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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Commission file number
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange On Which Registered | ||
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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
The number of outstanding shares of the registrant’s common stock, $0.001 par value, as of August 11, 2022 was
NeuroBo Pharmaceuticals, Inc.
FORM 10-Q
INDEX
2
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
NeuroBo Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts and par value)
| June 30, |
| December 31, |
| |||
2022 | 2021 | ||||||
(unaudited) |
| ||||||
| |||||||
Assets | |||||||
Current assets: | |||||||
Cash | $ | | $ | | |||
Prepaid expenses | | | |||||
Total current assets |
| |
| | |||
Right-of-use assets and other | — | | |||||
Property and equipment, net |
| |
| | |||
Total assets | $ | | $ | | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | | $ | | |||
Accrued liabilities |
| |
| | |||
Lease liability, short-term | — | | |||||
Total current liabilities |
| |
| | |||
Lease liability, long-term | — | | |||||
Total liabilities |
| |
| | |||
Commitments and contingencies (Notes 4, 5, and 10) | |||||||
Stockholders’ equity | |||||||
Preferred stock, $ | |||||||
Common stock, $ |
| |
| | |||
Additional paid–in capital |
| |
| | |||
Accumulated other comprehensive income | — | | |||||
Accumulated deficit |
| ( |
| ( | |||
Total stockholders’ equity |
| |
| | |||
Total liabilities and stockholders’ equity | $ | | $ | | |||
See accompanying notes to condensed consolidated financial statements.
3
NeuroBo Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)
For the Three Months Ended | For the Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||
Operating expenses: |
|
|
|
|
| ||||||||
Research and development | $ | | $ | | $ | | $ | | |||||
General and administrative | | | | | |||||||||
Total operating expenses |
| |
| |
| |
| | |||||
Loss from operations |
| ( |
| ( |
| ( |
| ( | |||||
Interest income |
| — |
| |
| — |
| | |||||
Other expense | ( | — | ( | — | |||||||||
Loss before income taxes | ( | ( | ( | ( | |||||||||
Provision for income taxes | — | — | — |
| — | ||||||||
Net loss |
| ( |
| ( |
| ( |
| ( | |||||
Other comprehensive loss, net of tax |
| ( |
| ( |
| ( |
| ( | |||||
Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Loss per share: | |||||||||||||
Net loss per share, basic and diluted | ( | ( | ( | ( | |||||||||
Weighted average shares of common stock outstanding: | |||||||||||||
Basic and diluted |
| |
| |
| |
| | |||||
See accompanying notes to condensed consolidated financial statements.
4
NeuroBo Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
Additional | Accumulated | ||||||||||||||||||
Common Stock | Paid–In | Comprehensive | Accumulated | Total |
| ||||||||||||||
| Shares |
| Amount |
| Capital | Income |
| Deficit |
| Equity |
| ||||||||
Balance at December 31, 2020 | | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Issuance of common stock and warrants in connection with equity financing | | | | — | — | | |||||||||||||
Transaction costs in connection with equity financing | — | — | ( | — | — | ( | |||||||||||||
Stock–based compensation | — | — | | — | — | | |||||||||||||
Foreign currency translation adjustment | — | — | — | ( | — | ( | |||||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||||
Balance at March 31, 2021 | | | $ | | $ | | $ | ( | $ | | |||||||||
Stock–based compensation | — | — | | — | — | | |||||||||||||
Exercise of stock options | | — | | — | — | | |||||||||||||
Foreign currency translation adjustment | — | — | — | ( | — | ( | |||||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||||
Balance at June 30, 2021 | | | $ | | $ | | $ | ( | $ | | |||||||||
Balance at December 31, 2021 | | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Stock–based compensation | — | — | | — | — | | |||||||||||||
Foreign currency translation adjustment | — | — | — | ( | — | ( | |||||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||||
Balance at March 31, 2022 | | | | | ( | | |||||||||||||
Stock–based compensation | — | — | | — | — | | |||||||||||||
Foreign currency translation adjustment | — | — | — | ( | — | ( | |||||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||||
Balance at June 30, 2022 | | | | — | ( | | |||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
NeuroBo Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the Six Months Ended |
| ||||||
June 30, |
| ||||||
2022 | 2021 |
| |||||
Operating activities | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Stock-based compensation |
| |
| | |||
Non-cash lease expense | | | |||||
Depreciation |
| |
| | |||
Loss on sale of property and equipment | | — | |||||
Change in assets and liabilities, net of the effects of the asset acquisition: | |||||||
Prepaid expenses and other assets |
| ( |
| ( | |||
Accounts payable |
| ( |
| ( | |||
Accrued and other liabilities |
| ( |
| ( | |||
Net cash used in operating activities |
| ( |
| ( | |||
Investing activities | |||||||
Purchases of property and equipment |
| — |
| ( | |||
Sale of property and equipment | | — | |||||
Net cash provided by (used in) investing activities |
| |
| ( | |||
Financing activities | |||||||
Proceeds from equity offering | — | | |||||
Issuance costs | — | ( | |||||
Exercise of stock options | — | | |||||
Net cash provided by financing activities |
| — |
| | |||
Net decrease in cash |
| ( |
| ( | |||
Net foreign exchange difference | — | ( | |||||
Cash at beginning of period |
| |
| | |||
Cash at end of period | $ | | $ | | |||
Supplemental non-cash investing and financing transactions: | |||||||
Modification of right-of-use asset and associated lease liability | $ | | $ | — | |||
See accompanying notes to condensed consolidated financial statements.
