UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to _______________
Commission
file number:
(Exact name of registrant as specified in Its Charter)
(State of other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTCQB Venture Marketplace (“OTCQB”) |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b 2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act). Yes ☐
As of May 20, 2022, there were shares of Common Stock, $0.001 par value outstanding.
Table of Contents
| i |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate,” “strategy,” “future,” “likely” or the negative thereof or other variations thereon or other comparable terminology. All statements other than statements of historical facts included in this Form 10-Q regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding: expectations for revenues, cash flows and financial performance and the anticipated results of our ongoing development and business strategies.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, but are not limited to, the following:
| ● | the success, cost and timing of our clinical development of our products, including the progress of, and results from, our preclinical and | |
| ● | clinical trials of StemPrintER and SPARE products, our discovery programs and other potential product candidates; | |
| ● | our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations or warnings in the label of any of our product candidates, if approved; | |
| ● | our ability to compete with companies currently marketing or engaged in the development of treatments for indications that our product candidates are designed to target; | |
| ● | our plans to pursue research and development of other future product candidates; | |
| ● | the potential advantages of our product candidates and those being developed; | |
| ● | the rate and degree of market acceptance and clinical utility of our product candidates; | |
| ● | the success of our collaborations and partnerships with third parties; | |
| ● | our estimates regarding the potential market opportunity for our product candidates; | |
| ● | our sales, marketing and distribution capabilities and strategy; | |
| ● | our ability to establish and maintain arrangements for manufacture of our product candidates; | |
| ● | our intellectual property position; | |
| ● | our expectations related to the use of capital; | |
| ● | the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future clinical trials; | |
| ● | our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; | |
| ● | the impact of government laws and regulations; and | |
| ● | our competitive position. |
The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking statements.
This report also contains or may contain estimates, projections and other information concerning our industry and our business, including data regarding the estimated size of our markets and their projected growth rates. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, studies and similar data prepared by third parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.
Unless otherwise stated or the context otherwise requires, the terms “AccuStem” “we,” “us,” “our” and the “Company” refer collectively to AccuStem and, where appropriate, its subsidiaries.
| ii |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information which are the accounting principles that are generally accepted in the United States of America and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the interim periods presented.
The results for the period ended March 31, 2022 are not necessarily indicative of the results of operations for the full year. These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our audited consolidated financial statements for the fiscal years December 31, 2021 and 2020 included in our annual report on Form 10-K filed with the US. Securities and Exchange Commission (the “SEC”) on April 18, 2022.
| 1 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (Unaudited) | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Related party receivable | ||||||||
| Total Current Assets | ||||||||
| Equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Account payable | $ | $ | ||||||
| Related party payable | ||||||||
| Accrued expenses | ||||||||
| Total Current Liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock $ par value; shares authorized; issued and outstanding | ||||||||
| Common stock $ par value; shares authorized; and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Related party subscription receivable | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| OPERATING EXPENSES | ||||||||
| Research and development expenses | $ | $ | ||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| LOSS, BEFORE TAX | ( | ) | ( | ) | ||||
| Income tax benefit (expense) | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ||||
| Weighted average common shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Translation adjustments | ||||||||
| COMPREHENSIVE (LOSS) INCOME | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional | Related Party | Accumulated Other | |||||||||||||||||||||||||
Number of Shares | Amount | Paid-in Capital | Subscription Receivable | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | |||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | | $ | ( | ) | $ | | ||||||||||||||||
| Common Stock | Additional | Related Party | Accumulated Other | |||||||||||||||||||||||||
Number of Shares | Amount | Paid-in Capital | Subscription Receivable | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Share-based compensation | — | |||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||
| Receipt of subscription receivable | — | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Shared-based compensation | ||||||||
| Foreign currency translation | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Related party receivable | ||||||||
| Accounts payable | ( | ) | ||||||
| Related party payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
| CASH FLOWS USED FROM INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from the issuance of common stock | ||||||||
| Proceeds from receipt of subscription receivable | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET CHANGE IN CASH | ||||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
AccuStem Sciences Inc. and its subsidiary (“the Company”) was incorporated on July 28, 2021, in Delaware, United States. The Company is an early-stage life sciences company committed to developing and commercializing novel products for the treatment and management of many cancers. The principal activities of the Company are that of a genomics-based personalized medicine business, particularly focused on breast cancer patients.
