement with Paul M. Rivard, its Chief Legal Officer. The separation agreement provides for a lump-sum severance payment equal to three months of his normal base salary in exchange for a waiver and release. The separation agreement further provides that Mr. Rivard will be deemed a contractor providing services to the Company for purposes of any awards previously granted to him under the 2021 Plan if at the relevant time(s) he is providing services to the Company while under the employ of a law firm representing the Company.
Effective November 13, 2023, the Company entered into an amendment to the employment agreement of Dr. Adam Kaplin, its Chief Scientific Officer, providing that Dr. Kaplin’s employment shall have an initial term of four months, which the parties may mutually agree to extend for additional consecutive terms of one month each. The amendment further provides that, in the event of a termination without cause by the Company prior to the end of the initial term, Dr. Kaplin shall receive his monthly base salary through the end of the initial term. The amendment further provides that all outstanding and unvested shares granted pursuant to the Nonqualified Stock Option Agreement, dated June 7, 2023, between the Company and Dr. Kaplin shall accelerate upon the termination of Dr. Kaplin’s employment. Dr. Kaplin’s amendment further provides that, in the event of a termination without cause for any reason prior to the end of the first renewal term following the end of the initial term, the Company will continue to cover the costs of Dr. Kaplin’s health insurance coverage through the end of the first renewal term, subject to the execution and timely return of a release.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The information set forth below should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements based on our current expectations, assumptions, estimates and projections. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, including those discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q, entitled “Risk Factors.” References in this discussion and analysis to “us,” “we,” “our,” or “the Company” refer collectively to MyMD Pharmaceuticals, Inc.
Our financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the Securities and Exchange Commission (the “SEC” and such reports, collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
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. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
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Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:
| ● | fluctuation and volatility in market price of our Common Stock due to market and industry factors, as well as general economic, political and market conditions; | |
| ● | the impact of dilution on our shareholders; | |
| ● | our ability to realize the intended benefits of the Merger (as defined below) and our investment in Oravax Medical, Inc.; | |
| ● | the impact of our ability to realize the anticipated tax impact of the Merger; | |
| ● | the outcome of litigation or other proceedings we may become subject to in the future; | |
| ● | delisting of our Common Stock from the Nasdaq; | |
| ● | our availability and ability to continue to obtain sufficient funding to conduct planned research and development efforts and realize potential profits; | |
| ● | our ability to develop and commercialize our product candidates, including MYMD-1, Supera-CBD and other future product candidates; | |
| ● | the impact of the complexity of the regulatory landscape on our ability to seek and obtain regulatory approval for our product candidates, both within and outside of the U.S.; | |
| ● | the required investment of substantial time, resources and effort for successful clinical development and marketization of our product candidates; | |
| ● | challenges we may face with maintaining regulatory approval, if achieved; | |
| ● | the potential impact of changes in the legal and regulatory landscape, both within and outside of the U.S.; | |
| ● | the impact of public health emergencies such as the COVID-19 pandemic on the administration, funding and policies of regulatory authorities, both within and outside of the U.S.; | |
| ● | our dependence on third parties to conduct pre-clinical and clinical trials and manufacture its product candidates; | |
| ● | the impact of public health emergencies such as the COVID-19 pandemic on our results of operations, business plan and the global economy; | |
| ● | challenges we may face with respect to our product candidates achieving market acceptance by providers, patients, patient advocacy groups, third party payors and the general medical community; | |
| ● | the impact of pricing, insurance coverage and reimbursement status of our product candidates; | |
| ● | emerging competition and rapidly advancing technology in our industry; | |
| ● | our ability to obtain, maintain and protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on its proprietary rights; | |
| ● | our ability to maintain adequate cyber security and information systems; | |
| ● | our ability to achieve the expected benefits and costs of the transactions related to the acquisition of Supera Pharmaceuticals, Inc. (“Supera”); | |
| ● | our ability to effectively execute and deliver our plans related to commercialization, marketing and manufacturing capabilities and strategy; | |
| ● | emerging competition and rapidly advancing technology in our industry; | |
| ● | our ability to obtain adequate financing in the future on reasonable terms, as and when we need it; | |
| ● | challenges we may face in identifying, acquiring and operating new business opportunities; | |
| ● | our ability to retain and attract senior management and other key employees; | |
| ● | our ability to quickly and effectively respond to new technological developments; | |
| ● | changes in political, economic or regulatory conditions generally and in the markets in which we operate; and | |
| ● | our compliance with all laws, rules, and regulations applicable to our business. |
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Overview
MyMD Pharmaceuticals, Inc. (Nasdaq: MYMD), is a clinical stage biopharma company developing groundbreaking therapies for the treatment of serious and debilitating autoimmune and inflammatory diseases. MyMD’s lead clinical candidate, MYMD-1®, is an orally available next-generation TNF-α inhibitor with the potential to transform the way that TNF-α based diseases are treated. TNF-α is an immune modulating cytokine whose dysregulation can lead to prolonged inflammatory responses and is known to drive disease in a range of autoimmune and inflammatory disorders. While currently available TNF-alpha inhibitors, all of which are biologics, have improved outcomes, not all patients respond to them, and these inhibitors come with black box warnings around the risk of serious infections leading to hospitalization and death. Additionally, there are no approved oral TNF-α inhibitors.
We believe that MYMD-1®, with its small molecule design, improved safety profile and ability to cross the blood brain barrier, has the promise to provide meaningful therapeutic solutions to patients not served by current TNF-α inhibitors and as a potential therapy for central nervous system (“CNS”) based inflammatory and autoimmune diseases.
We believe that our preclinical data, as well as from independent research laboratories, supports the use of MYMD-1® across a range of serious inflammatory and TNF-α mediated diseases. Results indicate that MYMD-1® treatment almost completely prevented muscle wasting (frailty) and prolonged lifespan in old mice; MYMD-1® exhibited significantly more potent anti-inflammatory effects than Enbrel in a collagen antibody induced arthritis (“CAIA”) model of rheumatoid arthritis (“RA”), the industry standard for evaluating RA therapeutics; MYMD-1® decreased the incidence and severity of disease in an in vivo model of Hashimoto’s thyroiditis, and MYMD-1® improved the course of disease in an in vivo model of multiple sclerosis (“MS”) without causing global immunosuppression or toxicity.