6
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts) (unaudited)
1. The Company and Basis of Presentation
NeuroBo Pharmaceuticals, Inc. (together with its subsidiaries, the “Company” or “NeuroBo”), is a clinical-stage biotechnology company with four therapeutics programs designed to impact a range of indications in viral, neurodegenerative and cardiometabolic disease:
| ● | ANA001, which is a proprietary oral niclosamide formulation is being developed as a treatment for patients with moderate coronavirus disease (COVID-19). Enrollment in the Phase 2 clinical trial for ANA001 was closed in July 2022 and a Phase 3 component is planned dependent on the outcome of the Phase 2 data and feedback from the FDA.; |
| ● | NB-01, which was primarily focused on the development of a treatment for painful diabetic neuropathy (PDN). The Company is currently exploring alternatives with respect to the future of NB-01, including bringing the NB-01 asset to the market through a different regulatory pathway, such as with an orphan drug indication or as a nutraceutical; |
| ● | NB-02, which has the potential to treat the symptoms of cognitive impairment and modify the progression of neurodegenerative diseases associated with the malfunction of a protein called tau, and with amyloid beta plaque deposition. The Company has postponed continued work on the Investigation New Drug application to the FDA for NB-02 and the first human clinical trials for NB-02 until global health and macroeconomic conditions improve. The Company is also considering engaging with a strategic partner with respect to further development of NB-02; and |
| ● | Gemcabene, which is currently being assessed as an acute indication for COVID-19 in combination with ANA001. Gemcabene was previously focused on developing and commercializing therapies for the treatment of dyslipidemia, a serious medical condition that increases the risk of life-threatening cardiovascular disease, focused on orphan indications such as homozygous familial hypercholesterolemia, as well as nonalcoholic fatty liver disease/nonalcoholic steatohepatitis. |
The Company’s operations have consisted principally of performing research and development activities, clinical development and raising capital. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before sustainable revenues and profit from operations are achieved.
COVID-19
The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to the Company’s operations and business plan. The Company has closely monitored recent COVID-19 developments, including the lifting of COVID-19 safety measures, the drop in vaccination rates, the implementation of, and reaction to, vaccine mandates, the spread of new strains or variants of coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business continues to be highly uncertain and difficult to predict, as the responses that the Company and other businesses and governments are taking continue to evolve. The Company continues to actively monitor the evolving effects of COVID-19 and the effects on the Company’s business and operations.
To date, with the exception of the postponement of first human clinical trials for NB-02, the Company has not experienced any significant external changes in its business that would have a significant negative impact on its consolidated statements of operations or cash flows.
7
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
Exclusive of the development of certain of the Company’s proposed therapies, the severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s service providers, suppliers, contract research organizations and the Company’s clinical trials, all of which are uncertain and cannot be predicted. The economic effect of the COVID-19 pandemic combined with increased geopolitical uncertainty and rising inflation could result in a negative impact on the Company. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
War in Ukraine
The Company is subject to risks and uncertainties as a result of the war in Ukraine that commenced in February 2022. As the Company closed enrollment in its Phase 2 clinical trial for ANA001, it did not ultimately conduct a portion of the clinical trial in Poland and Ukraine.
Basis of presentation and consolidation principles
The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements may not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited financial statements.
In the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The condensed consolidated financial statements of the Company include a South Korean subsidiary, NeuroBo Co., LTD., which is fully owned by the Company. All significant intercompany accounts and transactions have been eliminated in the preparation of the financial statements.
Going Concern
From its inception through June 30, 2022, the Company has devoted substantially all of its efforts to drug discovery and development and conducting clinical trials. The Company has a limited operating history and the sales and income potential of the Company's business and market are unproven. To date, the Company has raised capital principally through the registered offerings and private placements of common stock, warrants and redeemable convertible preferred stock as well as via the issuance of convertible notes. The Company will need to continue to raise a substantial amount of funds until it is able to generate sufficient revenues to fund its development activities. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company's cost structure. As of June 30, 2022, the Company had $
8
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
conditions raise substantial doubt about the Company's ability to continue as a going concern.
