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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
From 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 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:
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange on Which Registered |
|
|
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 ☐ No
There were
TABLE OF CONTENTS
Page | ||
1 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | |
31 | ||
31 | ||
33 | ||
33 | ||
34 | ||
35 | ||
35 | ||
35 | ||
36 | ||
PART I
FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. We have consolidated such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued by filing with the SEC.
These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2021 included in our Annual Report filed on Form 10-K, filed with the SEC on March 31, 2022 (as amended on Form 10-K/A filed with the SEC on May 10, 2022).
The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022.
-1-
FIRST WAVE BIOPHARMA, INC.
Condensed Consolidated Balance Sheets
| March 31, |
| ||||
2022 | December 31, | |||||
(unaudited) | 2021 | |||||
ASSETS | ||||||
Current Assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Other receivables |
| |
| — | ||
Prepaid expenses |
| |
| | ||
Total Current Assets |
| |
| | ||
Property, equipment, and leasehold improvements, net |
| |
| | ||
Other Assets: | ||||||
Goodwill |
| |
| | ||
Operating lease right-of-use assets |
| |
| | ||
Deposits |
| |
| | ||
Total Other Assets |
| |
| | ||
Total Assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses | | | ||||
Accrued dividend payable |
| |
| | ||
Note payable |
| |
| | ||
Operating lease liabilities | | | ||||
Payable related to acquisition - current | | | ||||
Other current liabilities |
| |
| | ||
Total Current Liabilities |
| |
| | ||
Non-current operating lease liabilities | | | ||||
Payable related to acquisition - long term |
| |
| | ||
Total Liabilities |
| |
| | ||
Commitments and Contingencies | ||||||
Stockholders' Deficit: | ||||||
Common stock - Par value $ |
| |
| | ||
Series B preferred stock- Par value $ |
| |
| | ||
Series C preferred stock- Par value $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Total Stockholders' Deficit |
| ( |
| ( | ||
Total Liabilities and Stockholders' Deficit | $ | | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements
-2-
FIRST WAVE BIOPHARMA, INC.
Condensed Consolidated Statements of Operations and Comprehensive 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 |
| ( |
| ( | ||
Other (expense) income: |
|
|
|
| ||
Interest expense |
| ( |
| ( | ||
Interest income |
| |
| | ||
Other expense |
| ( |
| — | ||
Change in fair value of liability |
| — |
| | ||
Total other (expense) income |
| ( |
| | ||
Net loss | $ | ( | $ | ( | ||
Other comprehensive loss: |
|
|
|
| ||
Foreign currency translation adjustment |
| ( |
| ( | ||
Total comprehensive loss | $ | ( | $ | ( | ||
Net loss | $ | ( | $ | ( | ||
Deemed dividend on preferred stock |
| — |
| ( | ||
Deemed dividend on preferred stock exchanges |
| — |
| ( | ||
Deemed dividend on warrant modification | ( | — | ||||
Preferred stock dividends |
| ( |
| ( | ||
Net loss applicable to common shareholders | $ | ( | $ | ( | ||
Basic and diluted weighted average shares outstanding |
| |
| | ||
Loss per share - basic and diluted | ( | ( | ||||
See accompanying notes to unaudited condensed consolidated financial statements
-3-
FIRST WAVE BIOPHARMA, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Deficit (unaudited)
Accumulated | ||||||||||||||||||||||
Series B Convertible | Additional | Other | Total | |||||||||||||||||||
Preferred Stock | Common Stock | Paid In | Accumulated | Comprehensive | Stockholders' | |||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Loss |
| Deficit | |||||||
Balance, January 1, 2022 |
| |
| $ | |
| |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | ( |
Issuance of common stock, pre-funded warrants and warrants in registered direct offering, net of issuance costs |
| — |
| |
| |
| |
| |
| |
| |
| | ||||||
Exercise of pre-funded warrants into common stock |
| — |
| |
| |
| |
| |
| |
| |
| | ||||||
Deemed dividend of Series B preferred stock |
| — |
| |
| — |
| |
| ( |
| |
| |
| ( | ||||||
Warrant modification | | | ||||||||||||||||||||
Deemed dividend on warrant modification | ( | ( | ||||||||||||||||||||
Conversion of Series B preferred shares into common stock |
| ( |
| |
| |
| |
| ( |
| |
| |
| | ||||||
Common stock issued to consultants |
| — |
| |
| |
| |
| |
| |
| |
| | ||||||
Stock-based compensation |
| — |
| |
| — |
| |
| |
| |
| |
| | ||||||
Foreign currency translation adjustment |
| — |
| |
| — |
| |
| |
| |
| ( |
| ( | ||||||
Net loss |
| — |
| |
| — |
| |
| |
| ( |
| |
| ( | ||||||
Balance, March 31, 2022 |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
-4-
FIRST WAVE BIOPHARMA, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Deficit (unaudited)
Accumulated | |||||||||||||||||||||||||||
Series C Convertible | Series B Convertible | Additional | Other | Total | |||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid In | Accumulated | Comprehensive | Stockholders' | |||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Loss |
| Deficit | ||||||||
Balance, January 1, 2021 | | $ | | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | ( | ||||||||||
Issuance of Series C preferred stock and warrants for cash, net of offering costs |
| |
| |
| — |
| | — |
| |
| |
| | |
| | |||||||||
Issuance of Series C preferred stock to settle liability arising from acquisition |
| |
| |
| — |
| | — |
| |
| |
| | |
| | |||||||||
Beneficial conversion feature of Series C preferred stock |
| — |
| |
| — |
| | — |
| |
| |
| | |
| | |||||||||
Deemed dividend of Series C preferred stock |
| — |
| |
| — |
| | — |
| |
| ( |
| | | ( | ||||||||||
Issuance of Series C preferred stock upon exchange of Series B preferred stock |
| |
| |
| ( |
| | — |
| |
| ( |
| | |
| ( | |||||||||
Warrants issued in connection with exchange of Series B preferred stock |
| — |
| |
| — |
| | — |
| |
| |
| | |
| | |||||||||
Deemed dividend of Series B preferred stock |
| — |
| |
| — |
| | — |
| |
| ( |
| | |
| ( | |||||||||
Common stock issued upon conversion of Series B preferred stock |
| — |
| |
| ( |
| | |
| |
| ( |
| | |
| | |||||||||
Dividends on preferred stock |
| — |
| |
| — |
| | — |
| |
| ( |
| | |
| ( | |||||||||
Common stock and pre-funded warrants issued upon conversion of Series C preferred stock |
| ( |
| |
| — |
| | |
| |
| ( |
| | |
| | |||||||||
Issuance of common stock, pre-funded warrants and warrants for cash, net of offering costs |
| — |
| |
| — |
| | |
| |
| |
| | |
| | |||||||||
Common stock issued upon exercise of warrants |
| — |
| |
| — |
| | |
| |
| |
| | |
| | |||||||||
Common stock and warrants issued to consultants |
| — |
| |
| — |
| | |
| |
| |
| | |
| | |||||||||
Issuance of common stock in connection with settlement with former investment bank |
| — |
| |
| — |
| | |
| |
| |
| | |
| | |||||||||
Stock-based compensation |
| — |
| |
| — |
| | — |
| |
| |
| | |
| | |||||||||
Foreign currency translation adjustment |
| — |
| |
| — |
| | — |
| |
| |
| | ( |
| ( | |||||||||
Net loss |
| — |
| |
| — |
| | — |
| |
| |
| ( | |
| ( | |||||||||
Balance, March 31, 2021 |
| | $ | |
| | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements
-5-
FIRST WAVE BIOPHARMA, INC.
