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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2021

 

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 000-55331

 

REBUS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-0438951

State or other jurisdiction of
incorporation or organization

 

(I.R.S. Employer
Identification No.)

 

2629 Townsgate Road Suite 215
Westlake Village, CA

  91361
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (818) 597-7552

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Class   Trading Symbol   Name of Each Exchange on Which Registered
N/A   N/A   N/A

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.0001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes   ☒ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes   ☒ No

 

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. ☒ Yes   ☐ No

 

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). ☒ Yes   ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act

 

Large accelerated filer Accelerated filer
Non-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes   ☒ No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed using the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $3,675,301 based on a closing price of $0.5175 per share on such date after applying 1-for-75 reverse stock split effective October 12, 2021). As of June 30, 2021, there were approximately 7,102,031 shares of the registrant’s common stock outstanding (after applying 1-for-75 reverse stock split effective October 12, 2021).

 

As of March 1, 2022, the issuer had 32,132,907 common shares, $0.0001 par value, issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

 

 

 

 

REBUS HOLDINGS, INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2021

 

INDEX

 

      Page
PART I
Item 1. Business   2
Item 1A. Risk Factors   9
Item 1B. Unresolved Staff Comments   23
Item 2. Properties   23
Item 3. Legal P roceedings   23
Item 4. Mine Safety Disclosure   23
       
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   24
Item 6. Selected Financial Data   26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk   31
Item 8. Financial Statements and Supplementary Data   31
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   32
Item 9A. Controls and Procedures   32
Item 9B. Other Information   33
       
PART III
Item 10. Directors, Executive Officers and Corporate Governance   34
Item 11. Executive Compensation   39
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   41
Item 13. Certain Relationships and Related Transactions, and Director Independence   44
Item 14. Principal Accounting Fees and Services   45
       
PART IV
Item 15. Exhibits, Financial Statement Schedules   46

 

i

 

 

PART I

 

We urge you to read this entire Annual Report on Form 10-K, including the “Risk Factors” section and the financial statements and related notes included herein. As used in this Annual Report, unless context otherwise requires, the words “we,” “us”, “our,” “the Company,” “Rebus Holdings, Inc.” and “Registrant” refer to Rebus Holdings, Inc.(formerly known as Inspyr Therapeutics, Inc.) Also, any reference to “common shares,” or “common stock,” refers to our $.0001 par value common stock. Also, any reference to “preferred stock” or “preferred shares” refers to our $0.0001 par value Series A preferred stock, our $0.0001 par value series B preferred stock, our $0.0001 par value Series C preferred stock, our $.0.0001 par value Series D preferred stock, our $0.0001 par value Series E Preferred Stock, and our $0.0001 par value Series F Preferred Stock. All references to common stock, share and per share amounts have been retroactively restated to reflect the 1:75 reverse stock split that became effective on October 12, 2021, as if it had taken place as of the beginning of the earliest period presented.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements relate to our business development plans, clinical trials, regulatory reviews, timing, strategies, expectations, anticipated expense levels, business prospects and positioning with respect to the market for our proposed products, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations), express our current intentions, beliefs, expectations, strategies or predictions, as well as historical information. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, to be materially different from anticipated results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “plan,” “intend,” “may,” “will,” “expect,” “believe,” “could,” “anticipate,” “estimate,” or “continue” or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Our future operating results are dependent upon many factors which are outside our control. You should not place undue reliance on forward-looking statements. Forward-looking statements may not be realized due to a variety of factors, including, without limitation, our ability to:

 

  continue to increase our corporate operations;

 

  attract, build and retain a senior management team;

 

  manage our business given continuing operating losses and negative cash flows;

 

  obtain sufficient capital or a strategic business arrangement to fund our operations and expansion plans;

 

  build the infrastructure necessary to support the growth of our business;

 

  manage competitive factors and developments beyond our control;

 

  manage scientific and medical developments which may be beyond our control;

 

  manage the governmental regulation of our business including state, federal and international laws;

 

  maintain and protect our intellectual property;

 

  obtain patents based on our current and/or future patent applications;

 

  obtain and maintain other rights to technology required or desirable to conduct or expand our business;

 

  achieve any potential strategic benefits of licensing transactions, collaborations, acquisitions, or in-licensing of new technologies, if any;

 

  successfully integrate the assets previously licensed to Ridgeway Therapeutics, Inc. pursuant to the termination of such license in October 2020; and

 

  manage any other factors discussed in the “Risk Factors” section, and elsewhere in this Annual Report.