The determination as to whether the Company can continue as a going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of liabilities in the normal course of business.
The Company believes that its existing cash will be sufficient to fund its operations into the first quarter of 2023. The Company plans to continue to fund its operations and capital funding needs through a combination of equity offerings, debt financings, or other sources, potentially including collaborations, licenses and other similar arrangements. There can be no assurance that the Company will be able to obtain any sources of financing on acceptable terms, or at all. To the extent that the Company can raise additional funds by issuing equity securities, the Company's stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company's ability to conduct its business. If the Company is unable to raise additional capital, it may have a material adverse effect on the Company.
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company's condensed consolidated financial statements relate to accrued expenses and the fair value of stock-based compensation and warrant issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgements about the carrying values of assets and liabilities. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including salaries and stock-based compensation costs, for personnel in functions not directly associated with research and development activities. Other significant costs include legal fees related to intellectual property and corporate matters and professional fees for accounting and other services.
Research and Development Costs
Research and development costs are charged to expense as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with Accounting Standards Codification (“ASC”) 730, Research and Development.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”). Accordingly, compensation costs related to equity instruments granted are recognized
9
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
at the grant-date fair value. The Company records forfeitures when they occur. Stock-based compensation arrangements to non-employees are accounted for in accordance with the applicable provisions of ASC 718 using a fair value approach.
Other Expense
Other expense represents non-operating costs, including losses on the sale of property and equipment, and on translations of foreign currency, when incurred.
Recent Accounting Pronouncements Not Yet Adopted
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2022 for smaller reporting companies, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact of the adoption of this ASU on its condensed consolidated financial statements.
3. Balance Sheet Detail
Property and Equipment
Property and equipment consist of the following as of:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Research and development equipment | $ | - | $ | | ||||
Office equipment | | | ||||||
Total property and equipment | | | ||||||
Less accumulated depreciation | ( | ( | ||||||
Property and equipment, net | $ | | $ | | ||||
During the three and six months ended June 30, 2022, the Company sold its property and equipment in relation to its termination of its lease in Korea, as further described in Note 4, “Commitments and Contingencies” and recognized a loss on sale of $
10
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
Accrued liabilities
Accrued liabilities consist of the following as of:
| June 30, | December 31, |
| ||||
2022 | 2021 |
| |||||
External research and development expenses | $ | | $ | | |||
Payroll related |
| |
| | |||
Professional services | | | |||||
Other |
| |
| | |||
Total | $ | | $ | | |||
4. Commitments and Contingencies
Operating Leases
Boston Lease
On May 14, 2021, the Company entered into a non-cancelable operating lease for its corporate headquarters located in Boston Massachusetts. The agreement, effective August 1, 2021, had a
Prior to August 2021, the Company entered a non-cancelable operating lease for its corporate headquarters effective February 1, 2021. The lease had a
Lease in Korea
In May 2019, the Company entered an operating lease for its new facility in Korea (the “Korea Lease”). The initial lease term was
The operating lease was subject to a deposit, base rent payments and additional charges for utilities and other common
11
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
costs. The Company recorded non-cash expense related to the Korea Lease of $
Xiehecheng Cultivation Service Agreement
On September 1, 2018, the Company entered into a cultivation service agreement with Xiehecheng Chinese Herm Limited Corporation for the cultivation of two plants used to manufacture certain of the Company's clinical assets.
As of June 30, 2022, future minimum payments of $
ANA Merger Milestone Payments
On December 31, 2020, the Company acquired
Milestone Event | Milestone Payment | |||||
First receipt of Marketing Approval (as defined in the 2020 Merger Agreement) from the FDA for any Niclosamide Product (as defined in the 2020 Merger Agreement) | $ | |||||
Sales Milestones: | ||||||
Milestone Event – Worldwide Cumulative Net Sales of a Niclosamide Product | ||||||
equal to or greater than: | Milestone Payment | |||||
$ | $ | $ | ||||
$ | $ | |||||
$ | $ | |||||
$ | $ | |||||
Additionally, pursuant to the 2020 Merger Agreement, the Company is obligated to pay a royalty of two and a half percent (
As of June 30, 2022,
12
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
YourChoice License Agreement
In connection with the 2020 Merger, the Company assumed the license agreement between ANA and Your Choice Therapeutics, Inc. (the “YourChoice Agreement”). Prior to the 2020 Merger, YourChoice Therapeutics, Inc. granted to ANA, during the term of the YourChoice Agreement, an exclusive, worldwide, fee-bearing license derived from the licensed intellectual property throughout the world. The fees due under the YourChoice Agreement include royalty payments of
Gemphire Contingent Value Rights Agreement.