Condensed Consolidated Statements of Cash Flows (unaudited)
| 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 |
| |
| | ||
Amortization |
| — |
| | ||
Change in right-of-use assets |
| |
| ( | ||
Stock-based compensation |
| |
| | ||
Common stock and warrants granted to consultants |
| |
| | ||
Changes in assets and liabilities: | ||||||
Other receivables |
| ( |
| | ||
Prepaid expenses |
| |
| | ||
Lease liabilities |
| ( |
| | ||
Deposits |
| |
| ( | ||
Accounts payable and accrued expenses |
| |
| | ||
Accrued dividends payable |
| — |
| | ||
Other liabilities |
| |
| ( | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Proceeds from issuance of preferred stock, net |
| — |
| | ||
Proceeds from issuance of common stock, net |
| |
| | ||
Proceeds from exercise of warrants |
| |
| | ||
Payment made related to license agreement |
| — |
| ( | ||
Payment made related to acquisition agreement | ( | — | ||||
Repayments of note payable |
| ( |
| ( | ||
Net cash provided by financing activities |
| |
| | ||
Net (decrease) increase in cash |
| ( |
| | ||
Effect of exchange rate changes on cash |
| ( |
| ( | ||
Cash and cash equivalents, beginning balance |
| |
| | ||
Cash and cash equivalents, ending balance | $ | | $ | | ||
Supplemental disclosures of cash flow information: | ||||||
Cash paid for interest | $ | — | $ | | ||
Non-cash investing and financing activities: | ||||||
Deemed dividend on preferred stock issuances | $ | — | $ | ( | ||
Deemed dividend on preferred stock exchanges | $ | — | $ | ( | ||
Deemed dividend on warrant modification | $ | ( | $ | — | ||
Accrued dividends on preferred stock | $ | ( | $ | ( | ||
Common stock issued upon conversion of preferred stock | $ | ( | $ | — | ||
Issuance of Series C preferred stock to settle liability arising from acquisition | $ | — | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements
-6-
FIRST WAVE BIOPHARMA, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Note 1 - The Company and Basis of Presentation
The Company
First Wave BioPharma, Inc. (“First Wave”) and its wholly owned subsidiaries, First Wave Bio, Inc. and AzurRx SAS, are collectively referred to as the “Company”. The Company is engaged in the research and development of targeted, non-systemic therapies for the treatment of patients with gastrointestinal (“GI”) diseases. Non-systemic therapies are non-absorbable drugs that act locally, i.e., in the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation.
The Company is currently focused on developing its pipeline of gut-restricted GI clinical drug candidates, including the biologic adrulipase (formerly MS1819), a recombinant lipase enzyme designed to enable the digestion of fats and other nutrients, and niclosamide, an oral small molecule with anti-viral and anti-inflammatory properties.The Company’s adrulipase programs are focused on the development of an oral, non-systemic, biologic capsule for the treatment of exocrine pancreatic insufficiency (“EPI”) in patients with cystic fibrosis (“CF”) and chronic pancreatitis (“CP”). The Company’s niclosamide programs leverage proprietary oral and topical formulations to address multiple GI conditions, including inflammatory bowel disease (“IBD”) indications and viral diseases.
The Company is developing its product candidates for a host of GI diseases where there are significant unmet clinical needs and limited therapeutic options, resulting in painful, life threatening and discomforting consequences for patients. Since its inception, the Company has devoted substantially all its efforts to research and development, business development, and raising capital, and has financed its operations through issuance of common stock, convertible preferred stock, convertible debt, and other debt/equity instruments.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and ability to secure additional capital to fund clinical trials and operations.
The Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business. The extent to which the ongoing COVID-19 pandemic impacts the Company’s business, clinical development and regulatory efforts, corporate development objectives and the value of and market for its Common Stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe, Asia and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements and the specific impact on the Company's financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.
-7-
In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the biotechnology and pharmaceutical industries with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its drug candidates; delays or problems in the manufacture and supply of its drug candidates, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or drug candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.
Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of First Wave and its wholly owned subsidiaries, FWB and AzurRx SAS. Intercompany transactions and balances have been eliminated upon consolidation.
In our opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, 2021, has been derived from audited financial statements of that date. The unaudited interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in our Annual Report Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022 (as amended on Form 10-K/A filed with the SEC on May 10, 2022).
Going Concern Uncertainty
The accompanying unaudited interim condensed consolidated financial statements have been prepared as if the Company will continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. On March 31, 2022, the Company had cash and cash equivalents of approximately $ million, an accumulated deficit of approximately $
Without adequate working capital, the Company may not be able to meet its obligations and continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern one year from the date these financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 - Significant Accounting Policies and Recent Accounting Pronouncements
Use of Estimates
The accompanying unaudited condensed consolidated financial statements are prepared in conformity with GAAP and include certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements (including goodwill and intangible assets), and the reported amounts of revenue and expense during the reporting period, including contingencies. Accordingly, actual results may differ from those estimates.
-8-
Reverse Stock Split
On September 13, 2021, the Company effected a reverse stock split, whereby every
Reclassifications
Certain prior period balance sheet amounts have been reclassified to conform to the fiscal 2022 presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less from date of purchase to be cash equivalents. All cash balances were highly liquid on March 31, 2022, and December 31, 2021, respectively.
Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash. The Company primarily maintains its cash balances with financial institutions in federally insured accounts in the U.S. The Company may from time to time have cash in banks in excess of FDIC insurance limits. On March 31, 2022, and December 31, 2021, the Company had approximately $
The Company also has exposure to foreign currency risk as its subsidiary in France has a functional currency in Euros.
Fair Value Measurements
The Company follows Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820”), which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions, which reflect those that a market participant would use.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
The Company recognizes transfers between levels as if the transfers occurred on the last day of the reporting period.
Foreign Currency Translation
The Company’s foreign subsidiary has operations denominated in a foreign currency, and assets and liabilities are translated to U.S. dollars, which is the functional currency, at period end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the periods presented. Gains and losses from translation adjustments are accumulated in a separate component of stockholders’ equity.
-9-
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of the acquired business over the fair value of amounts assigned to assets acquired and liabilities assumed. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if events or circumstances indicate impairment may be present. Any excess in carrying value over the estimated fair value is charged to results of operations. The Company has recognized any impairment charges through March 31, 2022.
Intangible assets subject to amortization consist of in process research and development, license agreements, and patents reported at the fair value at date of the acquisition less accumulated amortization. Amortization expense is provided using the straight-line method over the estimated useful lives of the assets as follows:
Patents
The carrying amounts of finite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the Company may be unable to recover the asset’s carrying amount. Given changes in the projected usage of the patents, the Company recognized impairment charges of approximately $
Impairment of Long-Lived Assets
The Company periodically evaluates its long-lived assets for potential impairment in accordance with ASC Topic 360, Property, Plant and Equipment (“ASC 360”). Potential impairment is assessed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of these assets is assessed based on undiscounted expected future cash flows from the assets, considering a number of factors, including past operating results, budgets and economic projections, market trends and product development cycles. If impairments are identified, assets are written down to their estimated fair value. The Company has not recognized any impairment charges through March 31, 2022.
Leases
Leases are recorded on the balance sheet as right of use assets and lease obligations.
Research and Development
Research and development costs are charged to operations when incurred and are included in operating expense, except for goodwill related to patents. Research and development costs consist principally of compensation of employees and consultants that perform the Company’s research activities, payments to third parties for preclinical and non-clinical activities, expenses with clinical research organizations (“CROs”), investigative sites, consultants and contractors that conduct or provide other services relating to clinical trials, costs to acquire drug product, drug supply and clinical trial materials from contract development and manufacturing organization (“CDMOs”) and third-party contractors relating to chemistry, manufacturing and controls (“CMC”) efforts, the fees paid for and to maintain the Company’s licenses, amortization of intangible assets related to the acquisition of adrulipase, and research and development costs related to adrulipase and niclosamide. Depending upon the timing of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These accrued or prepaid expenses are based on management’s estimates of the work performed under service agreements, milestones achieved and experience with similar contracts. The Company monitors each of these factors and adjusts estimates accordingly.
Research and Development – Intellectual Property Acquired
On December 31, 2020, the Company entered into a license agreement (the “FWB License Agreement”) with FWB, pursuant to which FWB granted the Company an exclusive license to certain patents and patent applications related to a proprietary formulation of niclosamide for use in the fields of ICI-AC and COVID-19 GI infections. The acquisition of intellectual property and patents for the worldwide, exclusive right to develop, manufacture, and commercialize proprietary formulations of niclosamide for the fields of treating ICI-AC and COVID-19 in humans was accounted for as an asset acquisition and initial liabilities of approximately $
-10-
On September 13, 2021, the Company completed its acquisition of FWB, which the Company concluded should be accounted for as an asset acquisition rather than a business combination under ASC 805, Business Combinations. The merger was accounted for as an asset acquisition because substantially all the fair value of the assets being acquired are concentrated in a single asset – intellectual property, which does not constitute a business.