 

All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise, except to the extent required by federal securities laws. The risks discussed in this report should be considered in evaluating our business and future prospects. 

 

1

 

 

ITEM 1. BUSINESS

 

Overview

 

Rebus Holdings, Inc. (fka Inspyr Therapeutics, Inc.) is a pharmaceutical company focused on the research and development of novel targeted precision therapeutics for the treatment of cancer. Our approach utilizes our proprietary delivery technology to better enhance immuno-modulation for improved therapeutic outcomes. Our potential first-in-class immune-oncology lead asset, RT-AR001, an adenosine A2A receptor antagonist, is differentiated by its intratumoral delivery of nano- or microparticle formulations that allows for better tumor infiltration. The adenosine A2 Receptor is one of many T-cell surface immune checkpoint proteins. Our patented portfolio of adenosine receptor antagonists provides flexibility to optimize treatment based on the specific adenosine targets found in each type of cancer.

 

Adenosine Receptor Modulators

 

The adenosine receptor modulators include A2A, A2B and dual A2A/A2B antagonists, that have broad development applicability including indications within immuno-oncology. Very high concentrations of adenosine are produced in the tumor microenvironment which prevents the host’s own immune cells from attacking the tumor. Adenosine receptor antagonists as single-agents and in combination with other existing immuno-oncology agents may overcome this immunosuppression and boost the host immune response leading to enhanced anti-tumor activity as well as inhibition of metastasis. Preclinical data has shown the direct effects with our drug candidates on certain types of cancer cells.

 

We have recently completed the manufacture of our novel platform delivery system of nano- or microparticle formulations that will be used in animal models that are anticipated to begin in the second quarter of 2022.

 

While we believe that the data from our nonclinical studies appear encouraging, the outcome of our ongoing or future studies may ultimately be unsuccessful.

 

We have manufactured sufficient amounts of nano- or microparticle formulations, to take us through the IND and initial clinical studies.

 

Rebus Holdings/ Ridgeway Licensing Agreement

 

Pursuant to our recent termination of license with Ridgeway Therapeutics, Inc., we reacquired the rights to certain intellectual property, discussed above, and are currently focusing on a pipeline of small molecule adenosine receptor modulators. In October 2020, pursuant to the cancellation of a license agreement whereby we previously licensed US Patent 9,593,118, we reacquired the exclusive right to such patent that covers both A2B and dual A2A/A2B antagonists. Accordingly, going forward our major focus will be: (i) further characterization of the anti-cancer activity of our unique pipeline delivery platform containing A2A, A2B and dual A2A/A2B antagonists, leading to selection of a clinical candidate or candidates for an Investigative New Drug or IND enabling studies; and (ii) licensing and/or partnering our delivery platform and the A2B and dual A2A/A2B antagonists for further development.

 

Our ability to execute the business plan is contingent upon our ability to raise the necessary funds. During March 2020, we sold $250,000 of debt securities for cash, in October 2020, we sold $500,000 of debt securities for cash, in January 2021, we sold $500,000 of debt securities for cash, and in June 2021, we sold $600,000 of debt securities for $500,000 in cash and $100,000 in cancellation of outstanding obligations. We are currently using such funds to maintain our SEC reporting requirements, pay outstanding invoices to our independent registered accounting firm, legal fees, and to retain consultants and other personnel in preparation for an Investigational New Drug Application (“IND”) filing related to our unique delivery platform and portfolio of adenosine A2R antagonists for the treatment of certain solid tumors. Should we fail to further raise sufficient funds to execute our business plan, our priority would be to maintain our intellectual property portfolio and seek business development opportunities with potential development partners and/or acquirors.

 

Pre-Revenue

 

We are a pre-revenue, early-stage company that has not achieved profitability, and has no product revenues. Additionally, we have no approved products for sale.

 

2

 

 

Going Concern

 

Our auditors’ report on our December 31, 2021 consolidated financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Notwithstanding our financings in (i) March 2020 where we raised $250,000, (ii) October 2020 where we raised $500,000, (iii) January 2021 where we raised $500,000, and (iv) June 2021 where we raised $500,000, our current cash level raises substantial doubt about our ability to continue as a going concern past the third quarter of 2022. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

Recent Developments

 

  Effective October 12, 2021, we (i) completed a 1-for-75 Reverse Stock Split and (ii) a holding company reorganization whereby we changed our name to Rebus Holdings, Inc.
     
  On August 16, 2021, we appointed Raul Silvestre, Esq. as (i) our interim chief executive officer and principal accounting officer and (ii) a member of the Board of Directors.
     