On December 30, 2019, the Company was party to a definitive merger agreement (the “2019 Merger”) with Gemphire Therapeutics, Inc. (“Gemphire”). In connection with the 2019 Merger, Gemphire entered into the Contingent Value Rights Agreement (the “CVR Agreement”) with Grand Rapids Holders’ Representative, LLC, as representative of Gemphire’s stockholders prior to the 2019 Merger (the “Holders’ Representative”), and Computershare Inc. and Computershare Trust Company, N.A. as the rights agents (collectively, the “Rights Agent”). Under the CVR Agreement, which NeuroBo assumed in connection with the 2019 Merger, the holders of Gemphire shares at the time of the 2019 Merger (collectively, the “CVR Holders”) were entitled to receive
On March 23, 2021, NeuroBo, the Holders’ Representative, and the Rights Agent entered into the First Amendment to Contingent Value Rights Agreement (the “CVR Amendment”) to amend the CVR Agreement. Pursuant to the CVR Amendment, (i) the CVR Holders will continue to have the right to receive
As of June 30, 2022,
Pfizer License Agreement
Upon the close of the 2019 Merger, an exclusive license agreement with Pfizer, Inc. (“Pfizer”) for the clinical product candidate Gemcabene (the “Pfizer Agreement”) was assumed by the Company. Under the Pfizer Agreement, in exchange for this worldwide exclusive right and license to certain patent rights to make, use, sell, offer for sale and import the clinical product Gemcabene, the Company has agreed to certain milestone and royalty payments on future sales.
The Company agreed to make milestone payments totaling up to $
13
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
certain aggregate sales levels of Gemcabene. Future milestone payments under the Pfizer Agreement, if any, are not expected to begin for at least several years and extend over a number of subsequent years.
The Company also agreed to pay Pfizer tiered royalties on a country-by-country basis based upon the annual amount of net sales, as specified in the Pfizer Agreement, until the later of: (a)
As of June 30, 2022, there was sufficient uncertainty with regard to both the outcome of the clinical trials and the ability to obtain sufficient funding to support any of the cash milestone payments, and as such,
Contingencies
From time to time, the Company may be subject to various claims and suits arising in the ordinary course of business. The Company does not expect that the resolution of these matters will have a material adverse effect on its financial position or results of operations.
5. License and Collaboration Agreement
Beijing SL License and Collaboration Agreement
Upon the close of the 2019 Merger, the License and Collaboration Agreement (the “Beijing SL Agreement”) with Beijing SL Pharmaceutical Co., Ltd. (“Beijing SL”) was assumed by the Company, pursuant to which the Company granted Beijing SL an exclusive royalty-bearing license to research, develop, manufacture and commercialize pharmaceutical products comprising, as an active ingredient, Gemcabene in mainland China, Hong Kong, Macau and Taiwan. The terms of the Beijing SL Agreement include payments based upon achievement of milestones and royalties on net product sales. Under the Beijing SL Agreement, the Company has variable consideration in the form of milestone payments. As of June 30, 2022,
6. Stockholders’ Equity
Warrants
The following warrants were outstanding as of June 30, 2022 and December 31, 2021:
Number of Warrants: | ||||||||
Warrant Issuance | June 30, 2022 | December 31, 2021 | Exercise Price | Expiration Date | ||||
March 2017 | - | | $ | March 2022 | ||||
July 2018 | | | $ | July 2028 | ||||
April 2020 | | | $ | April 2025 | ||||
January 2021 | | | $ | July 2026 | ||||
October 2021 | $ | April 2025 | ||||||
Total | ||||||||
14
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
7. Stock-based Compensation
Stock-based compensation expense was included in general and administrative costs as follows in the accompanying statements of comprehensive loss:
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | |||||||
General and administrative | $ | | $ | | $ | | $ | | |||||
Stock Options
In December 2019, in connection with the 2019 Merger, the Company assumed a previously adopted stock option plan (the 2018 Plan) and adopted the 2019 Equity Incentive Plan (the “2019 Plan”), and in November 2021, the Company adopted the 2021 Inducement Plan. The 2018 Plan, the 2019 Plan and the 2021 Inducement Plan provide for the grant of stock options, restricted stock and other equity awards of the Company's common stock to employees, officers, consultants, and directors. Options expire within a period of not more than
On May 11, 2022, the Company terminated the 2018 Plan. As of the date of termination, there were
The following table summarizes the Company’s activity related to its stock options for the six months ended June 30, 2022:
Weighted‑ | |||||||||||
Weighted | Average | Aggregate | |||||||||
Average | Remaining | Intrinsic | |||||||||
Number of | Exercise | Contractual | Value | ||||||||
Options | Price | Term (years) | (in thousands) | ||||||||
Outstanding at December 31, 2021 | | $ | | $ | — | ||||||
Granted | | $ | | — | — | ||||||
Exercised | - | $ | — | — | $ | — | |||||
Forfeited/Cancelled | ( | $ | | — | — | ||||||
Outstanding at June 30, 2022 | | $ | | $ | | ||||||
Vested and expected to vest at June 30, 2022 | | $ | | $ | | ||||||
Options exercisable at June 30, 2022 | | $ | | $ | - | ||||||
During the three and six months ended June 30, 2022,
The Company measures the fair value of stock options on the date of grant using the Black-Scholes option pricing model. The Company does not have history to support a calculation of volatility and expected term. As such, the Company has used a weighted-average volatility considering the volatilities of several guideline companies.