MYMD-1® has also demonstrated its potential to slow the aging process and extend healthy lifespan. In the Phase 1 dose-ranging study of MYMD-1® in healthy volunteers, treatment with MYMD-1® led to a statistically significant decrease in TNF-alpha levels (p-value <0.05) compared to placebo. In the Phase 2 multi-center double-blind, placebo controlled, randomized study (NCT05283486) to investigate the efficacy, tolerability and pharmacokinetics of MYMD-1® in the treatment of chronic inflammation associated with sarcopenia/frailty in participants aged 65 years or older, both primary endpoints were made. MYMD-1® significantly reduced serum levels of three biomarkers: TNF-α (P=0.008), sTNFR1 (P=0.02), and IL-6 (P=0.03) and maintained appropriate plasma concentrations and parameters in pharmacokinetic evaluations. The study also achieved all secondary endpoints related to safety and tolerability with no treatment-emergent adverse events or serious adverse events in the study. We believe that the Phase 2 results support the unique advantages of MYMD-1® as the first oral, selective TNF-α inhibitor candidate and a potential future treatment option for sarcopenia and other autoimmune conditions with large markets such as rheumatoid arthritis.
The U.S. Food and Drug Administration (“FDA”) recently accepted the Company’s Investigational New Drug Application (“IND”) to evaluate the safety, efficacy, pharmacodynamics and pharmacokinetics of oral TNF-α inhibitor MYMD-1® in patients with active RA. The application was based on preclinical data showing that MYMD-1® significantly reduced swelling and other clinical arthritis measures compared to widely used RA therapy, Enbrel® (etanercept). Statistically significant biomarker data from the Phase 2 study in sarcopenia show MYMD-1® has the potential to disrupt the TNF-α inhibitor market and offer therapeutic benefit to patients with a range of chronic inflammatory conditions. The Company plans to initiate discussions with clinical research organization (“CRO”) vendor IQVIA on timing of a Phase 2 study in this indication. Additionally, study results shared at the Society of Toxicology 2023 Annual Meeting comparing MYMD-1® to placebo were very highly significant and showed MYMD-1® reduced histopathological changes and the severity of standard arthritis clinical trial measures. The double-blind, placebo-controlled study will be investigating the efficacy, tolerability, and pharmacokinetics of MYMD-1® in the treatment of participants with RA. Primary endpoints include demonstrating MYMD-1® added to MTX, in participants with moderate-to-severe active RA is effective for reduction of signs and symptoms of rheumatoid arthritis at 12 weeks, and to evaluate the biological activity of MYMD-1® added to methotrexate (“MTX”), in participants with moderate-to-severe active RA.
MyMD plans to present the data to FDA and intends to advance the clinical program for MYMD-1® based on the guidance received by the Agency.
Additionally, MyMD plans to submit annual reports to the Agency for Hashimoto’s Thyroiditis and Sarcopenia. Lastly, MyMD recently completed a reproductive study, A Dose Range-Finding Embryo-fetal Development Study of MYMD-1® by Oral (Gavage) in Rats, with Charles River Laboratories Inc. Results indicate that there were no MYMD-1®-related fetal external malformations or variations.
MyMD’s second therapeutic candidate is Supera-CBD, a novel, synthetic, non-toxic cannabidiol (“CBD”) analog that is 8000 times more potent a cannabinoid type 2 (“CB2”) receptor agonist (activator) than plant-based CBD. The U.S. Drug Enforcement Administration (“DEA”)’s scientific review concluded Supera-CBD will not be considered a controlled substance or listed chemical under the Controlled Substances Act (“CSA”) and its governing regulations or require scheduling during development. In addition to its potential role in managing addiction, anxiety, chronic pain and seizures, Supera-CBD has also been shown to have anti-inflammatory effects.
Our management believes that the Company has built a diversified, high-value IP portfolio and should be able to achieve value-generating milestones using funds currently on hand. MyMD has assembled a leadership team with a proven track record in the discovery, development and clinical evaluation of groundbreaking therapies that transform patient care. MyMD also has collaborations with institutions including the Johns Hopkins University School of Medicine which recently resulted in publication of a preclinical study in Journal of Gerontology: Biological Sciences, showing that MYMD-1® demonstrated four-fold greater improvements than rapamycin in delaying aging and extending the life of mice who began treatment at the human equivalent of 60 years of age.
Closing of the Merger and Reverse Stock Split
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, a New Jersey corporation previously known as Akers Biosciences, Inc., XYZ Merger Sub, Inc. (“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” or “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 (the “Milestone Events”) during the 36-month period immediately following the closing of the Merger (the “Milestone Period”). The Milestone Events and corresponding Milestone Payments are set forth in the table below.
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| Milestone Event | Milestone Payment | |
| Market capitalization of the combined company for at least ten (10) trading days during any 20 consecutive trading day period during the Milestone Period is equal to or greater than $500,000,000 (the “First Milestone Event”). | $20,000,000 | |
| For every $250,000,000 incremental increase in market capitalization of the combined company after the First Milestone Event to the extent such incremental increase occurs for at least 10 trading days during any 20 consecutive trading day period during the Milestone Period, up to a $1,000,000,000 market capitalization of the combined company. | $10,000,000 per each incremental increase (it being understood, however, that, if such incremental increase results in market capitalization equal to $1,000,000,000, such $10,000,000 payment in respect of such incremental increase shall be payable without duplication of any amount payable in respect of a Second Milestone Event, as defined below). | |
| Market capitalization of the combined company for at least 10 trading days during any 20 consecutive trading day period during the Milestone Period is equal to or greater than $1,000,000,000 (the “Second Milestone Event”) | $25,000,000 | |
| For every $1,000,000,000 incremental increase in market capitalization of the combined company after the Second Milestone Event to the extent such incremental increase occurs for at least 10 trading days during any 20 consecutive trading day period during the Milestone Period. | $25,000,000 per each incremental increase |
For purposes of the table above, “market capitalization” means, with respect to any trading day, the product of (i) the total outstanding shares of the combined company Common Stock and (ii) the volume weighted average trading price for the combined company Common Stock for such trading day.
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 own approximately 22.95% of the outstanding equity of the Company.
Effective as of 4:05 pm Eastern Time on April 16, 2021, we filed an amendment to its Amended and Restated Certificate of Incorporation to effect the Reverse Stock Split. As a result of the Reverse Stock Split, immediately following the effective time of the Merger, every two shares of our Common Stock held by a stockholder immediately prior to the Reverse Stock Split were combined and reclassified into one share of our Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Each stockholder who did not have a number of shares evenly divisible pursuant to the Reverse Stock Split ratio and who would otherwise be entitled to receive a fractional share of our Common Stock was entitled to receive an additional share of our Common Stock.
In connection with the closing of the Merger, we changed our name to MyMD Pharmaceuticals, Inc. and our trading symbol on The Nasdaq Capital Market to MYMD. For additional information concerning the Merger, please see Note 3 to the Company’s condensed consolidated financial statements.