The consolidated position of the Company is a result of the demerger of the legal entity StemPrintER Sciences Limited (“StemPrintER”) from Tiziana Life Sciences plc (“Tiziana”) by AccuStem Sciences Limited (“Limited”) on October 30, 2020. Limited was incorporated on June 5, 2020. On March 12, 2021 and further amended on May 7, 2021 and June 1, 2021, Limited filed a registration statement on Form 20-F with the US Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, to effect the demerger transaction. The registration statement was declared effective on July 1, 2021. The transaction is as detailed in the steps below:
In
September 2020, Tiziana transferred all the ownership rights and intellectual property relating to StemPrintER along with a commitment
to pay $
On
October 5, 2020, Limited entered into an agreement with Tiziana to acquire the outstanding shares of StemPrintER, including the ownership
rights and intellectual property relating to the StemPrintER project, the SPARE project and cash receivable of $
On November 1, 2021, Limited announced its intention to put in place a new parent company (formerly AccuStem Sciences Limited and subsidiary), being AccuStem Sciences, Inc., a Delaware-incorporated company, pursuant to a Scheme of Arrangement under United Kingdom “UK” law. Pursuant to Rule 12g-3(a) of the Securities Act of 1934, on December 1, 2021 (“Effective Date”), Limited completed the Company’s redomiciliation from the UK to Delaware, United States. In connection with the completion of the redomiciliation, the Company acquired all of the issued share capital of Limited in exchange for the issuance of the Company’s common stock and became the successor issuer to Limited. The Company and its subsidiary will conduct the same business and operations after the redomiciliation as Limited had been conducting prior to the redomiciliation and there are no expected changes to the day-to-day operation of the business of the Company or its strategy. Due to the entities being under common control, the acquisition was accounted for based on existing carrying amounts. The consolidated financial statements for periods prior to the redomiciliation are the consolidated statements of Limited as the predecessor to the Company for accounting and reporting purposes. On December 30, 2021, the Company and the Board approved for the dissolution of Limited, effective December 30, 2021. Limited’s wholly owned subsidiary, StemPrintER Sciences Limited, common shares was transferred to AccuStem Sciences, Inc.
On the effective date of the redomiciliation, the Company also completed a 20:1 share consolidation and the number of outstanding common shares was reduced from to of common stock (subject to adjustment as applicable due to the rounding of fractional shares). Therefore, (i) every 20 ordinary shares, £0.01 par value per share, of Limited (the “Limited Ordinary Shares”) were exchanged for one share of common stock, $0.001 par value per share, of the Company (the “Company Common Stock”) and (ii) every 10 AccuStem American Depository Shares (“ADS”) representing two Limited Ordinary Shares were exchanged for one share of the Company’s Common Stock, which resulted in the Company becoming the holding company of Limited. Also, every 20 options held by a Limited holder converted and received one option to purchase a common share of the Company as further described in Note 6.
| 6 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
All share and per share amounts in these consolidated financial statements and related notes for periods prior to the redomiciliation have been retroactively adjusted to reflect the effect of the 20:1 exchange ratio.
Shares of Limited’s common stock issued in connection trade over-the-counter market under the ticker symbol “ACMSY”. On March 23, 2022 the Company’s common stock shares began trading within the OTC Markets under the ticker symbol “ACUT”.
Impact of the COVID-19 Pandemic
In early 2020, an outbreak of the novel strain of coronavirus (COVID-19) emerged globally. As a result, there have been mandates from federal, state and local authorities resulting in an overall decline in economic activity. There have been no material impacts from COVID-19 on the Company’s operations for the three months ended March 31, 2022 and 2021. However, it is possible that the pandemic will continue to significantly impact economies worldwide, which could result in adverse effects on the Company’s operations. The extent of the impact of COVID-19 on operations, liquidity, financial condition, and results of operations remain uncertain at this time.
Liquidity and Going Concern
The condensed consolidated financial statements have been prepared on the going concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business.
The
Company has financed its activities principally from support from a related party. The Company has incurred a net loss in every fiscal
period since inception. For the three months ended March 31, 2022, the Company incurred a net loss of $
Management believes that the Company does not have sufficient cash and current assets to support its operations through at least 12 months from the issuance date of these condensed consolidated financial statements, and will require significant additional cash resources to continue its planned research and development activities.
The Company will need additional funds for promoting new products and working capital required to support research and development activities and generate sales from its products. There can be no assurance, however, that such financing will be available when needed, if at all, or on favorable terms and conditions. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the quality of product development efforts, management of working capital, and the continuation of normal payment terms and conditions for purchase of services.