For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading
15
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
history, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average expected life of the options was determined based on the mid-point between the vesting date and the end of the contractual term according to the “simplified method” as described in Staff Accounting Bulletin 110. The risk-free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when they occur.
The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows:
Six Months Ended | |||||||||
June 30, | |||||||||
| 2022 | 2021 | |||||||
Expected stock price volatility | % | — | % | ||||||
Expected life of options (years) | — | ||||||||
Expected dividend yield | — | % | — | % | |||||
Risk free interest rate | % | — | % | ||||||
Evergreen provision
Under the 2019 Plan, the shares reserved automatically increase on January 1st of each year, for a period of not more than
During the three months ended June 30 2022 and 2021,
As of June 30, 2022,
8. Net Loss Per Common Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities if their effect is antidilutive. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury stock method. Dilutive common stock equivalents are comprised of options outstanding under the Company's stock option plans and warrants. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be antidilutive.
16
NeuroBo Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements -continued
(Dollar amounts in thousands, except per share amounts) (unaudited)
The following potential common shares were not considered in the computation of diluted net loss per share as their effect would have been anti-dilutive:
Three Months Ended | Six Months Ended | |||||||
June 30, | June 30, | |||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |
Stock options | | | | | ||||
Warrants | | | | | ||||
9. Income Taxes
The effective tax rate for the three and six months ended June 30, 2022 and 2021 was
On December 27, 2020, the President of the United States signed the Consolidated Appropriations Act, 2021 (“Consolidated Appropriations Act”) into law. The Consolidated Appropriations Act is intended to enhance and expand certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), allows for the deductions of expenses related to the Paycheck Protection Program funds received by companies, and provides an update to meals and entertainment expensing for 2021. The Consolidated Appropriations Act did not have a material impact to the Company’s income tax provision.
10. Related Party Transactions
Agreements with Dong-A ST
On September 28, 2018, the Company entered into a
On June 7, 2020, the Company entered into a manufacturing and supply agreement (the “Manufacturing and Supply Agreement”) with Dong-A ST for the manufacturing and supply of NB-02 drug product and placebo for the purpose of research and development of NB-02, including but not limited to, the use in the first NB-02 human clinical trial to be conducted by the Company. Under the terms of the Manufacturing and Supply Agreement, upon receipt of a purchase order from the Company no later than 270 days prior to the requested delivery date, Dong-A ST has agreed to produce for the Company tablets of the NB-02 drug substance and placebos at a specified supply price. The Company is obligated to manufacture, or have manufactured, and supply to Dong-A ST the active pharmaceutical ingredients which are necessary to manufacture the NB-02 drug product. The Manufacturing and Supply Agreement has a
17
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report and the audited financial statements and related notes for the fiscal year ended December 31, 2021 included in our Annual Report on Form 10-K (“2021 Form 10-K”) filed by the Company with the SEC on March 31, 2022.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), that are based on management’s beliefs, assumptions and expectations and information currently available to management. All statements that address future operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements, including without limitation, our expectations regarding the potential impacts of the COVID-19 pandemic on our business operations, cash flow, business development, and employees, our ability to execute on our strategic realignments, our clinical activities, benefits of our proposed products to patients, our expectations with respect to product development and commercialization efforts, potentially competitive product offerings, the possibility that we may be unable to raise sufficient funds necessary for our anticipated operations, intellectual property protection, our ability to integrate acquired businesses, our expectations regarding anticipated synergies with and benefits from acquired businesses and other risks and uncertainties described in our filings with the SEC.
In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on forward-looking statements because they speak only as of the date when made. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that might subsequently arise.
Forward-looking statements are subject to a number of risks and uncertainties that could cause actual events to adversely differ from the expectations indicated in these forward-looking statements, including without limitation, the risks and uncertainties described in our 2021 Form 10-K, and in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. We operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. We may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and actual results, developments or events could differ materially from those disclosed in the forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, including without limitation, the possibility that regulatory authorities do not accept our application or approve the marketing of our products, the possibility we may be unable to raise the funds necessary for the development and commercialization of our products, and those described in our filings with the SEC.
Overview
NeuroBo Pharmaceuticals, Inc. (the “Company,” “we,” “us” or “our”) is a clinical-stage biotechnology company focused on developing and commercializing novel pharmaceuticals to treat viral neurodegenerative and cardiometabolic diseases affecting millions of patients worldwide. For more information on our business and our four product candidates, ANA001, NB-01, NB-02 and Gemcabene, see “Business-Overview” in Part I, Item 1 of our Annual Report on From 10-K filed on March 31, 2022.