The former FWB stockholders are also entitled to (i) up to $
Due to the recent topline results of the Phase 2 RESERVOIR COVID-19 GI clinical trial (see Note 1), the Company has suspended payments to the former FWB stockholders and is seeking to renegotiate its obligations to the former FWB stockholders. On May 19, 2022, the Representative filed a complaint against the Company (see Note 17 – The FWB Action).
Stock-Based Compensation
The Company’s board of directors (the “Board”) and stockholders have adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) which took effect on May 12, 2014, and the 2020 Omnibus Equity Incentive Plan, which took effect on September 11, 2020 (the “2020 Plan”). From the effective date of the 2020 Plan, no new awards have been or will be made under the 2014 Plan. The Company accounts for its stock-based compensation awards to employees, consultants, and Board members in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, consultants, and Board members, including grants of employee stock options, to be recognized in the statements of operations by measuring the fair value of the award on the date of grant and recognizing this fair value as stock-based compensation using a straight-line method over the requisite service period, generally the vesting period.
For awards with performance conditions that affect their vesting, such as the occurrence of certain transactions or the achievement of certain operating or financial milestones, recognition of fair value of the award occurs when vesting becomes probable.
The Company estimates the grant date fair value of stock option awards using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (the “FASB”) issued accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity’s own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity’s own equity. As a smaller reporting company, as defined by the U.S. Securities and Exchange Commission (the “SEC”), this pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company early adopted ASU 2020-06 effective January 1, 2022.
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In June 2016, the FASB issued accounting pronouncement ASU 2016-13 – Measurement of Credit Losses on Financial Statements. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. In November 2019, the FASB issued ASU 2019-10 – Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amended the effective date for certain companies. The standard is effective for public companies eligible to be smaller reporting companies for annual and interim periods beginning after December 15, 2022. Early adoption is available. The Company is currently evaluating the potential impact ASU 2016-13, and related updates, will have on its consolidated financial statements and disclosures.
The Company has evaluated other recently issued accounting pronouncements and has concluded that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.
Note 3 - Fair Value Disclosures
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value.
The fair value of the Company’s financial instruments are as follows:
Fair Value Measured at Reporting Date | |||||||||||||||
Using | |||||||||||||||
Carrying | |||||||||||||||
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||||
March 31, 2022 (unaudited): | |||||||||||||||
Money market funds | $ | | $ | | $ | — | $ | — | $ | | |||||
Note payable |
| |
| — |
| |
| — |
| | |||||
December 31, 2021: | |||||||||||||||
Money market funds | | | — | — | | ||||||||||
Note payable | $ | | $ | — | $ | | $ | — | $ | | |||||
At March 31, 2022 and December 31, 2021, the Company had no other assets or liabilities that are subject to fair value methodology and estimation in accordance with U.S. GAAP.
Note 4 – Asset Acquisition
The Asset Acquisition
On September 13, 2021, the Company completed its acquisition of FWB, in accordance with the terms of an Agreement and Plan of Merger dated as of September 13, 2021 (the “Merger Agreement”) by and among the Company, Alpha Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and FWB. On September 13, 2021, pursuant to the Merger Agreement, Merger Sub was merged with and into FWB (the “Merger”), with FWB being the surviving corporation and becoming a wholly-owned subsidiary of the Company. In connection with the Merger, AzurRx changed its name to First Wave BioPharma, Inc.
At the effective time of the Merger, the former FWB stockholders received an applicable pro rata share of (i) $
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On October 29, 2021, Fortis Advisors LLC, the hired representative (in such capacity, the “Representative”) of the former stockholders of FWB, in connection with the Merger Agreement filed a complaint against the Company in the Court of Chancery of the State of Delaware, seeking to enforce rights to payment of $
On November 15, 2021, the Company reached an agreement (the “Settlement Agreement”) with the Representative of the former stockholders of FWB to substantially reduce the immediate payment obligations of the Company and defer certain remaining milestone and other payment obligations over time. The Settlement Agreement called for an immediate payment of $
The former FWB stockholders are entitled to up to a total of $
During the quarter ended March 31, 2022 the Company paid an aggregate of $
Due to the recent topline results of the Phase 2 RESERVOIR COVID-19 GI clinical trial (see Note 1), the Company has suspended payments to the former FWB stockholders and is seeking to renegotiate its obligations to the former FWB stockholders. On May 19, 2022, the Representative filed a complaint against the Company (see Note 17 – The FWB Action).
Accounting Treatment
The Company concluded that the Merger should be accounted for as an asset acquisition under ASC 805 because substantially all the fair value of the assets being acquired are concentrated in a single asset - intellectual property, which does not constitute a business. Because the acquired intellectual property has not received regulatory approval, the $
The potential milestone payments and revenue share are not yet considered probable, therefore
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Note 5 – Property, Equipment and Leasehold Improvements
Property, equipment, and leasehold improvements consisted of the following:
March 31, | ||||||
| 2022 |
| December 31, | |||
(unaudited) | 2021 | |||||
Computer equipment and software | $ | | $ | | ||
Office equipment |
| |
| | ||
Leasehold improvements |
| |
| | ||
Total property, plant, and equipment |
| |
| | ||
Less accumulated depreciation |
| ( |
| ( | ||
Property, plant and equipment, net | $ | | $ | | ||
Depreciation expense for the three months ended March 31, 2022 and 2021 was approximately and $
Note 6 – Intangible Assets and Goodwill
Patents
Pursuant to the Mayoly asset purchase agreement entered in March 2019 (see Note 13), in which the Company purchased all remaining rights, title and interest in and to adrulipase from Mayoly, the Company recorded Patents in the amount of approximately $
Common stock issued at signing to Mayoly |
| $ | |
Due to Mayoly at December 31, 2019 |
| | |
Due to Mayoly at December 31, 2020 |
| | |
Assumed Mayoly liabilities and forgiveness of Mayoly debt |
| | |
$ | |
Intangible assets are as follows:
March 31, | ||||||
| 2022 |
| December 31, | |||
(unaudited) | 2021 | |||||
Patents | $ | — | $ | | ||
Less accumulated amortization |
| — |
| ( | ||
Intangible asset impairment |
| — |
| ( | ||
Patents, net | $ | — | $ | — | ||
Amortization expense was approximately $
During the year ended December 31, 2021, the Company recorded impairment charges of approximately $
Goodwill is as follows:
| Goodwill | ||
Balance on January 1, 2021 | $ | | |
Foreign currency translation |
| ( | |
Balance on December 31, 2021 |
| | |
Foreign currency translation |
| ( | |
Balance on March 31, 2022 (unaudited) | $ | | |
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Note 7 - Accrued Expenses
Accrued expenses consisted of the following:
March 31, | ||||||
| 2022 |
| December 31, | |||
(unaudited) | 2021 | |||||
Professional fees | $ | | $ | | ||
Clinical trials | | — | ||||
Consulting fees | | | ||||
Payroll and benefits | | | ||||
Total accrued expenses | $ | | $ | | ||
Note 8 – Note Payable
Directors and Officer’s Liability Insurance
On November 30, 2021, the Company entered into a financing agreement for its directors and officer’s liability insurance in the amount of approximately $
Note 9 - Other Liabilities
Other liabilities consisted of the following:
March 31, | ||||||
| 2022 |
| December 31, | |||
(unaudited) | 2021 | |||||
Current |
|
|
|
| ||
Lease liabilities | $ | | $ | | ||
Other liabilities |
| |
| | ||
Liabilities related to Merger consideration |
| |
| | ||
Total other current liabilities | $ | | $ | | ||
Long-term |
|
|
|
| ||
Lease liabilities | $ | | $ | | ||
Liabilities related to Merger consideration |
| |
| | ||
Total other long-term liabilities | $ | | $ | | ||
Note 10 – Capital Stock
Common Stock and Preferred Stock
The Company’s certificate of incorporation, as amended and restated, (the “Charter”) authorizes the issuance of up to
On September 13, 2021, the Company effected a reverse stock split, whereby every
The Company had
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The Company had approximately
The Company had
Series B Preferred Stock Waiver Agreements
Between February 1 and February 7, 2022, the Company entered into waiver agreements (the “Waiver”) with certain holders of Series B Convertible Preferred Stock, par value $
Pursuant to the Series B Preferred Stock Certificate of Designations (the “Series B Certificate of Designations”), in the event of any issuance by the Company or any of its subsidiaries of the Company’s common stock, par value $
The Company entered into Waivers with holders of approximately $
Equity Line with Lincoln Park
In November 2019, the Company entered into a purchase agreement (the “Equity Line Agreement”), together with a registration rights agreement (the “Lincoln Park Registration Rights Agreement”), with Lincoln Park. Under the terms of the Equity Line Agreement, Lincoln Park has committed to purchase up to $
The remaining shares of Common Stock that may be issued under the Equity Line Agreement may be sold by the Company to Lincoln Park at the Company’s discretion from time-to-time over a period commencing after the satisfaction of certain conditions set forth in the Equity Line Agreement, subject to the continued effectiveness of a registration statement covering such shares of Common Stock sold to Lincoln Park by the Company. The registration statement was filed with the SEC on December 31, 2019 and was declared effective on January 14, 2020.