At the Company’s annual meeting of stockholders held on July 31, 2023, the stockholders approved a plan to merge the Company with and into a newly formed wholly-owned subsidiary, MyMD Pharmaceuticals, Inc., a Delaware corporation (“MyMD Delaware”), with MyMD Delaware being the surviving corporation, for the purpose of changing the Company’s state of incorporation from New Jersey to Delaware (the “Reincorporation”). As of the date of this Quarterly Report on Form 10-Q, MyMD Delaware has been formed in the State of Delaware and the Company is in the process of completing the Reincorporation.
Reduction in Workforce
During October 2023, the Company implemented a reduction in workforce, eliminating three of the Company’s ten employees. Separated employees were granted a severance package equal to one-quarter of their annual salary and will result in the recognition of $104,000 in personnel expenses in October 2023.
On June 7, 2023, the Company granted the employees options to purchase an aggregate of 230,000 shares of Common Stock with an exercise price of $1.66 per share. As consideration for a waiver and release in their separation agreements, the Company amended the employees’ respective June 7, 2023 option agreements to accelerate vesting of the portion of optioned shares that otherwise would have vested upon the first and second anniversaries of the date of grant. The options have an exercise period of twelve months from the date of separation.
Financial Operations Overview
We will not generate revenue from product sales unless and until we successfully complete clinical development, obtain regulatory approval for, and successfully commercialize our MYMD-1 and Supera-CBD product candidates. The lengthy process of securing marketing approvals for new drugs requires the expenditure of substantial resources. Any significant delay or failure to obtain regulatory approvals would materially adversely affect our product candidate’s development efforts and our business overall. In addition, if we obtain regulatory approval for MYMD-1 and/or Supera-CBD, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.
We anticipate that our expenses will increase significantly as we:
| ● | advance the development of our MYMD-1 and Supera-CBD; | |
| ● | initiate and continue research and preclinical and clinical development of potential new product candidates; | |
| ● | maintain, expand and protect our intellectual property as it pertains to MYMD-1 and Supera-CBD; | |
| ● | expand our infrastructure and facilities to accommodate our growing employee base and ongoing development activities; | |
| ● | establish agreements with contract research organizations, or CROs, and third-party contract manufacturing organizations, or CMOs, in connection with our Supera-CBD preclinical studies, MYMD-1 ongoing and planned clinical trials, Supera-CBD clinical trials and the development of our manufacturing capabilities for MYMD-1 and Supera-CBD; | |
| ● | develop the large-scale manufacturing processes and capabilities for the commercialization of our MYMD-1 and Supera-CBD drug product candidates; | |
| ● | seek marketing approvals for our MYMD-1 and Supera-CBD product candidates that successfully complete clinical trials and | |
| ● | establish a sales, marketing and distribution infrastructure to commercialize MYMD-1 and Supera-CBD should we obtain marketing approval |
As a result of these anticipated expenditures, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.
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Components of our Results of Operations
Revenue
We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our research and development efforts with MYMD-1 and Supera-CBD are successful, we may generate revenue from product sales or through license agreements with third parties.
Operating Expenses
Our operating expenses are broken into several components, including research and development and general and administrative costs.
We expect operating expenses to increase as we progress through the various clinical trials in the development of MYMD-1 and Supera-CBD.
Research and Development
Our research and development expenses primarily consist of costs associated with the development of MYMD-1 and Supera-CBD. These costs include, but are not limited to:
| ● | Salaries, wages and benefits of the research and development staff; | |
| ● | Contractual agreements with third parties including contract research organizations, preclinical activities and clinical trials; | |
| ● | Outside consultants including fees and expenses; | |
| ● | Laboratory supplies and equipment; | |
| ● | Regulatory compliance; and | |
| ● | Patent application and maintenance costs to protect our intellectual property. |
Three of our five employees are principally involved in research and development activities for either MYMD-1 or Supera-CBD. Their salaries, wages and benefits are captured as a component of research and development but not allocated to specific projects.
We utilize third party contractors and consultants with expertise in specific research or development activities to perform work under the supervision of our researchers. We believe this allows us to control costs and to progress through the development cycle and to utilize our staff more efficiently.
It is difficult to project with absolute accuracy the duration or final cost of the development of MYMD-1 and Supera-CBD or if revenue will be generated from the commercialization of these components. The process of achieving regulatory approval is very costly and time consuming. A few of the many factors that contribute to costs of duration include:
| ● | Size and scope of pre-clinical trials; | |
| ● | The phases of clinical development and the stage of our product candidates in the cycle; | |
| ● | Per subject trial costs; | |
| ● | The number of sites required for the trials and the availability of appropriate sites to perform the trials; | |
| ● | The time that is required to enroll the appropriate number of trial participants; and | |
| ● | The time required to achieve the approval of regulatory agencies. |
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General and Administrative
General and administrative expenses primarily consist of salaries, wages and benefits for our employees in the executive, legal and accounting functions and third-party costs for legal, accounting, insurance, investor relations, stock market and board expenses.
Although treated as components of general and administrative expenses, we have chosen to disclose the following significant items separately:
Stock Based Compensation
Stock-based compensation includes the fair market value, as determined by Black-Scholes option pricing model, of stock options issued to key staff and consultants.
Warrant Issuance Expenses
Warrant issuance expenses represent the portion of the fees and offering expenses incurred in connection with the February 2023 Offering (as defined below) attributable to the issuance of the February 2023 Warrants (as defined below).
Other Income (Expense), net
Other income (expense), net consists of interest and dividends earned on our cash, cash equivalents, and investments, gains/(losses) on the sale marketable securities, gains/(losses) on the changes of fair value of equity investments, gains/(losses) on the changes of fair value of warrant liabilities, gains/(losses) on the changes of fair value of derivative liabilities, and an uninsured casualty loss.
Results of Operations
Summary of Statements of Operations for the Three Months Ended September 30, 2023 and 2022
We are focused on developing and commercializing two therapeutic platforms based on well-defined therapeutic targets, MYMD-1 and Supera-CBD. The following table summarized the results of operations for the three months ended September 30, 2023 and 2022.
| For
the Three Months Ended September 30, | ||||||||
| Description | 2023 | 2022 | ||||||
| Operating Expenses | ||||||||
| General and Administrative | $ | 1,334,690 | $ | 1,554,244 | ||||
| Research and Development | 1,912,322 | 1,803,229 | ||||||
| Stock-Based Compensation | 595,576 | 352,417 | ||||||
| Total Operating Expenses | 3,842,588 | 3,709,893 | ||||||
| Loss from Operations | (3,842,588 | ) | (3,709,893 | ) | ||||
| Other Income (Expense), net | 7,885,582 | (16,152 | ) | |||||
| Net Income/(Loss) | $ | 4,042,994 | $ | (3,693,741 | ) | |||
Revenue
We had no revenue from operations during the three months ended September 30, 2023 and 2022.