  On June 18, 2021, we completed the private placement of $600,000 of non-interest bearing senior convertible debentures consisting of (i) $500,000 purchased in cash and (ii) $100,000 purchased pursuant to the cancellation of outstanding obligations.

 

  On January 12, 2021, we completed the private placement of $500,000 of non-interest bearing senior convertible debentures

 

  On October 23, 2020, we completed the private placement of $600,000 of non-interest bearing senior convertible debentures in exchange for $500,000 in cash and the cancellation of $100,000 in obligations.

 

  On October 6, 2020, our stockholders approved an increase in our authorized shares of Common Stock from one hundred fifty million (150,000,000) to one billion (1,000,000,000) shares, as well as authorizing a reverse stock split of our Common Stock at the discretion of the Board of not less than 1-for-2 and not greater than 1-for-200 at any time prior to October 5, 2021.

 

  On October 5, 2020, in exchange for the issuance of (i) 866,667 shares of Common Stock and (ii) 8,000 shares of Series F 0% Convertible Preferred Stock, we entered into an agreement to terminate an outstanding license agreement with Ridgeway Therapeutics, Inc. whereby we had previously licensed certain immune-oncology delivery technologies for the treatment of cancer to Ridgeway Therapeutics (“License Termination”). As a result of the License Termination, the Company announced on October 8, 2020, that it would be refocusing its efforts on a novel-immuno-oncology delivery technology targeting adenosine receptor antagonists for the treatment of cancer.

 

  On March 6, 2020, we completed the private placement of $250,000 of non-interest bearing senior convertible debentures.

 

Product Development of Adenosine Receptor Modulators

 

As a result of the License Termination, the Company has refocused its business plan on the research and development of its lead asset, RT-AR001, an adenosine A2 receptor antagonist, which is differentiated by its intratumoral delivery of nano- or microparticle formulations that allows for better tumor infiltration.

 

Adenosine is an extracellular signaling molecule that regulates multiple aspects of tissue function and specifically plays a role in immunity and inflammation. The adenosine A2 receptor is one of many T-cell surface immune checkpoint proteins. High levels of adenosine in the tumor microenvironment are produced and, therefore, adenosine signaling, mediated through the A2A and A2B receptors, suppresses the host immune response to the tumor cells.

 

3

 

 

As such, our portfolio of adenosine receptor antagonists has broad applicability as potential immuno-oncology (IO) therapeutic agents in multiple solid tumor types both as a potential single agent and in combination with other IO agents, in addition to traditional cytotoxic chemotherapy. We are actively seeking licensing opportunities and/or partners to further develop our unique platform delivery system of A2A, A2B and dual A2A/A2B receptor antagonists. Our current product development plan for adenosine receptor antagonists contemplates the following major initiatives, subject to the Company receiving sufficient funds:

 

  Continue development of anti-cancer agents with partner company, Ridgeway Therapeutics, Inc.

 

  Further characterization of our platform delivery system and existing agents in preclinical studies, and towards an investigational new drug (IND) application.

 

  Support ongoing licensing / partnership activities.

 

Pre-IND and IND

 

The Company is currently pursuing an IND filing related to our unique delivery platform and portfolio of adenosine A2R antagonists for the treatment of certain solid tumors, and is preparing its pre-IND application, for its lead asset, RT-AR001, an adenosine A2A receptor antagonist.

 

Between September 2021 and February 2022, our CMO manufactured to GMP standards; both our adenosine A2A receptor antagonist as well as the nano- or microparticle formulation for intratumoral delivery known as RT-AR001. We have sufficient material to take us through the IND and initial clinical studies.

 

We have completed in-vitro testing of our adenosine A2A receptor antagonist and will begin in-vivo animal testing with RT-AR001 in Q2 2022. The Company plans to provide a further update on RT-AR001’s clinical development in the second half of 2022.

 

Our Technology

 

We have what we believe to be a robust intellectual property portfolio covering proprietary A2A agonists (LNC-001, see below), A2B antagonists (LNC-002, see below), and dual A2A/A2B antagonists (LNC-003, see below). We also have a substantial catalogue of synthesized compounds, specifically A2A agonists and A2B antagonists that require further characterization and testing for potential clinical candidates. We believe that our proprietary dual A2A/A2B antagonists have great potential and should be further explored.

 

Patents and Proprietary Rights

 

Our success will likely depend upon our ability to preserve our proprietary technologies and operate without infringing the proprietary rights of other parties. However, we may rely on certain proprietary technologies and know-how that are not patentable or that we determine to keep as trade secrets. We protect our proprietary information, in part, using confidentiality agreements with our employees, consultants, significant scientific collaborators, and sponsored researchers that generally provide that all inventions conceived by the individual in the course of rendering services to us shall be our exclusive property.