There is approximately $
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At The Market Agreement with H.C. Wainwright
On May 26, 2021, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright Co., LLC (“Wainwright”), as sales agent, pursuant to which the Company may issue and sell, from time to time, through Wainwright, shares of its Common Stock, and pursuant to which Wainwright may sell its Common Stock by any method permitted by law deemed to be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. The Company will pay Wainwright a commission of
Common Stock Issuances
Q1 2022 Issuances
During the three months ended March 31, 2022, the Company completed a registered direct offering (the “March 2022 Offering”) priced at the market under Nasdaq rules for an aggregate of
During the three months ended March 31, 2022, the Company issued an aggregate of
During the three months ended March 31, 2022, the Company issued an aggregate of
During the three months ended March 31, 2022, the Company issued an aggregate of
Q1 2021 Issuances
During the three months ended March 31, 2021, the Company issued an aggregate of
During the three months ended March 31, 2021, the Company issued an aggregate
During the three months ended March 31, 2021, the Company issued an aggregate of
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During the three months ended March 31, 2021, the Company issued an aggregate of
During the three months ended March 31, 2021, the Company issued an aggregate of
During the three months ended March 31, 2021, the Company completed a registered direct offering (the “March 2021 Offering”) priced at the market under Nasdaq rules for an aggregate of
Q1 2021 Series C Purchase Agreement
During the three months ended March 31, 2021, the Company closed on a securities purchase agreement (the “Series C Purchase Agreement”), pursuant to which the Company agreed to sell in a registered direct offering
Concurrently with the January 2021 Registered Direct Offering, in a private placement offering pursuant to the Series C Purchase Agreement (the “January 2021 Private Placement”), the Company agreed to sell an additional
The net proceeds to the Company from the offerings described above (the “January 2021 Offerings”), after deducting the placement agent’s fees and expenses, was approximately $
The Company also issued warrants to the placement agent (the “January 2021 Placement Agent Warrants”) exercisable for up to
During the three months ended March 31, 2021, all outstanding shares of Series C Preferred Stock were converted to Common Stock.
Q1 2021 Series B Exchanges into the January 2021 Offerings
During the three months ended March 31, 2021, pursuant to the Series B Exchange Right, the Company issued an aggregate of
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Note 11 – Warrants
Warrant activity for the three months ended March 31, 2022 and 2021 was as follows:
Weighted | Weighted | ||||||
Average | Average | ||||||
Number of | Exercise Price | Remaining | |||||
| Warrants |
| Per Share |
| Term in Years | ||
Outstanding and exercisable on January 1, 2022 |
| | $ | |
| | |
Issued |
| |
| |
| | |
Expired |
| ( |
| |
| | |
Exercised |
| ( |
| |
| | |
Warrants outstanding and exercisable on March 31, 2022 |
| | $ | |
| | |
Warrants outstanding and exercisable on January 1, 2021 |
| | $ | |
| | |
Issued |
| |
| |
| | |
Expired |
| ( |
| |
| | |
Exercised |
| ( |
| |
| | |
Warrants outstanding and exercisable on March 31, 2021 |
| | $ | |
| | |
The outstanding warrants expire from 2022 through 2027.
In connection with the March 2022 Offering, the Company entered into a warrant amendment agreement with an investor pursuant to which the Company agreed to amend the investor’s existing warrants to purchase up to
As a result of the change in fair value of the warrant amendment described above, the Company recorded a deemed dividend of approximately $
During the three months ended March 31, 2022, the Company issued Series C warrants, pre-funded warrants, and placement agent warrants to purchase
During the three months ended March 31, 2021, the Company issued warrants, pre-funded warrants, and placement agent warrants to purchase
Additionally, on February 8, 2021, warrants to purchase
Note 12 – Equity Incentive Plan
The Company’s Board and stockholders adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”), which took effect on May 12, 2014. Upon adoption of the 2020 Plan on September 11, 2020, the Company ceased making grants under the 2014 Plan.
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The Company’s Board and stockholders adopted and approved the 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which took effect on September 11, 2020. The initial number of shares of Common Stock available for issuance under the 2020 Plan is
As of January 1, 2022, the number of shares of Common Stock available for issuance under the 2020 Plan automatically increased to
As of March 31, 2022, there were an aggregate of
As of March 31, 2022, there were an aggregate of
During the three months ended March 31, 2022 and 2021, stock option activity under the 2014 Plan and 2020 Plan was as follows:
Average | Remaining | |||||||||
Number | Exercise | Contract | Intrinsic | |||||||
| of Shares |
| Price |
| Life (Years) |
| Value | |||
Outstanding at January 1, 2022 |
| | $ | |
| $ | — | |||
Granted |
| |
| |
|
| — | |||
Canceled |
| ( |
| |
|
| — | |||
Forfeited | ( | | — | |||||||
Outstanding at March 31, 2022 |
| | $ | |
| $ | — | |||
Exercisable at March 31, 2022 |
| | $ | |
| $ | — | |||
Outstanding at January 1, 2021 |
| | $ | |
| $ | — | |||
Granted |
| |
| |
|
| — | |||
Canceled |
| ( |
| |
|
| — | |||
Outstanding at March 31, 2021 |
| | $ | |
| $ | | |||
Exercisable at March 31, 2021 |
| | $ | |
| $ | | |||
During the three months ended March 31, 2022 and 2021, the Board approved the grant of options to purchase
During the three months ended March 31, 2022 and 2021, stock options to purchase an aggregate of
For the three months ended March 31, 2022 and 2021, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions:
| 2022 |
|
| 2021 |
| |
Contractual term (in years) |
| |||||
Expected Volatility |
| | % | | % | |
Risk-free interest rate |
| | % | | % | |
Expected Dividend yield |
| | % | | % |
Using the Black-Scholes Option Pricing Model, the estimated weighted average fair value of an option to purchase one share of common stock granted during the three months ended March 31, 2022 and 2021 was $
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As of March 31, 2022, the Company had unrecognized stock-based compensation expense of approximately $
As of March 31, 2021, the Company had unrecognized stock-based compensation expense of approximately $
As of March 31, 2022 and 2021, the Company had
The total stock-based compensation expense for employees and non-employees is included in the accompanying condensed consolidated statements of operations and as follows:
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Research and development | $ | | $ | | ||
General and administrative |
| |
| | ||
Total stock-based compensation expense | $ | | $ | | ||
Note 13 – Agreements
License Agreement with First Wave Bio, Inc. (FWB)
On December 31, 2020, the Company entered into the FWB License Agreement, pursuant to which FWB granted us a worldwide, exclusive right to develop, manufacture, and commercialize FWB’s proprietary immediate release and enema formulations of niclosamide (the “Niclosamide Product”) for the fields of treating ICI-AC and COVID-19 in humans.