General and Administrative Expenses
The table below summarizes our general and administrative expenses for the three months ended September 30, 2023 and 2022:
| For
the Three Months Ended September 30, | ||||||||
| Description | 2023 | 2022 | ||||||
| Personnel Costs | $ | 337,948 | $ | 331,647 | ||||
| Professional Service Costs | 351,430 | 549,321 | ||||||
| Stock Market & Investor Relations Costs | 257,740 | 209,959 | ||||||
| Other Administrative Costs | 387,572 | 463,317 | ||||||
| Total General and Administrative Expenses | $ | 1,334,690 | $ | 1,554,244 | ||||
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Personnel costs increased $6,301 during the three months ended September 30, 2023. Certain salaries, bonuses and related payroll expenses are allocated to the appropriate department based upon the employee’s responsibilities.
Professional services costs decreased $197,891 during the three months ended September 30, 2023. These costs included legal and accounting and specialized consulting services regularly incurred in the normal course of business. The decrease is primarily related to a decrease in fees for legal and general consulting services.
Stock market and investor relations costs increased $47,781 during the three months ended September 30, 2023. These costs include the annual Nasdaq listing fees, activities related to keeping the shareholder base informed through press releases, presentations and other communication efforts and the costs of annual shareholder meetings. The increase is primarily due to the costs associated with the 2023 annual shareholder meeting.
Other administrative expenses decreased $75,745 during the three months ended September 30, 2023. These costs include Board expenses, business insurance, corporate travel and other general operating expenses. The decrease is associated with a reduction in business insurance expenses and smaller decreases across a range of administrative expense categories.
Stock-Based Compensation
For the three months ended September 30, 2023 and 2022, we recognized $595,576 and $352,417 for stock-based compensation for options issued during 2022 and 2023.to directors, officers and key staff members.
Warrant Issuance Expenses
There were no warrant issuance expenses for the three months ended September 30, 2023 and 2022.
Research and Development Expenses
The table below summarizes our research and development expenses for the three months ended September 30, 2023 and 2022:
| For
the Three Months Ended September 30, | ||||||||
| Description | 2023 | 2022 | ||||||
| Salaries and Wages | $ | 575,772 | $ | 416,739 | ||||
| Development Programs | 1,153,178 | 556,265 | ||||||
| Professional Services | 95,010 | 97,254 | ||||||
| Regulatory Expenses | 12,684 | 732,971 | ||||||
| Other Research and Development Expenses | 75,678 | - | ||||||
| Total Research and Development Expenses | $ | 1,912,322 | $ | 1,803,229 | ||||
Salaries and wages increased $159,033 during the three months ended September 30, 2023. During the three months ended September 30, 2023, a salary was adjusted for a key employee retroactively to January 1, 2023. Certain salaries, bonuses and related payroll expenses are allocated to the appropriate department based upon the employee’s responsibilities.
Development program costs include those associated with pre-clinical development, clinical trials and other material and development programs. Costs increased $596,911 during the three months ended September 30, 2023 primarily due to the completion of the Phase II study for Sarcopenia and the preparation of the results data.
Professional services costs decreased $2,244 during the three months ended September 30, 2023. These costs are primarily related to consulting services not related to a specific development program and legal and maintenance fees associated with the protection of our intellectual property.
Regulatory expenses decreased $720,287 during the three months ended September 30, 2023. These expenses are allocated to specific development programs during the three months ended September 30, 2023 and are now included in the Development Programs total described above. During the three months ended September 30, 2022 regulatory expenses included clinical research organizations (CRO) and regulatory consulting fees associated with the Phase II clinical study design, protocol preparation and the maintenance of the investigator brochures for the Rheumatoid Arthritis trial.
Other research and development expenses increased $75,678 during the three months ended September 30, 2023. These expenses include laboratory supplies, training and travel for department personnel while working with third-party trial sites. The increase during the three months ended September 30, 2023 is primarily related to expenses for shipping costs and travel.
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Other Income and Expense
The table below summarizes our other income and expenses for the three months ended September 30, 2023 and 2022:
| For
the Three Months Ended September 30, | ||||||||
| Description | 2023 | 2022 | ||||||
| Interest and Dividend Income | $ | (139,056 | ) | $ | (15,453 | ) | ||
| Loss on Sale of Marketable Securities | 500 | 1,200 | ||||||
| Gain on changes in fair value of Marketable Securities | (2,324 | ) | (1,899 | ) | ||||
| Gain on changes in fair value of Derivative Liabilities | (2,566,900 | ) | - | |||||
| Gain on changes in fair value of Warrant Liabilities | (5,356,000 | ) | - | |||||
| Casualty Loss | 178,198 | - | ||||||
| Total Other (Income)/Expense | $ | (7,885,582 | ) | $ | (16,152 | ) | ||
Other income, net of expenses, totaled $7,885,582 for the three months ended September 30, 2023, and other income, net of expenses, totaled $16,152 for the three months ended September 30, 2022.
During the three months ended September 30, 2023 and 2022 interest and dividend income totaled $139,056 and 15,453. The changes in fair value of our marketable securities and realized losses from the sale of marketable securities were primarily the result of rising interest rates and the availability of cash for investments.
During the three months ended September 30, 2023, we recorded a gain of $2,566,900 related to the change in fair value of the derivative liabilities. We estimated the $898,100 fair value of the bifurcated embedded derivative at September 30, 2023 using a Monte Carlo simulation model, with the following inputs: the fair value of our common stock of $0.59 on the valuation date, estimated equity volatility of 130.0%, estimated traded volume volatility of 120.0%, the time to maturity of 0.75 year, a discounted market interest rate of 5.49%, dividend rate of 10.0%, a penalty dividend rate of 15.0%, and probability of default of 8.2%.
During the three months ended September 30, 2023, we recorded a gain of $5,356,000 related to the change in fair value of the warrant liabilities. The fair value of the Warrants of approximately $2,457,000 was estimated at September 30, 2023 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 4.40 years; equity volatility of 115.0%; and a risk-free interest rate of 4.66%.
For the three months ended September 30, 2023, we identified a casualty loss of $178,198 related to wire fraud due to a compromised electronic mail account. This incident occurred on May 17, 2023 and was discovered on July 20, 2023 when the vendor notified us of a delinquent invoice. We filed an insurance claim with our carrier on November 9, 2023 and an investigation is pending. During the nine months ended September 30, 2022, we recovered $4,442 from a financial institution involved in an October, 2021 incident.