In order to address its capital needs, including its planned research and development activities and other expenditures, the Company is actively pursuing additional equity financing in the form of a private placement. The Company has been in ongoing discussions with institutional investors and other parties with respect to such possible offerings. Adequate financing opportunities might not be available to the Company, when and if needed, on acceptable terms or at all. If the Company is unable to obtain additional financing in sufficient amounts or on acceptable terms or if the Company fails to consummate the private placement or a public offering, the Company will be forced to delay, reduce or eliminate some or all of its research and development programs and product portfolio expansion, which could adversely affect its operating results or business prospects. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding in terms acceptable to the Company to fund continuing operations, if at all. After considering the uncertainties, management determined it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated financial statements.
| 7 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these condensed consolidated financial statements are set out below.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in United States of America (“GAAP”) and are in U.S. dollars. Unless otherwise indicated, all references to “$” are to U.S. dollars, and all references to “£” or “GBP” are to Great Britain Pounds. The Company’s reporting currency is U.S. dollars.
Basis of Consolidation
The accompanying condensed consolidated financial statements include the accounts of AccuStem Sciences Inc. as well as its wholly-owned subsidiary. The Company consolidates all entities over which the Company has the power to govern the financial and operating policies and therefore exercises control, and upon which the Company has a controlling financial interest. The existence and effect of both current voting rights and potential voting rights that are currently exercisable or convertible are considered when assessing whether control of an entity is exercised. The subsidiary is consolidated from the date at which the Company obtains control and are de-consolidated from the date at which control ceases.
Inter-company transactions and balances between companies are eliminated upon consolidation. Accounting policies of the subsidiary has been changed where necessary to ensure consistency with the policies adopted by the Company.
Prior to the redomiciliation, Limited reported its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”). Following the redomiciliation, the Company transitioned to GAAP and applied GAAP retrospectively for all prior periods presented. In the opinion of management, all necessary adjustments (consisting of normal recurring adjustments, intercompany adjustments, reclassifications and non-recurring adjustments) have been recorded to present fairly our financial position as of March 31, 2022 and December 31, 2021, and the results of operations, and cash flows for the periods ended March 31, 2022 and 2021. The Company and its subsidiary have historically been under common control. The redomiciliation and related internal reorganization was accounted for consistent with a reorganization of entities under common control in accordance with ASC 805 - Business Combinations. Accordingly, the transfer of the assets and liabilities and exchange of shares was recorded in the new entity at their carrying amounts from the transferring entity at the date of transfer. The financial information for all periods in the financial statements presented prior to the reorganization are presented on a consolidated basis for all periods upon which the entities are under common control.
Comprehensive (Loss) Income
Comprehensive income (loss) of all periods presented is comprised primarily of net loss and foreign currency translation adjustments.
| 8 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Risk and Uncertainties
The Company is subject to a number of risks similar to those of other companies of similar size in its industry, including but not limited to, the success of its exploration to research and development activities, need for additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, dependence on key individuals, and risks associated with changes in information technology.
Cash
The
Company considers all highly liquid investments purchased with an original maturity date of three months or less at the date of purchase
and money market accounts to be cash equivalents. At March 31, 2022 and December 31, 2021, the Company had
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant contribution of credit risk consist of cash. Periodically, the Company maintains deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at financial institutions that management believes to be of high credit quality and the Company has not experienced any losses in these deposits.
Equipment, net
Equipment
is stated at cost, less accumulated depreciation.
The Company depreciates its equipment for financial reporting purposes using the straight-line method over the estimated
useful lives of the assets. The Equipment consists of computer equipment, which has a useful life of
The Company may award stock options, performance-based options and other equity-based instruments to its employees, directors and consultants. Compensation cost related to equity-based instruments is based on the fair value of the instrument on the grant date, and is recognized over the requisite service period on a straight-line basis over the vesting period except for performance-based options. Performance-based stock options vest based on the achievement of performance targets. Compensation costs associated with performance-based option awards are recognized over the requisite service period based on probability of achievement. Performance-based stock options require management to make assumptions regarding the likelihood of achieving performance targets.
The Company estimates the fair value of service based and performance-based stock option awards, including modifications of stock option awards, using the Black-Scholes option pricing model. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield.
Recently Issued and Adopted Accounting Standards
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
| 9 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The JOBS Act does not preclude an emerging growth company from early adopting new or revised accounting standards. As described below, the Company has early adopted certain accounting pronouncements before the due date for emerging growth companies. The Company expects to use the extended transition period for any other new or revised accounting standards during the period for which the Company remains an emerging growth company.