In consideration of the license and other rights granted by FWB, the Company agreed to pay FWB a $
On January 8, 2021, the Company entered into a securities purchase agreement with FWB (the “FWB Purchase Agreement”) to issue junior convertible preferred stock to FWB. Pursuant to the FWB Purchase Agreement, the Company issued to FWB
The conversion price of the Series C Preferred Stock was determined to be beneficial and, as a result, the Company recorded a deemed dividend of approximately $
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Upon the 2021 Stockholder Approval on February 24, 2021, the Company recognized a change in fair value of approximately $
Following the 2021 Stockholder Approval, the shares of Series C Preferred Stock were automatically converted into Common Stock.
Upon consummating the Merger on September 13, 2021, the FWB License Agreement was effectively canceled.
Mayoly Agreement
On March 27, 2019, the Company and Laboratories Mayoly Spinder (“Mayoly”) entered into an Asset Purchase Agreement (the “Mayoly APA”), pursuant to which the Company purchased substantially all remaining rights, title and interest in and to adrulipase. Further, upon execution of the Mayoly APA, the Joint Development and License Agreement (the “JDLA”) previously executed by AzurRx SAS and Mayoly was assumed by the Company. In addition, the Company granted to Mayoly an exclusive, royalty-bearing right to revenue received from commercialization of adrulipase within certain territories.
Note 14 – Leases
The Company leases its offices under operating leases which are subject to various rent provisions and escalation clauses.
The Company is a party to real property operating leases for the rental of office space. The Company has office space of
The Company’s leases expire at various dates through 2026. The escalation clauses are indeterminable and considered not material and have been excluded from minimum future annual rental payments.
Lease expense amounted to approximately $
The weighted-average remaining lease term and weighted-average discount rate under operating leases as of March 31, 2022 are:
March 31, |
| ||
| 2022 |
| |
Lease term and discount rate |
|
| |
Weighted-average remaining lease term (years) |
| ||
Weighted-average discount rate |
| | % |
Maturities of operating lease liabilities as of March 31, 2022, were as follows:
2022 (remainder of year) |
| $ | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
Thereafter |
| | |
Total lease payments |
| | |
Less imputed interest |
| ( | |
Present value of lease liabilities | $ | |
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Note 15 - Net Loss per Common Share
Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive. The dilutive effect of the outstanding stock options and warrants is computed using the treasury stock method. In periods where the Company records a net loss, unvested restricted common stock and potential common stock equivalents are not included in the calculation of diluted net loss per share as their effect would be anti-dilutive.
All shares of Common Stock that may potentially be issued in the future are as follows:
March 31, 2022 | March 31, 2021 | |||
| (unaudited) |
| (unaudited) | |
Common stock warrants |
| |
| |
Stock options |
| |
| |
Convertible preferred stock (1) |
| |
| |
Total shares of common stock issuable |
| |
| |
| (1) | Convertible preferred stock is assumed to be converted at the rate of $ |
Note 16 - Employee Benefit Plans
401(k) Plan
Since 2015, the Company has sponsored a multiple employer defined contribution benefit plan, which complies with Section 401(k) of the Internal Revenue Code covering substantially all employees of the Company.
All employees are eligible to participate in the plan. Employees may contribute from
Employer contributions under this 401(k) plan amounted to approximately $
Note 17 - Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements except for the items noted below.
Dismissal of Previous Independent Registered Public Accounting Firm
On April 27, 2022, the Audit Committee of the Company’s Board of Directors (the “Board”) approved the dismissal of Mazars USA LLP as the Company’s independent registered public accounting firm, effective immediately and the engagement of Marcum LLP as the Company’s new independent registered public accounting firm as of and for the year ending December 31, 2022.
RESERVOIR Topline Results and Business Operations Update
On April 29, 2022, the Company announced that the Phase 2 RESERVOIR trial examining the safety and efficacy of FW-COV, a proprietary oral formulation of niclosamide, as potential treatment for COVID-19-related GI infections did not meet its efficacy endpoint but FW-COV was demonstrated to be safe with no serious adverse events reported by the more than 150 patients that participated in the trial.
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As a result of the RESERVOIR trial results, the Company will be reducing its workforce by 20 percent and closing its California office at the end of May 2022 and its facility in Langlade, France. The Company has also suspended payments related to the Company’s acquisition of FWB and is seeking to renegotiate its obligations to the former FWB stockholders; however, no assurance can be given that the Company will be able to restructure those obligations on acceptable terms, if at all. In the event the Company is not able to significantly restructure those obligations, or the Representative prevails in the FWB Action (see Note 17 – The FWB Action), the Company may have to further curtail its operations or take other actions to preserve capital, including the filing of a petition for protection under applicable bankruptcy law.
Series B Exchange Right Waiver Solicitation
Effective May 12, 2022, the holders of
Pursuant to the Certificate of the Designations, Powers, Preferences and Rights creating the Series B Preferred Stock, as filed with the Secretary of State of the State of Delaware on July 16, 2020 (the “Certificate of Designations”), in the event of any issuance by the Company or any of its subsidiaries of Common Stock, or Common Stock equivalents for cash consideration or a combination of units thereof (a “Subsequent Financing”), each holder of the Company’s Series B Preferred Stock had the right, subject to certain exceptions set forth in the Certificate of Designations, at its option, to exchange (in lieu of cash subscription payments) all or some of the Series B Preferred Stock then held (with a value per share of Series B Preferred Stock equal to the stated value of each share of Series B Preferred Stock, or $
Pursuant to the terms of the Certificate of Designations, the written consent of the holders of at least a majority of the Series B Preferred Stock outstanding was required to consent to the Permanent Waiver (the “Required Consent”). The Company requested that the Record Holders consent to the Permanent Waiver by executing and delivering a joinder to the Waiver Agreement (as defined below). The execution and delivery of the joinder to the Waiver Agreement was deemed, for purposes of Section 228 of the General Corporation Law of the State of Delaware, to be an action by written consent in lieu of a meeting to approve the Permanent Waiver. The Company’s solicitation of consents to the Permanent Waiver terminated in accordance with its terms at 5:00 p.m., Eastern Time, on May 12, 2022 (the “Expiration Date”). The Record Holders who consented to the Permanent Waiver prior to the Expiration Date are referred to herein as the “Consenting Holders”.
The Required Consent has been obtained from the Consenting Holders and the solicitation has terminated in accordance with its terms as of the Expiration Date. The Permanent Waiver was effective immediately upon the Expiration Date and is binding on all holders of the Series B Preferred Stock, including those holders that did not timely consent to the Permanent Waiver prior to the Expiration Date. The Permanent Waiver will also be applicable to any future holder of Series B Preferred Stock. A notation of the Permanent Waiver will be made on the books and records of the Company’s transfer agent and a legend reflecting the Permanent Waiver will be placed on any physical share certificate representing shares of Series B Preferred Stock.
Pursuant to the terms of a Waiver Agreement entered into by the Company and the Consenting Holders (the “Waiver Agreement”), the Company has permanently reduced the exercise price of the Series B Warrants originally issued on July 16, 2020 (the “Warrants”) held by the Consenting Holders to $
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Nasdaq Minimum Bid Price Deficiency Notice
On May 16, 2022, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the last
The FWB Action
On May 19, 2022, the Representative filed a complaint against the Company in the Court of Chancery in the State of Delaware (the “FWB Action”) for breach of contract and anticipatory repudiation or for unjust enrichment. The FWB Action seeks specific performance of the Company’s obligations under the Merger Agreement and Settlement Agreement, including all payments currently owed and to be owed to the Representative, and damages at the maximum amount permitted by law. The Company intends to vigorously defend itself against the claims in the FWB Action and reserves all rights and remedies with respect to any counter-claims.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report to “First Wave,” “AzurRx,” “Company,” “we,” “us,” “our,” or similar references mean First Wave BioPharma, Inc. and its subsidiaries on a consolidated basis. References to “First Wave BioPharma” refer to First Wave BioPharma, Inc. on an unconsolidated basis. References to “AzurRx SAS” refer to First Wave BioPharma’s wholly owned subsidiary through which we conduct our European operations. References to the “SEC” refer to the U.S. Securities and Exchange Commission.
Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” included in our Annual Report filed on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022 (as amended on Form 10-K/A filed with the SEC on May 10, 2022). Readers are cautioned not to place undue reliance on these forward-looking statements.
Overview
We are engaged in the research and development of targeted, non-systemic therapies for the treatment of patients with gastrointestinal (“GI”) diseases. Non-systemic therapies are non-absorbable drugs that act locally, i.e., in the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation.