Summary of Statements of Operations for the Nine Months Ended September 30, 2023 and 2022
We are focused on developing and commercializing two therapeutic platforms based on well-defined therapeutic targets, MYMD-1 and Supera-CBD. The following table summarized the results of operations for the nine months ended September 30, 2023 and 2022.
| For
the Nine Months Ended September 30, | ||||||||
| Description | 2023 | 2022 | ||||||
| Operating Expenses | ||||||||
| General and Administrative | $ | 4,202,594 | $ | 4,296,119 | ||||
| Research and Development | 4,907,196 | 6,596,942 | ||||||
| Stock-Based Compensation | 2,341,915 | 581,663 | ||||||
| Warrant Issuance Expenses | 762,834 | - | ||||||
| Total Operating Expenses | 12,214,539 | 11,474,724 | ||||||
| Loss from Operations | (12,214,539 | ) | (11,474,724 | ) | ||||
| Other Income (Expense), net | 10,578,148 | (22,906 | ) | |||||
| Net Loss | $ | (1,636,391 | ) | $ | (11,451,818 | ) | ||
Revenue
We had no revenue from operations during the nine months ended September 30, 2023 and 2022.
General and Administrative Expenses
The table below summarizes our general and administrative expenses for the nine months ended September 30, 2023 and 2022:
| For
the Nine Months Ended September 30, | ||||||||
| Description | 2023 | 2022 | ||||||
| Personnel Costs | $ | 1,022,522 | $ | 994,219 | ||||
| Professional Service Costs | 799,320 | 1,232,703 | ||||||
| Stock Market & Investor Relations Costs | 667,101 | 727,975 | ||||||
| Other Administrative Costs | 1,713,651 | 1,341,222 | ||||||
| Total General and Administrative Expense | $ | 4,202,594 | $ | 4,296,119 | ||||
Personnel costs increased $28,303 during the nine months ended September 30, 2023. A salary was adjusted retroactively to January 1, 2023 for a corporate officer. Certain salaries, bonuses and related payroll expenses are allocated to the appropriate department based upon the employee’s responsibilities.
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Professional services costs decreased $433,383 during the nine months ended September 30, 2023. These costs included legal and accounting and specialized consulting services regularly incurred in the normal course of business. The decrease is primarily related to a decrease in the use of outside consultants, reduced fees for accounting services related to our annual audit and quarterly reviews and a reduction in legal expenses.
Stock market and investor relations costs decreased $60,874 during the nine months ended September 30, 2023. These costs include the annual Nasdaq listing fees, activities related to keeping the shareholder base informed through press releases, presentations and other communication efforts and the costs of annual shareholder meetings. The decrease is associated with the elimination of several investor relations programs that were not performing as expected during 2022.
Other administrative expenses increased $372,429 during the nine months ended September 30, 2023. These costs include Board expenses, business insurance, corporate travel and other general operating expenses. The increase is associated with a reimbursement of expenses to a related party as authorized by the Board of Directors in April 2023.
Stock-Based Compensation
For the nine months ended September 30, 2023 and 2022, we recognized $2,341,915 and $581,663 for stock-based compensation for options issued during 2022 and 2023.to directors, officers, key staff members and external consultants.
Warrant Issuance Expenses
During the nine months ended September 30, 2023, we issued February 2023 Warrants to purchase up to 6,651,885 shares of Common Stock in connection with the February 2023 Offering. The portion of the fees and offering expenses incurred in connection with the February 2023 Offering attributable to the issuance of the February 2023 Warrants totaled $762,834.
There were no warrant issuance expenses for the nine months ended September 30, 2022.
Research and Development Expenses
The table below summarizes our research and development expenses for the nine months ended September 30, 2023 and 2022:
| For
the Nine Months Ended September 30, | ||||||||
| Description | 2023 | 2022 | ||||||
| Salaries and Wages | $ | 1,365,490 | $ | 843,933 | ||||
| Development Programs | 3,148,782 | 2,782,561 | ||||||
| Professional Services | 231,634 | 108,680 | ||||||
| Regulatory Expenses | 19,784 | 2,852,145 | ||||||
| Other Research and Development Expenses | 141,506 | 9,623 | ||||||
| Total Research and Development Expenses | $ | 4,907,196 | $ | 6,596,942 | ||||
Salaries and wages increased $521,557 during the nine months ended September 30, 2023. A salary was adjusted retroactively to January 1, 2023 for a corporate officer and bonuses were awarded to key employees.
Development program costs include those associated with pre-clinical development, clinical trials and other material and development programs. Costs increased $366,221 during the nine months ended September 30, 2023 primarily due to the completion of the Phase II study for Sarcopenia and the preparation of the results data.
Professional services costs increased $122,954 during the nine months ended September 30, 2023. These costs are primarily related to consulting services not related to a specific development program and legal and maintenance fees associated with the protection of our intellectual property.
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Regulatory expenses decreased $2,832,3631 during the nine months ended September 30, 2023. These expenses are allocated to specific development programs during the three months ended September 30, 2023 and are now included in the Development Programs total described above. During the nine months ended September 30, 2022 regulatory expenses included clinical research organizations (CRO) and regulatory consulting fees associated with the Phase II clinical study design, protocol preparation and the maintenance of the investigator brochures for the Rheumatoid Arthritis trial.
Other research and development expenses increased $131,883 during the nine months ended September 30, 2023. These expenses include laboratory supplies, training and travel for department personnel while working with third-party trial sites. The increase during the nine months ended September 30, 2023 is primarily related to expenses for freight, seminars and travel.
Other Income and Expense
The table below summarizes our other income and expenses for the nine months ended September 30, 2023 and 2022:
| For
the Three Months Ended September 30, | ||||||||
| Description | 2023 | 2022 | ||||||
| Interest and Dividend Income | $ | (339,731 | ) | $ | (21,559 | ) | ||
| Loss on Sale of Marketable Securities | 714 | 4,849 | ||||||
| Loss on changes in fair value of Marketable Securities | 371 | (1,754 | ) | |||||
| Loss on changes in fair value of Derivative Liabilities | (2,251,700 | ) | - | |||||
| Gain on changes in fair value of Warrant Liabilities | (8,166,000 | ) | - | |||||
| Casualty Loss/(Gain) | 178,198 | (4,442 | ) | |||||
| Total Other (Income), net of expenses | $ | (10,578,148 | ) | $ | (22,906 | ) | ||
Other income, net of expenses, totaled $10,578,148 and $22,906 for the nine months ended September 30, 2023 and 2022.