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature (“CCF”) and (2) convertible instruments with a beneficial conversion feature (“BCF”). As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. ASU 2020-06 is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method. As a result of Management’s evaluation, the adoption of ASU 2020-06 did not have a material impact on the condensed consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, “Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options” (“ASU 2021-04”), which introduces a new way for companies to account for warrants either as stock compensation or derivatives. Under the new guidance, if the modification does not change the instrument’s classification as equity, the Company accounts for the modification as an exchange of the original instrument for a new instrument. In general, if the fair value of the “new” instrument is greater than the fair value of the “original” instrument, the excess is recognized based on the substance of the transaction, as if the issuer has paid cash. The effective date of the standard is for interim and annual reporting periods beginning after December 15, 2021 for all entities, and early adoption is permitted. The Company adopted ASU 2021-04 on January 1, 2022. As a result of Management’s evaluation, the adoption of ASU 2021-04 did not have a material impact on the condensed consolidated financial statements.
3. ACQUISITION OF STEMPRINTER SCIENCES LIMITED AND EQUITY RAISE
The consolidated position of the Company is a result of the demerger of StemPrintER from Tiziana on October 30, 2020. The transaction is detailed in the steps below and described in Note 1.
On
October 5, 2020, Limited entered into an agreement with Tiziana to acquire its subsidiary StemPrintER, including the ownership rights
and intellectual property relating to the StemPrintER project, the SPARE project and cash receivable of $
| 10 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The transfer of all the ownership rights and intellectual property was treated as an asset transfer. The treatment as a separate asset acquisition at this stage reflected the fact that, immediately prior to transfer, Tiziana carried out only limited maintenance type activity on the StemPrintER project and the concentration of fair value was in the StemPrintER intellectual property asset.
In
March 2022, per the terms of the supplemental agreement to the demerger agreement, Tiziana invested $
4. EQUIPMENT
Equipment consists of the following:
| March 31, 2022 | ||||
| Computer equipment | $ | |||
| Less: Accumulated depreciation | ( | ) | ||
| Equipment, net | $ |
There
was equipment as of December 31, 2021. Depreciation expense was $
5. LICENSE
On June 24, 2014, Tiziana entered into an exclusive license agreement with IEO/University of Milan, pursuant to which it obtained a worldwide, royalty-bearing, exclusive license under certain patents and a worldwide, royalty-bearing, non-exclusive license under certain know-how, respectively, of IEO/University of Milan to develop and commercialize licensed products in connection with a multi-gene prognostic tool. This license was assigned to the Company pursuant to the terms of the acquisition of StemprintER as noted in Note 3.
The license provides for full control and authority over the research, development and commercialization of licensed products and are required to use commercially reasonable efforts in connection with the development and commercialization of the licensed products.
| 11 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the term of the license, the following milestone payments are required to be made (converted from EUROS to USD using exchange rate of €1:$1.10815)
| ● | € | |
| ● | € | |
| ● | € |
Tiziana
was also required, as licensee prior to the assignment to us of the License, to fund €
For the three months ended March 31, 2022 and 2021, the Company did not recognize any expense related to this license agreement.
Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of options in the calculation of diluted net loss per common shares would have been antidilutive.
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Numerator: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average common shares outstanding, basic and diluted | ||||||||
| Net loss per common share, basic and diluted | $ | ( | ) | $ | ||||
The Company’s potentially dilutive securities, which include stock options and warrants, have been excluded from the computation of diluted net loss per common share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders is the same.
| 12 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Stock options to purchase common stock outstanding | ||||||||
| Total | ||||||||
In August 2021, Limited adopted the 2021 Omnibus Equity Incentive Plan (the “Incentive Plan”). The Incentive Plan provides that the Company may grant Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, and Other Share-Based Awards to selected employees, directors, and independent contractors of the Company.
Each Award shall be exercisable at such time or times and subject to such terms and conditions set forth in the Incentive Plan, as shall be determined by the administrator in the applicable award agreement. Total shares authorized by the plan was . Awards under the Incentive Plan are exercisable for up to years from the date of issuance. There are remaining available shares to be issued under the Incentive Plan at March 31, 2022. The number of shares of Common Stock that are reserved and available for issuance under the Incentive Plan shall be subject to an annual increase on the first day of each calendar year beginning with the first January 1 following the effective date and ending with the last January 1 during the initial ten-year term of the Plan as defined in Section 4(a) of the Incentive Plan.