We are currently focused on developing our pipeline of gut-restricted GI clinical drug candidates, including the biologic adrulipase (formerly MS1819), a recombinant lipase enzyme designed to enable the digestion of fats and other nutrients, and niclosamide, an oral small molecule with anti-viral and anti-inflammatory properties.
Our adrulipase programs are focused on the development of an oral, non-systemic, biologic capsule for the treatment of exocrine pancreatic insufficiency (“EPI”) in patients with cystic fibrosis (“CF”) and chronic pancreatitis (“CP”). Our goal is to provide CF and CP patients with a safe and effective therapy to control EPI that is non-animal derived and offers the potential to dramatically reduce their daily pill burden. In March 2021, we announced topline results from our Phase 2b OPTION 2 monotherapy trial, and in 2021, we announced positive topline results from our Phase 2 Combination trial in Europe. We are currently focused on formulation development for adrulipase and expect to initiate a Phase 2b monotherapy trial during the second half of 2022.
Our niclosamide programs leverage proprietary oral and topical formulations to address multiple GI conditions, including inflammatory bowel diseases (“IBD”) indications and viral diseases. We are currently advancing two separate clinical programs of our niclosamide formulations currently in Phase 2 clinical trials, including FW-COV for Severe Acute Respiratory Syndrome Coronavirus 2 (“COVID-19”) GI infections, and FW-UP for ulcerative proctitis (“UP”) and ulcerative proctosigmoiditis (“UPS”).
In April 2021, we launched the Phase 2 RESERVOIR COVID-19 GI clinical trial using a proprietary oral immediate-release tablet formulation of micronized niclosamide in the U.S., Ukraine and India, and in April 2022, announced that the trial did not meet its efficacy endpoint, but FW-COV was demonstrated to be safe with no serious adverse events reported by the more than 150 patients that participated in the trial. We are awaiting the complete set of data for analysis, including anti-inflammatory biomarkers, abdominal discomfort changes, and medium-term safety follow-up, in order to report the full data set in late May 2022 along with next steps for the FW-COV program.
In September 2021, we announced the initiation of patient screening for the STAGE 2 portion of the ongoing Phase 2 Ulcerative Proctitis trial in Italy and in October 2021 we announced the dosing of the first patient in the trial. We are reviewing the early data from this trial to determine whether to move forward with the trial at this time.
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In October 2021, we received FDA clearance for an investigational new drug (“IND”) application for a Phase 2 trial (“FW-ICI-AC”) for Immune Checkpoint Inhibitor-associated colitis (“ICI-AC”) and diarrhea in advanced stage oncology patients. The FW-ICI-AC program is currently on hold due to financial constraints. We are also evaluating our further development of a new oral formulation for niclosamide therapies for additional IBD indications, including FW-UC for ulcerative colitis (“UC”) and FW-CD for Crohn’s disease (“CD”).
As a result of the topline data from the Phase 2 RESERVOIR COVID-19 GI clinical trial and the ongoing volatility in the biotechnology sector, we have initiated certain measures to reduce our expenses and conserve capital. Included in these measures is a 20 percent reduction in our headcount, as well as the closure of our California office at the end of May 2022 and our facility in Langlade, France. We have also determined to suspend payments related to our acquisition of First Wave Bio, Inc. (“FWB”), in order to conserve capital. We are seeking to renegotiate our obligations to the former FWB stockholders; however, no assurance can be given that we will be able to restructure those obligations on acceptable terms, if at all. On May 19, 2022, Fortis Advisors LLC, the hired representative (in such capacity, the “Representative”) of the former stockholders of FWB in connection with the Agreement and Plan of Merger dated as of September 13, 2021, by and among us, Alpha Merger Sub, Inc. and FWB (the “Merger Agreement”), filed a complaint in the Court of Chancery of the State of Delaware (the “FWB Action”), for breach of contract and anticipatory repudiation or for unjust enrichment. The FWB Action seeks specific performance of the Company’s obligations under the Merger Agreement and the settlement agreement by and between us and the Representative, dated November 15, 2021 (the “Settlement Agreement”), including all payments currently owed and to be owed to the Representative, and damages at the maximum amount permitted by law. In the event that we are not able to significantly restructure our obligations to the former FWB stockholders, or the Representative prevails in the FWB Action, we may have to further curtail our operations or take other actions to preserve our capital, including the filing of a petition for protection under applicable bankruptcy law.
On November 26, 2021, we received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market, under Listing Rule 5550(b)(1), because our stockholders’ equity of $(6,969,988) as reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2021 was below the required minimum of $2.5 million, and because, as of November 24, 2021, we did not meet the alternative compliance standards, relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. On January 10, 2022, we submitted to Nasdaq a plan to regain compliance with Listing Rule 5550(b)(1). On February 15, 2022, Nasdaq notified us that they have granted us an extension of up to 180 calendar days from November 26, 2021, or through May 25, 2022, to regain compliance. If we fail to evidence compliance upon filing our periodic report for the quarter ending June 30, 2022, we may be subject to delisting. If Nasdaq determines to delist our common stock, we will have the right to appeal to a Nasdaq hearings panel.
Between February 1 and February 7, 2022, we entered into waiver agreements (the “Waiver”) with certain holders of our Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), pursuant to which we agreed to pay a cash waiver fee equal to ten percent of the stated value of the shares of Series B Preferred Stock held by such holder (other than holders who are insiders who did not receive a cash waiver fee) and such holder agreed to irrevocably waive its Series B Exchange Right (as defined below) with respect to any Subsequent Financing (as defined below) that occurs from and after the date of the Waiver until December 31, 2022.
Pursuant to the Series B Preferred Stock Certificate of Designations (the “Series B Certificate of Designations”), in the event of any issuance by us or any of our subsidiaries of our common stock, par value $0.0001, or common stock equivalents for cash consideration or a combination of units thereof (a “Subsequent Financing”), each holder of our Series B Preferred Stock has the right, subject to certain exceptions set forth in the Certificate of Designations, at its option, to exchange (in lieu of cash subscription payments) all or some of the Series B Preferred Stock then held (with a value per share of Series B Preferred Stock equal to the stated value of each share of Series B Preferred Stock, or $7,700.00, plus accrued and unpaid dividends thereon, of the Series B Preferred Stock) for any securities or units issued in a Subsequent Financing on a dollar-for-dollar basis (the “Series B Exchange Right”).
We entered into Waivers with holders of approximately $2.88 million of stated value of our Series B Preferred Stock. We also entered into Waivers with Company insiders holding approximately $474,000 of stated value of our Series B Preferred Stock for which we did not pay a waiver fee.
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Risks and Uncertainties
In March 2020, the World Health Organization declared the novel coronavirus disease, or COVID-19, outbreak a global pandemic. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning in March 2020, the majority of our workforce began working from home. Disruptions caused by the COVID-19 pandemic, including the effects of the stay-at-home orders and work-from-home policies, have impacted productivity, including delayed enrollment of new patients at certain of our clinical trial sites, and may further disrupt our business and delay our development programs and regulatory timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct business in the ordinary course. As a result, our expenses may vary significantly if there is an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities.
We have implemented business continuity plans designed to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees and our business. We continue to operate normally with the exception of enabling all of our employees to work productively at home and abiding by travel restrictions issued by federal, state and local governments. Our current plans to return to the office remain fluid as federal, state and local guidelines, rules and regulations continue to evolve.
Liquidity and Capital Resources
To date, we have not generated any revenues and have experienced net losses and negative cash flows from our activities.
As of March 31, 2022, we had cash and cash equivalents of approximately $5.7 million, and had sustained cumulative losses attributable to common stockholders of approximately $163.5 million. Based on our cash on hand at March 31, 2022, we anticipate having sufficient cash to fund planned operations into June of 2022, however, the acceleration or reduction of cash outflows by management can significantly impact the timing for the need to raise additional capital to complete development of our products. We have not yet achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability. As such, we are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. Without adequate funding, we may not be able to meet our obligations. We believe these conditions may raise substantial doubt about our ability to continue as a going concern.
Our primary sources of liquidity come from capital raises through additional equity and/or debt financings. This may be impacted by the COVID-19 pandemic and other geopolitical events, including the war in Ukraine, which are evolving and could negatively impact our ability to raise additional capital in the future.