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Recent Developments
COVID-19
The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to our operations and business plan. We have closely monitored recent COVID-19 developments, including the lifting of COVID-19 safety measures, the drop in vaccination rates, the implementation of, and reaction to, vaccine mandates, the spread of new strains or variants of coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. We continue to actively monitor the evolving effects of COVID-19 and the effects on our business and operations.
To date, except for the adjustments to scientific activity described under “Current Scientific Activity” below, we have not experienced any external changes in our business that would have a significant negative impact on our condensed consolidated statements of operations and comprehensive loss or cash flows.
Exclusive of the development of certain of our proposed therapies, the severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our service providers, suppliers, contract research organizations and our clinical trials, all of which are uncertain and cannot be predicted. The economic effect of the COVID-19 pandemic combined with increased geopolitical uncertainty and rising inflation could result in a negative impact on us. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.
Current Scientific Activity
In light of the present business environment, including the impact of the COVID-19 pandemic, we are currently conducting the scientific activities described below with a view toward conserving financial resources.
ANA001, our lead drug candidate, is a proprietary oral niclosamide formulation and is being developed as a treatment for patients with moderate COVID-19. Niclosamide is a potential oral antiviral and anti-inflammatory agent with a long history of use and well-understood safety in humans. Enrollment in the Phase 2 clinical trial of ANA001 for treatment of moderate COVID-19 in hospitalized patients was closed in July 2022 and the clinical trial moved to the data analysis phase. Our determination to close enrollment related in part to the challenges and delays caused by a decreased number of eligible subjects and a changing COVID-19 environment, which was due to a number of factors including, the high prevalence of COVID-19 immunity (through vaccination or previous infection), availability of alternate treatments, and decreased COVID-19 hospitalizations which in turn greatly limits the number of eligible subjects needed for the clinical trial. At the time of closure 48 participants had been enrolled which is statistically sufficient for us to analyze the clinical trial data and achieve the objective of the study, which was determining the safety and tolerability of ANA001 for treatment of COVID-19. Following an analysis of the clinical trial data, which is expected in the fourth quarter of 2022, the Company will be able to begin discussions with the Food and Drug Administration regarding the next steps in the clinical development of ANA001 for treatment of COVID-19.
NB-01. We have determined to cease development of NB-01 on the prior regulatory pathway and not to advance to Phase 3 clinical trials.
The Company is currently evaluating various alternatives regarding the NB-01 asset. These alternatives include two potential development pathways.
| ● | Orphan drug. Development of NB-01 as an orphan drug is among the alternatives the Company is considering. |
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| ● | Nutraceutical. The Company has considered marketing NB-01 as a nutraceutical (non-pharmaceutical) product, and the Company may re-explore this pathway if the identified rare disease indication for NB-01 does not proceed. |
NB-02. In order to preserve operating capital, we have postponed continued work on the Investigation New Drug application to the FDA for NB-02 and the first human clinical trials for NB-02 until global health and macroeconomic conditions improve. We are also considering engaging with a strategic partner with respect to further development of NB-02.
Gemcabene. We are currently exploring additional therapeutic indications for Gemcabene that may strengthen our pipeline of assets, this includes COVID-19 in combination with ANA001.
Going Concern
We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates. To date, we have not generated any revenue from product sales, collaborations with other companies, government grants or any other source, and do not expect to generate any revenue in the foreseeable future, and have been dependent on funding operations through the sale of equity securities.
As of June 30, 2022, we had an accumulated deficit of $88.0 million. Our net losses were $3.3 million and $3.9 million for the three months ended June 30, 2022 and 2021, respectively, and $6.2 million and $7.2 million for the six months ended June 30, 2022 and 2021, respectively. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
| ● | pursue clinical development for any of our current product candidates; |
| ● | initiate preclinical studies and clinical trials with respect to any additional indications for our current product candidates and any future product candidates that we may pursue; |
| ● | acquire or in-license other product candidates and/or technologies; |
| ● | develop, maintain, expand and protect our intellectual property portfolio; |
| ● | hire additional clinical, scientific and commercial personnel; |
| ● | establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval; |
| ● | seek regulatory approvals for any product candidates that successfully complete clinical trials; |
| ● | establish a sales, marketing and distribution infrastructure and/or enter into partnership arrangements to commercialize any products for which we may obtain regulatory approval; or |
| ● | add administrative, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, and to support our being a public reporting company |
As of June 30, 2022, we had cash of $8.8 million. Operating at such level of scientific activity, we expect that our cash will be adequate to fund operations into the first quarter of 2023. Although we are exploring financing opportunities and carefully monitoring the capital markets, we do not yet have any commitments for additional financing and may not be successful in our efforts to raise additional funds. Any amounts raised will be used for further development of our product candidates and for other working capital purposes.