Options
On December 1, 2021 (the “Effective Date”), Limited completed the Company’s redomiciliation from the United Kingdom to Delaware (see Note 1). As of the Effective Date, the option instruments to purchase Limited Ordinary Shares granted by Limited (the “Old Options”) were exchanged automatically in consideration of the grant of new options by New AccuStem which, in the opinion of the board of directors of Limited, are equivalent to the Old Options, but relate to the New AccuStem Common Stock. As of the Effective Date, New AccuStem assumed Limited’s obligations under its 2021 Incentive Plan and other arrangements under which incentives in relation to Limited Ordinary Shares were agreed with before the effective date of the redomiciliation and the Company replaced all equity awards granted under the Limited Plan with equivalent equity awards for New AccuStem Common Stock. Also, as of the Effective Date, New AccuStem’s 2021 Equity Incentive Plan (the “2021 Plan”), became effective. Any employee, director or consultant of New AccuStem or any of its subsidiary is eligible to participate in the 2021 Plan.
As a result of the redomiciliation an aggregate of options were issued during December 2021 in consideration for the share exchange. The issued options had an exercise price of $ per share and all expire on the ten-year anniversary of the grant date. These options were fully vested on the grant date.
In addition, the Company issued options during the first quarter of 2022 for employees, directors and non-employees under the Incentive Plan.
The options granted have an exercise price ranging from $ to $ and expire on the ten-year anniversary of the grant date.
There were options granted or modified for the three months ended March 31, 2021.
| 13 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Number of Time-Based Share Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at January 1, 2022 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Exercised | — | |||||||||||||||
| Expired/Forfeited | — | |||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Vested and exercisable March 31, 2022 | $ | $ | ||||||||||||||
Number of Performance- Based Share Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at January 1, 2022 | $ | — | $ | |||||||||||||
| Issued | ||||||||||||||||
| Exercised | — | |||||||||||||||
| Expired/Forfeited | — | |||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Vested and exercisable March 31, 2022 | — | |||||||||||||||
The aggregate intrinsic value is calculated as the difference between the estimated fair value of the underlying common stock as of March 31, 2022 and the option exercise price.
Total share-based compensation expense recognized during the three months ended March 31, 2022 for options was $, which is included in General and Administrative expenses on the Condensed Consolidated Statement of Operations and Other Comprehensive Income. There was share-based compensation expense recognized during the three months ended March 31, 2021 for stock options.
The weighted average grant date fair value for stock options granted during the three months ended March 31, 2022 is $. The performance-based and time-based stock options are equity-classified. The Company uses the Black-Scholes option pricing model to estimate the fair value of the option awards with the following assumptions for the three months ended March 31, 2022:
| 14 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the Three Months Ended | |||
| March 31, 2022 | |||
| Risk-free interest rate | - | % | |
| Expected dividend yield | % | ||
| Expected term | – years | ||
| Expected volatility | - | % |
The risk-free interest rate assumption is determined using the yield currently available on U.S. Treasury zero- coupon issues with a remaining term commensurate with the expected term of the award. The Company has historically been a private company and lacks company-specific historical and implied volatility information. Management has estimated expected volatility based on similar public companies. Expected life of the option represents the period of time options are expected to be outstanding. The estimate for dividend yield is % because the Company has not historically paid, and does not intend to pay, a dividend on common stock in the foreseeable future.
As March 31, 2022 , there was $ unrecognized compensation expense related to options. $of this cost is subject to time-based conditions, and is to be recognized over a period of approximately years. The remaining $ of unrecognized compensation expense relates to performance-based conditions for unvested options. These costs are expected to be recognized over the required service period once the performance condition has occurred or becomes probable. Compensation costs related to the performance stock options are evaluated at each reporting period and subsequently adjusted for changes in the expected outcomes of the performance conditions.
Warrants
In
March 2022, the Company issued
The
common stock warrants granted have an exercise price of $
A summary of the Company’s warrants to purchase common stock activity is as follows:
Number of shares | Weighted Average Exercise Price | Weighted average remaining contractual life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at January 1, 2022 | $ | — | $ | |||||||||||||
| Issued | ||||||||||||||||
| Exercised | — | |||||||||||||||
| Expired/Forfeited | — | |||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Vested and exercisable March 31, 2022 | — | |||||||||||||||
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ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The grant date fair value for these warrants of $per warrant for a total fair value of $. The grant date fair value was determined using the Black-Scholes option pricing model. The following assumptions were used in estimating the fair value of the common stock warrants for the three months ended March 31, 2022:
For the Three Months Ended March 31, 2022 | ||||
| Risk-free interest rate | % | |||
| Expected dividend yield | % | |||
| Expected term | years | |||
| Expected volatility | % | |||
There was share-based compensation expense recognized during the three months ended March 31, 2022 and 2021 for warrants.