We have funded our operations to date primarily through the issuance of debt, convertible debt securities, preferred stock, as well as the issuance of Common Stock in various public offerings and private placement transactions. We expect to incur substantial expenditures in the foreseeable future for the development of adrulipase, niclosamide and any other drug candidates. We will require additional financing to develop our drug candidates, run clinical trials, prepare regulatory filings and obtain regulatory approvals, fund operating losses, and, if deemed appropriate, establish manufacturing, sales and marketing capabilities. Our current financial condition raises substantial doubt about our ability to continue as a going concern. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition, our ability to meet our obligations, and our ability to pursue our business strategies. We will seek funds through additional equity and/or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing.
Although, we are primarily focused on the development of our drug candidates, including adrulipase and niclosamide, we are also opportunely focused on expanding our product pipeline of clinical assets through collaborations, and also through acquisitions of products and companies. We are continually evaluating potential asset acquisitions business combinations, and other partnership opportunities. To finance such acquisitions, we might raise additional equity capital, incur additional debt, or both.
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We are able to sell securities on a shelf registration statement pursuant to the ATM Agreement with H.C. Wainwright Co., LLC. Under current Securities and Exchange Commission regulations, because our public float was less than $75 million at the relevant measurement period pursuant to General Instruction I.B.6. to Form S-3, , the amount we can raise through primary public offerings of securities in any subsequent twelve-month period under our shelf registration statement is limited to an aggregate of one-third of our public float until such time, if any, as our public float is $75 million or more.
Our ability to issue securities is subject to market conditions. Each issuance under the shelf registration statements will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.
On September 13, 2021, we entered into the Merger Agreement with FWB. At the effective time of the Merger, the former FWB stockholders received an applicable pro rata share of (i) $3.0 million in cash and (ii) 624,025 shares of the Common Stock. The remaining non-contingent purchase price is payable to the former FWB stockholders on a pro rata basis upon our payment of (i) $8.0 million in cash, payable within 45 days of the Merger and, (iii) $7.0 million in cash, payable by March 31, 2022.
On October 29, 2021,the Representative filed a complaint against us in the Court of Chancery of the State of Delaware, seeking to enforce rights to payment of $8.0 million due October 28, 2021, pursuant to the Merger Agreement and the $2.0 million milestone payment for initiation of the FW-UP Part 2 trial. On November 15, 2021, we entered into the Settlement Agreement to settle the litigation, under terms that, among other things, involve a substantial reduction in immediate payment obligations and deferrals of certain remaining milestone and other payment obligations over time, with an immediate payment of $2.0 million for the milestone and periodic installments of $500,000 per month payable from January 2022 through August 2022 and $1.0 million per month payable from September 2022 through July 2023 until an aggregate of $17.0 million is received. We have determined to suspend payments to the former FWB stockholders in order to conserve capital. We are seeking to renegotiate our obligations to the former FWB stockholders; however, no assurance can be given that we will be able to restructure those obligations on acceptable terms, if at all. On May 19, 2022, the Representative filed the FWB Action seeking specific performance of the Company’s obligations under the Merger Agreement and Settlement Agreement, including all payments currently owed and to be owed to the Representative, and damages at the maximum amount permitted by law. In the event that we are not able to significantly restructure our obligations to the former FWB stockholders, or the Representative prevails in the FWB Action, we may have to further curtail our operations or take other actions to preserve our capital, including the filing of a petition for protection under applicable bankruptcy law.
Consolidated Results of Operations for the Three Months Ended March 31, 2022 and 2021
The following table summarizes our consolidated results of operations for the periods indicated:
Three Months Ended | |||||||||
March 31, | Increase | ||||||||
| 2022 |
| 2021 |
| (decrease) | ||||
Operating expenses: |
|
|
|
|
|
| |||
Research and development expenses | $ | 4,976,517 | $ | 2,516,027 | $ | 2,460,490 | |||
General and administrative expenses |
| 4,405,555 |
| 5,697,514 |
| (1,291,959) | |||
Total operating expenses |
| 9,382,072 |
| 8,213,541 |
| 1,168,531 | |||
Other expenses (income) |
| 244,767 |
| (527,912) |
| 772,679 | |||
Net loss | $ | 9,626,839 | $ | 7,685,629 | $ | 1,941,210 | |||
Research and Development Expense
Research and development expenses include expenses primarily relating to the development of our adrulipase and niclosamide drug candidates.
Research and development expenses for the three months ended March 31, 2022 totaled approximately $5.0 million, an increase of approximately $2.5 million, or 98%, over the approximately $2.5 million recorded for the three months ended March 31, 2021.
The approximately $2.5 million increase in total research and development expenses was primarily attributable to increases of approximately $2.2 million in clinical related expenses in connection with our Phase 2 RESERVOIR COVID-19 GI clinical trial during the three months ended March 31, 2022, as compared to two Phase 2 clinical trials related to adrulipase during the three months ended March 31, 2021.
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We expect research and development expense to decrease during the remainder of this fiscal year as we near completion of two clinical trials for niclosamide (FW-COV and FW-UP), while continuing the pursuit of additional CMC activities in connection with formulation development of adrulipase for the treatment of EPI in patients with CF and CP. While the top-line efficacy measure from the FW-COV trial did not show any anti-viral activity, the drug was well-tolerated without any serious adverse events. We believe this will continue to be the case for our ongoing clinical program of niclosamide (FW-UP) as a potential treatment for patients with UP and UPS, two forms of UC. In addition, we are initiating measures to conserve capital including headcount reductions.
General and Administrative Expense
General and administrative expenses include expenses primarily relating to our overall operations and being a public company, including personnel, legal and financial professional services, insurance, corporate communication and investor relations, listing and compliance related costs, rent, and expenses associated with obtaining and maintaining intellectual property and patents, among others.
General and administrative expenses for the three months ended March 31, 2022 totaled approximately $4.4 million, a decrease of approximately $1.3 million, or 23% over the approximately $5.7 million recorded for the three months ended March 31, 2021.
The decrease in general and administrative was primarily due to decreases of approximately $1.1 million of stock-based compensation expense, $0.5 million in public company costs, including investor relations and corporate communications, and $0.2 million in consulting fees. These decreases were offset by increases of $0.4 million for personnel related costs and $0.2 million in legal fees.
We expect general and administrative expenses to decrease during the remainder of this fiscal year as a result of our capital conservation efforts.
Other Expense (Income)
Other expense (income) for the three months ended March 31, 2022 totaled approximately $0.2 million, an increase of approximately $0.8 million, or 146% over the approximately $(0.5) million of other income recorded for the three months ended March 31, 2021. The increase in other expense was mainly due to $0.2 million of Waiver fees paid in the three months ended March 31, 2022, as compared to an expense of approximately $0.5 million recorded for the three months ended March 31, 2021 related to the extinguishment of the $3.0 million liability in connection with First Wave License Agreement pursuant to the issuance of Series C Preferred Stock with a fair value of approximately $2.5 million for the three months ended March 31, 2021.
Net Loss
As a result of the factors above, our net loss for the three months ended March 31, 2022 totaled approximately $9.6 million, an increase of approximately $1.9 million, or 25%, over the approximately $7.7 million recorded for the three months ended March 31, 2021.
Cash Flows for the Three Months Ended March 31, 2022 and 2021
The following table summarizes our cash flows for the periods indicated:
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Net cash (used in) provided by: |
|
|
|
| ||
Operating activities | $ | (7,912,074) | $ | (5,073,394) | ||
Financing activities |
| 5,367,147 |
| 11,050,623 | ||
Net (decrease) increase in cash and cash equivalents | $ | (2,544,927) | $ | 5,977,229 | ||
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Operating Activities
Net cash used in operating activities during the three months ended March 31, 2022 of approximately $7.9 million was primarily attributable to our net loss of approximately $9.6 million, partially offset by non-cash expenses of approximately $0.3 million, mainly related to common stock issued to consultants of approximately $0.1 million and stock-based compensation of approximately $0.2 million, as well as increases in accounts payable and accrued expense of approximately $1.1 million and a decrease in prepaid expenses of $0.3 million.