During the nine months ended September 30, 2023 interest and dividend income, the changes in fair value of our investments and realized losses from the sale of investments were primarily the result of rising interest rates and the increased availability of cash for investments.
During the three months ended September 30, 2023, we recorded a gain of $2,251,700 related to the change in fair value of the derivative liabilities. We estimated the $898,100 fair value of the bifurcated embedded derivative at September 30, 2023 using a Monte Carlo simulation model, with the following inputs: the fair value of our common stock of $0.59 on the valuation date, estimated equity volatility of 130.0%, estimated traded volume volatility of 120.0%, the time to maturity of 0.75 year, a discounted market interest rate of 5.49%, dividend rate of 10.0%, a penalty dividend rate of 15.0%, and probability of default of 8.2%.
During the three months ended September 30, 2023, we recorded a gain of $8,166,000 related to the change in fair value of the warrant liabilities. The fair value of the Warrants of approximately $2,457,000 was estimated at September 30, 2023 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 4.40 years; equity volatility of 115.0%; and a risk-free interest rate of 4.66%.
For the nine months ended September 30, 2023, we identified a casualty loss of $178,198 related to wire fraud due to a compromised electronic mail account. This incident occurred on May 17, 2023 and was discovered on July 20, 2023 when the vendor notified us of a delinquent invoice. We filed an insurance claim with our carrier on November 9, 2023 and an investigation is pending. During the nine months ended September 30, 2022, we recovered $4,442 from a financial institution involved in an October, 2021 incident.
Liquidity and Capital Resources
As of September 30, 2023, the Company’s cash on hand was $298,318 and marketable securities were $8,174,283. The Company has incurred a net loss from operations of $1,636,391 for the nine months ended September 30, 2023. As of September 30, 2023, the Company had working capital of $4,040,337 and stockholders’ equity of $15,500,682 including an accumulated deficit of $97,085,475. During the nine months ended September 30, 2023, cash flows used in operating activities were $11,047,995 consisting primarily of a net loss of $1,636,391, an increase in prepaid expenses of $697,691, a reduction in trade and other payables of $639,381 and a non-cash change in the fair value of the warrant and derivative liabilities of $10,417,700 offset by non-cash stock based compensation of $2,341,915. Since its inception, the Company has met its liquidity requirements principally through the sale of its Common Stock, Preferred Stock and warrants in public and private placements.
Holders of the Company’s Series F Preferred Shares (as defined below) are entitled to certain dividends and amortization payments as described in the section titled “Series F Preferred Shares” below. Each payment may be made in cash or, at the Company’s option and subject to certain conditions, either in shares of Common Stock in an amount based on the Conversion Price (as defined below) in effect at the time that such payment is due or in a combination of cash and shares of Common Stock. If the Company elects to make all payments to the holders of the Series F Preferred Shares that fall due within the twelve-month period following September 30, 2023 in cash, the Company estimates that it will pay to the holders of the Series F Preferred Shares up to $14.3 million, assuming that a Triggering Event (as defined in the Certificate of Designation) has not occurred. The dividend rate is subject to adjustment, and the actual amount due to the holders of the Series F Preferred Shares may exceed such amount. If the Company elects to make all such payments in shares of Common Stock, based on the Conversion Price of $2.255 per share of Common Stock in effect as of September 30, 2023 and 9,859 shares of Series F Preferred Stock outstanding as of September 30, 2023, the Company estimates that it will issue to the holders of the Series F Preferred Shares up to 4.4 million shares of Common Stock. The Conversion Price is subject to adjustment, including based on the market price of the Company’s Common Stock during the thirty trading day period immediately prior to the date on which a payment is due to the holders of the Series F Preferred Shares, and the actual number of shares issuable to the holders of the Series F Preferred Shares may exceed such number. For more information regarding payments due to the holders of the Series F Preferred Shares, see the section titled “Series F Preferred Shares” below.
Management has evaluated the Company’s current cash requirements for operations in conjunction with management’s strategic plan and believes that the Company’s current financial resources as of the date of the issuance of these condensed consolidated financial statements, are sufficient to fund its current operating budget and contractual obligations as of September 30, 2023 as they fall due within the next twelve-month period, alleviating any substantial doubt raised by the Company’s historical operating results and satisfying its estimated liquidity needs for twelve months from the issuance of these condensed consolidated financial statements.
In November 2023, we amended the employment agreements of certain executive officers. We also reduced the overall compensation paid to the Company’s directors and entered into a mutual employment separation agreement with one executive officer. For more information, see Part II, Item 5 below.
Operating Activities
During the nine months ended September 30, 2023, cash flows used in operating activities were $11,047,995 consisting primarily of a net loss of $1,636,391, an increase in prepaid expenses of $697,691, a reduction in trade and other payables of $639,381 and a non-cash change in the fair value of the warrant and derivative liabilities of $10,417,700 offset by non-cash stock based compensation of $2,341,915.
Our net cash used by operating activities totaled $10,021,664 during the nine months ended September 30, 2022. Net cash used consisted principally of the net loss of $11,451,818 partially offset by non-cash stock based compensation of $581,663 and an increase in trade and other payables of $730,683.
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Investing Activities
Our net cash used in investing activities totaled $4,088,466 for the nine months ended September 30, 2023 as compared to cash provided by investing activities totaling $4,225,595 during the nine months ended September 30, 2022. During the nine months ended September 30, 2023 we purchased securities totaling $13,338,466 and sold securities totaling $9,250,000. During the nine months ended September 30, 2022 we purchased securities totaling $4,774,405 and sold securities totaling $9,000,000.
Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2023 was $14,685,689, which consisted of the net proceeds from the sale of the Series F Preferred Shares, net of offering costs. Net cash provided by financing activities during the nine months ended September 30, 2022 was $5,550,028.
August 2022 Offering
On August 15, 2022, we entered into a securities purchase agreement (the “August 2022 SPA”) with certain accredited and institutional investors pursuant to which we agreed to issue 1,411,764 shares of Common Stock (the “August 2022 Shares”) in a registered direct offering and unregistered warrants to purchase up to an aggregate of 1,411,764 shares of Common Stock in a concurrent private placement (the “August 2022 Warrants”). The August 2022 Warrants have an exercise price of $5.25 per share, became exercisable six months following the date of issuance and have a term of exercise equal to five years from the initial exercise date. We received net proceeds from the sale of the August 2022 Shares and the August 2022 Warrants, after deducting fees and other estimated offering expenses payable by the Company, of approximately $5.5 million. As of September 30, 2023, none of the August 2022 Warrants have been exercised and 1,411,764 of the August 2022 Warrants remain outstanding.