As of March 31, 2022, there was $of total performance-based unrecognized compensation costs related to unvested common stock warrants. These costs are expected to be recognized once the performance condition has occurred or becomes probable.
8. RELATED PARTY TRANSACTIONS
Tiziana
is a related party as it is under common control. The Company and Tiziana share directors, officers and significant shareholders. The
Company has also been formed due to an acquisition of a subsidiary company from Tiziana, see Notes 1 and 3 for further details. As of
March 31, 2022, Tiziana owns approximately
As
of March 31, 2022 and December 31, 2021, $
Effective
with the demerger agreement, the Company entered into a shared services agreement, where the Company outsources certain limited management
and administrative services. The Company notes that the fees consist of payroll costs associated with time spent providing services for
the Company and are based on actual time spent and the allocated payroll costs. In addition, the Company is charged, at cost, for utilization
of certain office space. There was no mark-up associated with fees charged for these services. For the three months ended March 31, 2022
and 2021, the Company has incurred approximately $
As
of March 31, 2022 and December 31, 2021, $
In
January 2022, the Company and Gabriele Cerrone, who is the Chairman of the Board of Directors and the largest shareholder, entered into
an agreement in which he will provide consulting services to the Company for a monthly fee of $
| 16 |
ACCUSTEM SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. INCOME TAXES
The Company recorded no provision or benefit for income tax expense for the three months ended March 31, 2022. For all periods presented, the pretax losses incurred by the Company received no corresponding tax benefit because the Company concluded that it is more likely than not that the Company will be unable to realize the value of any resulting deferred tax assets. The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation allowance in the future.
On March 27, 2020, Congress enacted the CARES Act to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, and modification to the net interest deduction limitations. The CARES Act did not have a material impact on the Company’s consolidated financial statements for the three months ended March 31, 2022. The Company continues to monitor any effects on its financial statements that may result from the CARES Act.
The Company has no open tax audits with any taxing authority as of March 31, 2022.
10. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved from time to time in various claims, proceedings, and litigation. The Company establishes reserves for specific legal proceedings when it determines that the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. Management has not identified any legal matters where it believes an unfavorable outcome is reasonably possible and/or for which an estimate of possible losses can be made.
11. SUBSEQUENT EVENTS
The Company was listed on the over-the-counter market exchange (“OTCQB”) on April 14, 2022.
| 17 |
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 18, 2022. In addition to our historical condensed consolidated financial information, the following contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q.
Overview
We operate a life sciences company focused on improving outcomes for patients with cancer. Our plan is to develop and commercialize a variety of products in the diagnostics, pharmaceutical and medical device spaces that enable more informed treatment planning and more effective treatment options for patients. Our initial approach will be the commercialization of a proprietary genomic platform, StemPrint, for recurrence risk stratification of different types of cancer. To augment this unique offering we also plan to provide ancillary commodity testing (e.g., hereditary genetic testing, somatic mutation testing) to provide additional information and value to our clients.
StemPrintER Sciences Limited “StemPrintER” was transferred to the AccuStem Sciences Limited on October 30, 2020 pursuant to the demerger of the StemPrintER and SPARE projects from Tiziana. The objective of the demerger was to maximize value to the shareholders of Tiziana through the further commercialization of the StemPrintER project and its assets and intellectual property. The Demerger will allow us to continue its collaboration strategy to further develop, validate and commercialize the StemPrintER/SPARE platform as a separate listed company.
Since our inception, we have devoted substantially all of our resources to conducting research and development of our product candidate. Our revenue is expected to be derived from different sources including standard private third-party and government medical insurance coverage and reimbursement models.
We expect our expenses to increase substantially in connection with our ongoing development activities related to our preclinical and clinical programs. We intend to conduct further validation and utility studies with the intention of filing for regulatory review under the CLIA system and, ultimately, for reimbursement review. We also may pursue a strategy to achieve appropriate regulatory review with European and Asian regulatory agencies to expand the addressable market for its products.
We expect to incur additional costs associated with the expansion of our management team and operating as a public company in the United States. We expect that our expenses and capital requirements will increase substantially in the near to mid-term as we:
| ● | build out corporate headquarters and a CLIA-certified laboratory in Phoenix, AZ; | |
| ● | continue our research and development efforts; | |
| ● | seek regulatory approvals for any product candidates that successfully complete clinical trials; and | |
| ● | add clinical, scientific, operational financial and management information systems and personnel, including personnel to support our product development and potential future commercialization claims. |
| 18 |
As a result, we may need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.