The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplate our continuation as a going concern. We have not established a source of revenues and, as such, have been dependent on funding operations through the sale of equity securities. Since inception, we have experienced significant losses and incurred negative cash flows from operations. We expect to incur further losses over the next
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several years as we develop our business. We have spent, and expect to continue to spend, a substantial amount of funds in connection with implementing our business strategy.
These factors individually and collectively raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments or classifications that may result from our possible inability to continue as a going concern.
Results of Operations
The following table summarizes our operating results for the periods indicated:
For the Three Months Ended | For the Six Months Ended |
| |||||||||||||||||
June 30, | June 30, | ||||||||||||||||||
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change | ||||||||
(in thousands) | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||
Research and development | $ | 982 | $ | 2,012 | $ | (1,030) | $ | 1,902 | $ | 3,155 | $ | (1,253) | |||||||
General and administrative | 2,237 | 1,914 | 323 | 4,192 | 4,101 | 91 | |||||||||||||
Total operating expenses |
| 3,219 |
| 3,926 |
| (707) |
| 6,094 |
| 7,256 |
| (1,162) | |||||||
Loss from operations |
| (3,219) |
| (3,926) |
| 707 |
| (6,094) |
| (7,256) |
| 1,162 | |||||||
Interest income |
| — |
| 5 |
| (5) |
| — |
| 11 |
| (11) | |||||||
Other expense, net | (84) | — | (84) | (84) | — | (84) | |||||||||||||
Loss before income taxes | (3,303) | (3,921) | 618 | (6,178) | (7,245) | 1,067 | |||||||||||||
Provision for income taxes | — | — | — | — | — | — | |||||||||||||
Net loss | $ | (3,303) | $ | (3,921) | $ | 618 | $ | (6,178) | $ | (7,245) | $ | 1,067 | |||||||
Comparison of Three Months Ended June 30, 2022 and 2021
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs to operations as incurred.
Research and development expenses were approximately $1.0 million for the three months ended June 30, 2022 as compared to approximately $2.0 million for the three months ended June 30, 2021. The approximate $1.0 million decrease was primarily related to reduced clinical trial activity and drug manufacturing costs of approximately $0.8 million as enrollment in our ANA 001 clinical trial slowed, and reduced payroll and consulting costs of approximately $0.2 million.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services.
General and administrative expenses were approximately $2.2 million for the three months ended June 30, 2022, compared to approximately $1.9 million for the three months ended June 30, 2021. The increase of approximately $0.3 million in the current period was primarily due an increase in legal and professional fees of approximately $0.5 million, partly related to exploration of business opportunities, offset by a decrease in insurance costs of approximately $0.1 million, and decreases in payroll, professional fee and overhead costs in the aggregate of approximately $0.1
21
million.
Interest Income
Interest income for the three months ended June 30, 2022 was nominal. Interest Income for the three months ended June 30, 2021 was approximately $5,000.
Other Expense
During the three months ended June 30, 2022, the Company recorded approximately $0.1 million of other expense primarily related to the loss on sale of fixed assets.
Comparison of Six Months Ended June 30, 2022 and 2021
Research and Development Expenses
Research and development expenses were approximately $1.9 million for the six months ended June 30, 2022 as compared to approximately $3.2 million for the six months ended June 30, 2021. The approximate $1.3 million decrease was primarily related to reduced clinical trial activity and drug manufacturing costs of approximately $0.8 as enrollment for our ANA 001 clinical trial slowed and reduced payroll and consulting costs of approximately $0.4 million.
General and Administrative Expenses
General and administrative expenses were approximately $4.2 million for the six months ended June 30, 2022, compared to approximately $4.1 million for the six months ended June 30, 2021. The increase of approximately $0.1 million in the current period was primarily due an increase in legal and professional fees of approximately $0.4 million, partly related to the exploration of business opportunities, offset by a decrease in insurance costs of approximately $0.2 million, and decreases in payroll, professional fees and overhead costs in the aggregate of approximately $0.1 million.
Interest Income
Interest income for the six months ended June 30, 2022 was nominal. Interest Income for the six months ended June 30, 2021 was approximately $11,000.
Other Expense
During the six months ended June 30, 2022, the Company recorded approximately $0.1 million of other expense primarily related to the loss on sale of fixed assets.