February 2023 Offering
On February 21, 2023, we entered into a Securities Purchase Agreement (the “February 2023 SPA”) with certain accredited investors, pursuant to which we agreed to sell in a registered direct offering (the “February 2023 Offering”) (i) an aggregate of 15,000 shares (the “Series F Preferred Shares”) of our newly-designated Series F Convertible Preferred Stock, with a stated value of $1,000 per Preferred Share and without par value (the “Series F Preferred Stock”), convertible into shares of Common Stock (the “Series F Conversion Shares”) pursuant to the terms of the Certificate of Designations of the Series F Preferred Stock (the “Certificate of Designation”), and (ii) 6,651,885 warrants (the “February 2023 Warrants”) to acquire up to an aggregate of 6,651,885 shares of Common Stock, subject to adjustment (the “February 2023 Warrant Shares”). The Conversion Price (as defined below) is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Conversion Price (subject to certain exceptions).
At closing, we received net proceeds from the February 2023 Offering of approximately $13.9 million, after deducting various fees and expenses. We intend to use the net proceeds from this offering for general corporate purposes.
Series F Preferred Shares
The terms of the Series F Preferred Shares are as set forth in the form of Certificate of Designation. The Series F Preferred Shares are convertible into the Conversion Shares at the election of the holder at any time at an initial conversion price of $2.255 (the “Conversion Price”). The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). The Company is required to redeem the Series F Preferred Shares in 12 equal monthly installments, commencing on July 1, 2023. The amortization payments due upon such redemption are payable, at the company’s election, in cash, or subject to certain limitations, in shares of Common Stock valued at the lower of (i) the Conversion Price then in effect and (ii) the greater of (A) 80% of the average of the three lowest closing prices of the Company’s Common Stock during the thirty trading day period immediately prior to the date the amortization payment is due or (B) a “Floor Price” of $0.22 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Stock Market. The Company may require holders to convert their Series F Preferred Shares into Conversion Shares if the closing price of the Common Stock exceeds $6.765 per share (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) for 20 consecutive trading days and the daily dollar trading volume of the Common Stock exceeds $3,000,000 per day during the same period and certain equity conditions described in the Certificate of Designation are satisfied.
The holders of the Series F Preferred Shares are entitled to dividends of 10% per annum, compounded monthly, which are payable in cash or shares of Common Stock at the Company’s option, in accordance with the terms of the Certificate of Designation. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Certificate of Designation), the Series F Preferred Shares will accrue dividends at the rate of 15% per annum. In connection with a Triggering Event, each holder of Series F Preferred Shares will be able to require the Company to redeem in cash any or all of the holder’s Series F Preferred Shares at a premium set forth in the Certificate of Designation. Upon conversion or redemption, the holders of the Series F Preferred Shares are also entitled to receive a dividend make-whole payment. The holders of Series F Preferred Shares have no voting rights on account of the Series F Preferred Shares, other than with respect to certain matters affecting the rights of the Series F Preferred Shares. During the three and nine months ending September 30, 2023, the Company recorded dividends totaling $1,158,051 and 1,690,180, which are reported as Preferred Stock Dividends on the Condensed Consolidated Statement of Comprehensive Income (Loss).
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The Company is subject to certain affirmative and negative covenants regarding the incurrence of indebtedness, acquisition and investment transactions, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends (other than dividends pursuant to the Certificate of Designation), distributions or redemptions, and the transfer of assets, among other matters. There is no established public trading market for the Series F Preferred Shares and the Company does not intend to list the Series F Preferred Shares on any national securities exchange or nationally recognized trading system.
February 2023 Warrants
The February 2023 Warrants are exercisable immediately upon issuance at an exercise price of $2.255 per share (the “Exercise Price”) and expire five years from the date of issuance. The Exercise Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Exercise Price (subject to certain exceptions). Upon any such price-based adjustment to the Exercise Price, the number of Warrant Shares issuable upon exercise of the Warrants will be increased proportionately. There is no established public trading market for the February 2023 Warrants and the Company does not intend to list the February 2023 Warrants on any national securities exchange or nationally recognized trading system.
Nasdaq Stockholder Approval
Our ability to issue Series F Conversion Shares and February 2023 Warrant Shares using shares of Common Stock is subject to certain limitations set forth in the Certificate of Designation and the February 2023 Warrants, including certain beneficial ownership limitations. When the Series F Preferred Shares and the February 2023 Warrants were issued, we were restricted from issuing Series F Conversion Shares and February 2023 Warrant Shares in excess of 19.99% of the shares of Common Stock outstanding as of the date immediately prior to the issuance of the Series F Preferred Shares and the February 2023 Warrants (the “Issuable Maximum”) until the Company obtained stockholder approval for the issuance of shares of Common Stock in excess of the Issuable Maximum (“Stockholder Approval”). The Company received the Stockholder Approval on July 31, 2023.
Critical Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, costs and expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our condensed consolidated financial statements are prepared. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.
Except as noted below, our critical accounting estimates have not changed materially from those previously reported in our Annual Report for the year ended December 31, 2022, on Form 10-K.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging.” If liability accounting is required, the Company’s derivative instruments are recorded at fair value at the issuance date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within twelve (12) months of the balance sheet date.
The Company has determined that the Series F Convertible Preferred Stock warrants are derivatives that are required to be accounted for as liabilities. The Company has also determined that the following embedded features in the preferred stock are not clearly and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption event, 2) make-whole interest upon a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in the Certificate of Designation), and 4) variable share-settled installment conversion and as such are bifurcated from the preferred stock and accounted for as liabilities. The fair value of the warrants and embedded features are estimated using internal valuation models. The Company’s valuation models utilize inputs and other assumptions and may not be reflective of the price at which they can be settled.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rule 13a-15(c) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we are a party to litigation and subject to claims incident to the ordinary course of business. Future litigation may be necessary to defend ourselves and our customers by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights. For a description of certain legal proceedings, please read Note 7 to the interim condensed consolidated financial statements, which information is incorporated herein by reference.
Item 1A. Risk Factors
The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our Annual Report for the year ended December 31, 2022 on Form 10-K, as filed with the SEC on March 31, 2023. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price.
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.
We do not satisfy all continued listing requirements of Nasdaq. There can be no assurance that we will be able to comply with the continued listing requirements of Nasdaq.