Recent Developments
On March 30, 2022, we completed a common stock capital transaction with Tiziana Life Sciences Ltd. (“Tiziana”) pursuant to which Tiziana, purchased 1,337,970 shares of the Company’s common stock (the “Common Stock”) at a purchase price of $2.00 per share for gross proceeds of $2,675,940. The purchase of the Common Stock was in accordance with the Supplemental Demerger Agreement dated October 5, 2021 between Tiziana and the Company whereby Tiziana agreed to purchase £2,000,000 of shares of the Company’s common stock at the time of listing of the common stock.
Management Team Update
On March 3, 2022, the Company announced the appointment of a CEO, Wendy Blosser. Also joining the leadership team are Jeff Fensterer, as Chief Operations Officer, and Joe Flanagan, as Chief Business Officer.
Impact of the COVID-19 Pandemic
In early 2020, an outbreak of the novel strain of coronavirus (COVID-19) emerged globally. As a result, there have been mandates from federal, state and local authorities resulting in an overall decline in economic activity. There have been no material impacts from COVID-19 on the Company’s operations for the periods through March 31, 2022. However, it is possible that the pandemic will continue to significantly impact economies worldwide, which could result in adverse effects on the Company’s operations. The extent of the impact of COVID-19 on operations, liquidity, financial condition, and results of operations remain uncertain at this time.
Financial Operations Overview
We have no products approved for commercial sale and have not generated revenue to date. We have never been profitable and have incurred net losses in each year since inception. We incurred net losses of $790,534 and $13,873 for the three months ended March 31, 2022 and the three months ended March 31, 2021, respectively. As of March 31, 2022, we had an accumulated deficit of $1,515,396. Substantially all of our net losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
| 19 |
Segment Information
As of March 31, 2022, we viewed our operations and managed our business as one operating segment consistent with how our chief operating decision maker, our Chief Executive Officer, makes decisions regarding resource allocation and assessing performance. As of March 31, 2022, substantially all of our assets were located in the United States. Our headquarters and operations are located in New York, NY and London, UK.
Results of Operations
The following discussion and analysis of our results of operations includes a comparison of the three months ended March 31, 2022 to the three months ended March 31, 2021:
| Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | — | $ | — | $ | — | — | % | ||||||||
| Research and development expenses | 21,143 | 2,650 | 18,493 | 698 | % | |||||||||||
| General and administrative expenses | 769,391 | 11,223 | 758,168 | 6775 | % | |||||||||||
| Loss from operations | 790,534 | 13,873 | 776,661 | 5598 | % | |||||||||||
| Loss, before income tax | (790,534 | ) | (13,873 | ) | (776,661 | ) | 5598 | % | ||||||||
| Income tax benefit (expense) | — | — | — | — | % | |||||||||||
| Net loss | $ | (790,534 | ) | $ | (13,873 | ) | $ | (776,661 | ) | 5598 | % | |||||
Research and development
Research and development expenses increased $18,493 in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The increase was primary related to an increase of patent related expenses.
General and administrative
General and administrative expenses increased $758,168 in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The increase was primarily related to an increase of payroll related costs as a result of the new management team structure, as well as costs related to legal fees and other compliance expenses.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue and have incurred significant operating losses. Our potential products are at various phases of development. We do not expect to generate significant revenue from product sales for several years, if at all. Pursuant to the demerger, Tiziana transferred $1,353,373 (£1,000,000) in cash in January 2022 to the Company. In addition, subject to the terms of the supplemental demerger agreement, Tiziana invested $2,675,940 (£2,000,000) in cash in March 2022 for additional shares of the Company. Our cash flows may fluctuate and are difficult to forecast and will depend on many factors. As of March 31, 2022, our cash balance is $3,244,600, which is adequate for our current planned level of operations, through at least November 2022.
| 20 |
Cash Flows
The following table summarizes our cash flows:
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | $ | 371,984 | $ | — | ||||
| Cash flows used in investing activities | (8,203 | ) | — | |||||
| Cash flows from financing activities | 2,880,819 | — | ||||||
| Net increase in cash and cash equivalents | 3,244,600 | — | ||||||
| Cash and cash equivalents at beginning of period | — | — | ||||||
| Cash and cash equivalents at end of period | $ | 3,244,600 | $ | — | ||||
The Company did not generate any cash flows through March 31, 2021 as cash was funded by a related party.