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Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the periods indicated:
For the Six Months Ended | |||||||
June 30, | |||||||
| 2022 | 2021 |
| ||||
(in thousands) | |||||||
Net cash used in operating activities | $ | (7,546) | $ | (9,728) | |||
Net cash provided by (used in) investing activities |
| 8 | (3) | ||||
Net cash provided by financing activities |
| — | 9,164 | ||||
Net decrease in cash | $ | (7,538) | $ | (567) | |||
Operating Activities
During the six months ended June 30, 2022, cash used from operating activities was approximately $7.5 million, consisting of our net loss of approximately $6.2 million, changes in working capital cash usage in the amount of approximately $1.9 million. offset by non-cash expenses related primarily to stock-based compensation of approximately $0.5 million. The change in working capital consisted primarily of increases in our prepaid expenses due to the annual renewal of our insurance policies in January 2022 as well as due to decreases in our accrued liabilities associated with fluctuations of our operating expenses under the normal course of business.
During the six months ended June 30, 2021, cash used in operating activities was approximately $9.7 million, which consisted of our net loss of approximately $7.2 million, changes in working capital and cash usage in the amount of approximately $2.9 million offset by non-cash expenses related primarily to stock-based compensation and depreciation in the aggregate of approximately $0.4 million.
Investing Activities
Cash provided by investing activities was approximately $8,000 during the six months ended June 30, 2022 related to the sale of equipment. Cash used in investing activities during the six months ended June 30, 2022 was approximately $3,000 related to the purchase of equipment.
Financing Activities
There was no cash provided by financing activities during the six months ended June 30, 2022. During the six months ended June 30, 2021, net cash provided by financing activities was approximately $9.2 million, consisting of net proceeds from a private placement financing of approximately $9.1 million, and approximately $72,000 in proceeds received from the exercise of stock options.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the periods presented. We believe that the estimates and judgments upon which we rely are reasonably based upon information available to us at the time that we make these estimates and judgments. To the extent that there are material differences between these estimates and actual results, our financial results will be affected. The accounting policies that reflect our more significant estimates and judgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial
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results are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2021 Form 10-K filed on March 31, 2022.
During the three and six months ended June 30, 2022, there were no material changes to our critical accounting policies or estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Form 10-K filed on March 31, 2022.
Recent Accounting Pronouncements
Refer to Note 2— Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this report for a discussion of recently issued accounting pronouncements.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure.
We designed and evaluate our disclosure controls and procedures recognizing that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance and not absolute assurance of achieving the desired control objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Under the supervision of and with the participation of our management, including our principal executive and financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15(d)- 15(e) promulgated under the Exchange Act as of June 30, 2022. Based on this evaluation, our principal executive and financial officer concluded that our disclosure controls and procedures were not effective as of June 30, 2022 as a result of the material weaknesses described below and previously reported in our 2021 Form 10-K.
In connection with the preparation of the financial statements included in our 2021 Form 10-K, management identified material weaknesses resulting from a lack of segregation of duties over financial reporting, and logical access over computer applications. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, there was a lack of segregation of duties involved in the execution of wire transfers, preparing journal entries, and review over clinical trial accruals, and certain individuals in the accounting department have administrative access to the financial reporting systems. See “Remediation Efforts to Address the Material Weaknesses” below for steps we are taking to correct these material weaknesses.
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Changes in Internal Control Over Financial Reporting
Except as provided below under “Remediation Efforts to Address Material Weaknesses,” there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Remediation Efforts to Address Material Weaknesses
We are in the process of remediating, but have not yet remediated, the material weaknesses described above. Under the oversight of the audit committee, management is developing a detailed plan and timetable for the implementation of appropriate remedial measures to address the material weaknesses. As of the date of this quarterly report, we have taken the following actions and are in the process of making the following changes in our internal control environment to help remediate the material weaknesses:
| ● | we will enhance the controls over wire disbursements, separating the functions of initiating and wiring to two separate individuals; |
| ● | we have improved processes in the area of clinical site expense monitoring, including increasing communication between our accounting and clinical personnel, as well as with our clinical vendors; |
| ● | We will implement enhanced controls relative to the review and oversight of the accounting for clinical trial expenses and the review of journal entries. |
| ● | We will restrict administrator rights to only those individuals who require access. |
Management may decide to take additional measures to remediate the material weaknesses as necessary.
PART II — OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
ITEM 1A.RISK FACTORS
Not applicable
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5.OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
EXHIBIT |
| DESCRIPTION OF DOCUMENT |
10.1* | Amendment to Membership Agreement, dated April 19, 2022, by and between WeWork and the Registrant. | |
31.1* | ||
32.1** | ||
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
* | Filed herewith | |
** | Furnished herewith. The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is deemed furnished and not filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of NeuroBo Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. | |
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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.
Registrant: NeuroBo Pharmaceuticals, Inc.
SIGNATURE | DATE | ||||||||
/s/ BEN GIL PRICE | August 12, 2022 | ||||||||
Ben Gil Price | |||||||||
President and Chief Executive Officer | |||||||||
(Principal Financial Officer and duly authorized to sign on behalf of the registrant) | |||||||||
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