As previously disclosed, on October 11, 2023, we received a written notice (the “Notice”) from the Listing Qualifications Department of the Nasdaq Stock Market indicating that for the last 30 consecutive business days, the bid price for our Common Stock had closed below the minimum $1.00 per share requirement for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Notice had no immediate effect on the listing of our Common Stock and our Common Stock will continue to be listed on Nasdaq under the symbol “MYMD.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until April 8, 2024, to regain compliance with the Minimum Bid Price Requirement. If at any time before April 8, 2024, the bid price of our Common Stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, Nasdaq will provide us with a written confirmation of compliance with the Minimum Bid Price Requirement.
If we do not regain compliance with the Minimum Bid Price Requirement by April 8, 2024, we may be eligible for an additional 180-day compliance period, provided that on the 180th day of the first compliance period we meet the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on Nasdaq, with the exception of the Minimum Bid Price Requirement, and notifies Nasdaq of our intent to cure the deficiency with the Minimum Bid Price Requirement during the second compliance period by effecting a reverse stock split, if necessary. If we do not regain compliance with the Minimum Bid Price Requirement when required, Nasdaq will provide written notification to us that our Common Stock is subject to delisting. In the event of such a notification, the Company may appeal the Nasdaq staff’s determination to delist its securities.
We intend to actively monitor the bid price for our Common Stock between now and April 8, 2024, and will consider our available options to regain compliance with the Minimum Bid Price Requirement. There can be no assurance that we will regain compliance with the Minimum Bid Price Requirement or maintain compliance with any of the other Nasdaq continued listing requirements.
If Nasdaq delists our shares of Common Stock or warrants from trading on its exchange for failure to meet Nasdaq’s listing requirements, we and our stockholders could face significant material adverse consequences including:
| ● | a limited availability of market quotations for our securities; | |
| ● | reduced liquidity for our securities; | |
| ● | a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; | |
| ● | a limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position.
Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We will primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies or processes. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose proprietary technologies and processes, despite efforts by the us to protect our proprietary technologies and processes. While we hold rights in several patents, there can be no assurances that any additional patents will be issued, or additional rights will be granted, to us. Even if new patents are issued, the claims allowed may not be sufficiently broad to adequately protect our technology and processes. Our competitors may also be able to develop similar technology independently or design around the patents to which we have rights.
Currently, MyMD has 16 issued U.S. patents, 63 foreign patents, three pending U.S. patent applications and 11 foreign patent applications pending in such jurisdictions as Australia, Canada, China, European Union, Israel, Japan and South Korea, which if issued are expected to expire between 2036 and 2041. Although we expect to obtain additional patents and in-licenses in the future, there is no guarantee that we will be able to successfully obtain such patents or in-licenses in a timely manner or at all. Further, any of our rights to existing patents, and any future patents issued to us, may be challenged, invalidated or circumvented. As such, any rights granted under these patents may not provide us with meaningful protection. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. If our patents or rights to patents do not adequately protect our technology or processes, competitors may be able to offer products similar to our products.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
There were no unregistered sales of the Company’s equity securities during the three months ended September 30, 2023, other than those previously reported in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information.
Executive Officer Contract Amendments and Separations
Effective November 13, 2023, the Company entered into an amendment to the employment agreement of Dr. Chris Chapman, its President and Chief Medical Officer, providing for Dr. Chapman’s annual base salary to be adjusted from five hundred thousand dollars ($500,000) (the “Full Base Salary”) to two hundred fifty thousand dollars ($250,000) in cash per annum, until payment of the Full Base Salary would no longer jeopardize the Company’s ability to continue as a going concern, as determined by the Company in its sole discretion. The amendment further provides that the remaining $250,000 of base salary per annum (the “Deferral Amount”) shall be deferred until payment of the Deferral Amount would no longer jeopardize the Company’s ability to continue as a going concern, as determined by the Company in its sole discretion, at which time the Deferral Amount may be paid, at Dr. Chapman’s election, in shares of Common Stock or in cash.
In connection with an overall reduction in compensation paid to the Company’s directors implemented in November 2023, effective November 13, 2023, the Company entered into an amendment to the employment agreement of Christopher C. Schreiber, a Director and the Company’s former Executive Chairman, providing for Mr. Schreiber’s annual fee to be adjusted from three hundred thousand dollars ($300,000) (the “Full Fee”) to sixty thousand dollars ($60,000) in cash per annum, until payment of his Full Fee would no longer jeopardize the Company’s ability to continue as a going concern, as determined by the Company in its sole discretion. The amendment further provides that the remaining $240,000 of the fees per annum (the “Fee Deferral Amount”) shall be deferred until payment of the Fee Deferral Amount would no longer jeopardize the Company’s ability to continue as a going concern, as determined by the Company in its sole discretion, at which time the Fee Deferral Amount may be paid, at Mr. Schreiber’s election, in shares of Common Stock or in cash. The amendment also clarified that Mr. Schreiber’s title is “Director.”
Effective November 13, 2023, the Company entered into a mutual employment separation agreements with Paul M. Rivard, its Chief Legal Officer. The separation agreement provides for a lump-sum severance payment equal to three months of his normal base salary in exchange for a waiver and release. The separation agreement further provides that Mr. Rivard will be deemed a contractor providing services to the Company for purposes of any awards previously granted to him under the 2021 Plan if at the relevant time(s) he is providing services to the Company while under the employ of a law firm representing the Company.
Effective November 13, 2023, the Company entered into an amendment to the employment agreement of Dr. Adam Kaplin, its Chief Scientific Officer, providing that Dr. Kaplin’s employment shall have an initial term of four months, which the parties may mutually agree to extend for additional consecutive terms of one month each. The amendment further provides that, in the event of a termination without cause by the Company prior to the end of the initial term, Dr. Kaplin shall receive his monthly base salary through the end of the initial term. The amendment further provides that all outstanding and unvested shares granted pursuant to the Nonqualified Stock Option Agreement, dated June 7, 2023, between the Company and Dr. Kaplin shall accelerate upon the termination of Dr. Kaplin’s employment. Dr. Kaplin’s amendment further provides that, in the event of a termination without cause for any reason prior to the end of the first renewal term following the end of the initial term, the Company will continue to cover the costs of Dr. Kaplin’s health insurance coverage through the end of the first renewal term, subject to the execution and timely return of a release.
Item 6. Exhibits.
+ Filed herewith
# Management contract or compensatory plan or arrangement
** The schedules and exhibits to the Agreement and Plan of Merger and Reorganization have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
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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.
| MYMD PHARMACEUTICALS, INC. | ||
| Date: November 14, 2023 | By: | /s/ Chris Chapman |
| Name: | Chris Chapman | |
| Title: | President, Chief Medical Officer, and Director | |
| (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Ian Rhodes |
| Name: | Ian Rhodes | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) | ||
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