Net cash used in operating activities during the three months ended March 31, 2021 of approximately $5.1 million was primarily attributable to our net loss of approximately $7.7 million, partially offset by non-cash expenses of approximately $0.7 million, related to common stock and warrants issued to consultants of approximately $1.0 million, depreciation and amortization of approximately $0.1 million, and stock-based compensation of approximately $0.8 million and a net increase of working capital of approximately $0.7 million.
Financing Activities
Net cash provided by financing activities of approximately $5.4 million for the three months ended March 31, 2022 was primarily due to the net proceeds of approximately $8.0 million from the March 2022 registered direct offering of Common Stock and warrants, partially offset by approximately $2.4 million of cash payments made related to the Merger Agreement.
Net cash provided by financing activities of approximately $11.1 million for the three months ended March 31, 2021 was primarily due to the net proceeds of approximately $7.1 million from the January 2021 offerings of the Series C Preferred Stock and warrants, the net proceeds of approximately $9.1 million from the March 2021 offering from the sale issuance of the Common Stock and warrants, and the cash proceeds from warrant exercises of approximately $4.6 million, offset by repayments of approximately $0.2 million related to the note payable, and payment of approximately $9.5 million related to the FWB license agreement.
Critical Accounting Policies and Estimates
Our accounting policies are essential to understanding and interpreting the financial results reported on the consolidated financial statements. The significant accounting policies used in the preparation of our consolidated financial statements are summarized in Note 2 to the consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2021. Certain of those policies are considered to be particularly important to the presentation of our financial results because they require us to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.
During the three months ended March 31, 2022, there were no material changes to matters discussed under the heading “Critical Accounting Policies and Significant Judgments and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (as amended on Form 10-K/A filed with the SEC on May 10, 2022).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our CEO and our CFO each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) is accumulated and communicated to our management, including our CEO and our CFO, as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 19, 2022, the Representative filed the FWB Action against us for breach of contract and anticipatory repudiation or for unjust enrichment. The FWB Action seeks specific performance of our obligations under the Merger Agreement and Settlement Agreement, including all payments currently owed and to be owed to the Representative, and damages at the maximum amount permitted by law. We intend to vigorously defend the Company against the claims in the FWB Action and reserve all rights and remedies with respect to any counter-claims. There can be no assurance that we will be successful in our defense of the FWB Action. In the event that the Representative prevails in the FWB Action, we may have to further curtail our operations or take other actions to preserve our capital, including the filing of a petition for protection under applicable bankruptcy law.
ITEM 1A. RISK FACTORS
Our results of operations and financial condition are subject to numerous risks and uncertainties set forth below and described in our Annual Report on Form 10-K for our fiscal year ended December 31, 2021, filed on March 31, 2022 (as amended on Form 10-K/A filed with the SEC on May 10, 2022). You should carefully consider these risk factors in conjunction with the other information contained in this Quarterly Report. Should any of these risks materialize our business, financial condition and future prospects could be negatively impacted. Except as set forth below, as of May 23, 2022, there have been no material changes to the disclosures made in the above referenced Form 10-K (as amended on Form 10-K/A filed with the SEC on May 10, 2022).
Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of our Common Stock.
Our common stock is currently listed for trading on The Nasdaq Capital Market. We must satisfy The Nasdaq Capital Market’s continued listing requirements, including, among other things, a minimum stockholders’ equity of $2.5 million and a minimum bid price requirement of $1.00 per share or risk delisting, which would have a material adverse effect on our business. A delisting of our common stock from The Nasdaq Capital Market could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.
On November 26, 2021, we received notice from the Listing Qualifications Staff of Nasdaq indicating that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market, under Listing Rule 5550(b)(1) because our stockholders’ equity of $(6,969,988) as reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2021, was below the required minimum of $2.5 million, and because, as of November 24, 2021, we did not meet the alternative compliance standards, relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
On January 10, 2022, we submitted to Nasdaq a plan to regain compliance with Listing Rule 5550(b)(1). On February 15, 2022, Nasdaq notified us that they have granted us an extension of up to 180 calendar days from November 26, 2021, or through May 25, 2022, to regain compliance. If we fail to evidence compliance upon filing our periodic report for the quarter ending June 30, 2022, with the SEC, we may be subject to delisting. If Nasdaq determines to delist our common stock, we will have the right to appeal to a Nasdaq hearings panel and such hearing request would stay any suspension or delisting proceedings pending the conclusion of the hearings process.
Additionally, on May 16, 2022, we received notice from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for the prior 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq as set forth In Nasdaq Listing Rule 5550(a)(2). We will have 180 days from May 16, 2022, or through November 14, 2022, to regain compliance. If we do not regain compliance during the compliance period ending November 14, 2022, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we meet the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and notify Nasdaq of our intent to cure the deficiency. If we do not regain compliance within the allotted compliance periods, including any extensions that may be granted by Nasdaq, we may be subject to delisting. If Nasdaq determines to delist our common stock, we will have the right to appeal to a Nasdaq hearing panel.
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If our common stock were delisted from Nasdaq, trading of our common stock would most likely take place on an over-the-counter market established for unlisted securities, such as the OTCQB or the Pink Market maintained by OTC Markets Group Inc. An investor would likely find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors would likely not buy or sell our common stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted security, our common stock would be subject to SEC rules as a “penny stock,” which impose additional disclosure requirements on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability of investors to trade in our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including our ability to attract and retain qualified employees and to raise capital.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2022, we issued an aggregate of 90,057 shares of Common Stock to consultants with a grant date fair value of approximately $119,000 for investor relations services provided. Such issuance was exempt from registration under 4(a)(2) of the Securities Act.
During the three months ended March 31, 2022, we issued our non-executive Board members stock options to purchase an aggregate of 206,892 shares of Common Stock with a strike price of $1.45 per share, subject to time-based vesting, under the 2020 Plan as payment for services provided to the Board. Such issuance was exempt from registration under 4(a)(2) of the Securities Act.
During the three months ended March 31, 2022, we issued to non-executive employees stock options to purchase an aggregate of 154,000 shares of Common Stock with a strike price of $1.45 per share, subject to time-based vesting, under the 2020 Plan as payment for services rendered. Such issuance was exempt from registration under 4(a)(2) of the Securities Act.
During the three months ended March 31, 2022, we issued our former Chief Financial Officer stock options to purchase 10,000 shares of Common Stock with a strike price of $1.45 per share, subject to time-based vesting, under the 2020 Plan pursuant as payment for services rendered. Such issuance was exempt from registration under 4(a)(2) of the Securities Act.
During the three months ended March 31, 2022, we issued our former Chief Medical Officer stock options to purchase 7,500 shares of Common Stock with a strike price of $1.45 per share, subject to time-based vesting, under the 2020 Plan pursuant as payment for services rendered. Such issuance was exempt from registration under 4(a)(2) of the Securities Act.
During the three months ended March 31, 2022, we issued our Chief Executive Officer stock options to purchase 150,000 shares of Common Stock with a strike price of $1.45 per share, subject to time-based vesting, under the 2020 Plan pursuant as payment for services rendered. Such issuance was exempt from registration under 4(a)(2) of the Securities Act.
During the three months ended March 31, 2022, we issued our Chief Financial Officer stock options to purchase 150,000 shares of Common Stock with a strike price of $1.18 per share, subject to time-based vesting, under the 2020 Plan pursuant to the executive’s employment agreement. Such issuance was exempt from registration under 4(a)(2) the Securities Act.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
(b) | Exhibits |
Exhibit |
| Description |
3.1 |
| |
4.1 |
| |
4.2 | ||
4.3 | ||
4.4 | ||
10.1 | ||
10.2† | ||
10.3 | ||
31.1* |
| |
31.2* |
| |
32.1** |
| |
101.INS* |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 and included in Exhibit 101) |
*filed herewith
**furnished, not filed
†Indicates a management contract or compensation plan, contract or arrangement.
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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.
FIRST WAVE BIOPHARMA, INC. | ||
By | /s/ James Sapirstein | |
James Sapirstein | ||
President, Chief Executive Officer and | ||
(Principal Executive Officer) | ||
By | /s/ Sarah Romano | |
Sarah Romano | ||
Chief Financial Officer | ||
Date: May 23, 2022 | (Principal Financial and Accounting |
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