Operating Activities
There was an increase in cash flows from operating activities during the three months ended March 31, 2022 due to the collection of a receivable from a related party. There were no cash flows from operating activities during the three months ended March 31, 2021.
Investing Activities
The cash flow used in investing activities increased during the three months ended March 31, 2022 due to the purchase of computer equipment. There were no cash flows from investing activities during the three months ended March 31, 2021.
Financing Activities
We generated cash flows from financing activities during the three months ended March 31, 2022 due to proceeds from the issuance of common stock to Tiziana, as mentioned in the “Sources of Liquidity” section above. There was no net cash received in financing investing activities for the three months ended March 31, 2021.
Market Capital Expenditure Commitments
We have no material commitment for capital expenditures.
| 21 |
Funding Requirements
We expect that our expenses will increase and operating losses will be generated, and we have $1,515,396 of accumulated deficit as at March 31, 2022. Based on our current plans, we believe our existing cash and cash equivalents will be not be sufficient to fund our operations and capital expenditure requirements into 2022. We expect to incur substantial additional expenditures in the near term to support our acceleration of activities. We expect to incur net losses for the foreseeable future. Our ability to fund our product development and clinical operations as well as commercialization of our product candidates, will depend on the amount and timing of cash received from planned financings. Our future capital requirements will depend on many factors, including:
| ● | the costs, timing and outcomes of clinical trials and regulatory reviews associated with our product candidates; | |
| ● | the costs of commercialization activities, including product marketing, sales and distribution; | |
| ● | the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; | |
| ● | the emergence of competing technologies and products and other adverse marketing developments; | |
| ● | the effect on our product development activities of actions taken by the FDA, EMA or other regulatory authorities; | |
| ● | our degree of success in commercializing our product candidates, if and when approved; and | |
| ● | the number and types of future products we develop and commercialize. |
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity financings, debt financings, collaborations with other companies or other strategic transactions. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
| 22 |
Contractual Obligations
There have been no significant changes in our contractual obligations and outstanding indebtedness as disclosed in our Form 10-K for the year ended December 31, 2021
Critical Accounting Policies
There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Form 10-K for the year ended December 31, 2021.
Off-Balance Sheet Arrangements
We have no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our consolidated financial statements or changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see our condensed consolidated financial statements - Note 2 and the related notes found elsewhere in this quarterly report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes to our quantitative and qualitative disclosures about market risk as discussed in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” included our Form 10-K for the year ended December 31, 2021.
Item 4. Controls and Procedures
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting are a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“US GAAP”).
Because of their inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| 23 |
Under the supervision and with the participation of management, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial over financial reporting based on the framework described in Internal Control-Integrated Framework issued by the Commission of Sponsoring Organizations of the Treadway Commission, as revised in 2013. Based on that evaluation, management has concluded that the Company did not maintain effective internal control over financial reporting as of the period ended March 31, 2022 due to the existence of the material weaknesses in internal control over financial reporting described below.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management has determined that the Company did not maintain effective internal control over financial reporting as of the period ended March 31, 2022 due to the existence of the following material weaknesses identified by management:
Lack of Accounting Resources
The Company had a lack of accounting resources resulting in inadequate monitoring controls and other oversight procedures. Our management has determined that our disclosure controls and procedures and internal controls were ineffective due to weaknesses in our financial closing process, inadequate segregation of duties over authorization, review and recording of transactions, lack of accounting resources, as well as the financial reporting of such transactions.
Remediation efforts to address the material weakness relating to the Control Environment
Management intends to remediate this item in the following manner:
i. Recruit appropriately skilled accounting resources
Accordingly, management has determined that these control deficiencies constitutes a material weakness. Management has begun implementing the Remediation Plan described herein and intends to continue working on it through the year ended December 31, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 24 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2021
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
| 25 |
Item 6. Exhibits
101.INS* Inline XBRL Instance Document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
| 26 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on May 20, 2022.
| ACCUSTEM SCIENCES, INC. | |
| /s/ Keeren Shah | |
| Keeren Shah | |
| Chief Financial Officer |
In accordance with the Securities Exchange Act of 1934, this Report has been signed below on May 20, 2022 by the following persons on behalf of the Registrant and in the capacities indicated.
| /s/ Wendy Blosser | |
| Wendy Blosser | |
| Chief Executive Officer and Director | |
| /s/ Keeren Shah | |
| Keeren Shah | |
| Chief Financial Officer |
| 27 |