 

The intellectual property underlying our technology is covered by certain patents and patent applications previously owned by Lewis and Clark Pharmaceuticals, Inc. (“LNC”) and now fully owned by the Company. All of the LNC intellectual property has been assigned to the Company. We solely own all of our patents and patent applications for adenosine receptor modulators, which include three patent estates, one for A2A agonists (LNC-001), the second for A2B antagonists (LNC-002), and the third for dual A2A/A2B antagonists (LNC-003). Ownership of these patent estates came from our purchase (in exchange for 7,122,172 shares of our common stock) of Lewis and Clark Pharmaceuticals, Inc. (LNC) on July 31, 2017. The purchase of LNC also included all know-how, pre-clinical data, and development data that relate to and form the basis of our technology. Under the purchase agreement, we are sole owners of the technology and patent estates and are not required to make any other future payments, including fees or other reimbursements, milestones, or royalties, to LNC.

 

4

 

 

FILE #   COUNTRY   STATUS   APPLICATION #   DATE FILED   PATENT #   GRANT DATE
LNC-001-US   United States of America   Issued   13/956,111   Jul 31, 2013   9067963   Jun 30, 2015
LNC-001-US-CNT1   United States of America   Issued   14/752,861   Jun 27, 2015   9822141   Nov 21, 2017
LNC-002-AU   Australia   Issued   2016246068   Apr 8, 2016   2016246068   10-Dec-20
LNC-002-BE   Belgium   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-BR   Brazil   Pending   BR 11 2017 021386-9   Apr 8, 2016        
LNC-002-CH   Switzerland   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-CN   China   Issued   201680026835.1   Apr 8, 2016   ZL 20160026835   Jan 8, 2021
LNC-002-CZ   Czech Republic   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-DE   Germany   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-DK   Denmark   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-EA   Eurasian Patent Office   Issued   201792156   Apr 8, 2016   36954   Jan 19, 2021
LNC-002-EP   European Patent Office   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-ES   Spain   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-FR   France   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-GB   United Kingdom   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-IE   Ireland   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-IL   Israel   Issued   254902   Apr 8, 2016   254902   Sep 1, 2021
LNC-002-IN   India   Issued   201727039305   Apr 8, 2016   375108   Aug 23, 2021
LNC-002-IT   Italy   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-JP   Japan   Issued   2018-504080   Apr 8, 2016   6738405   Jul 21, 2020
LNC-002-KR   Republic of Korea   Pending   10-2017-7031978   Apr 8, 2016        
LNC-002-MX   Mexico   Issued   MX/a2017/012783   Apr 8, 2016   380672   Mar 17, 2021
LNC-002-NL   Netherlands   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-NZ   New Zealand   Pending   736705   Apr 8, 2016        
LNC-002-PL   Poland   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-PT   Portugal   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-SE   Sweden   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-SG   Singapore   Issued   11201707753X   Apr 8, 2016   11201707753X   Dec 31, 2021
LNC-002-TR   Turkey   Issued   16777436.3   Apr 8, 2016   3280417   Jul 29, 2020
LNC-002-US   United States of America   Issued   15/094,903   Apr 8, 2016   9593118   Mar 14, 2017
LNC-002-ZA   South Africa   Issued   2017/07248   Apr 8, 2016   201707248   Oct 31, 2018
LNC-003-PCT   PCT   Pending   PCT/US21/15087   Jan 26, 2021        

 

When appropriate, we will continue to seek patent protection for inventions in our core technologies and in ancillary technologies that support our core technologies or which we otherwise believe will provide us with a competitive advantage. We will accomplish this by filing and maintaining patent applications for discoveries we make, either alone or in collaboration with scientific collaborators and strategic partners. Typically, we plan to file patent applications in the United States and, for LNC-003-PCT, worldwide. In addition, we plan to obtain licenses or options to acquire licenses to patent filings from other individuals and organizations that we anticipate could be useful in advancing our research, development, and commercialization initiatives and our strategic business interest.

 

5

 

 

Development Strategy

 

We anticipate that under the planning and direction of key personnel, to outsource all our nonclinical development and manufacturing, and the majority of our clinical development activities to contract research organizations (CROs) and contract manufacturing organizations (CMOs). Our contract CROs and CMOs are required to comply with federal, state and United States Food and Drug Administration or FDA regulations including Good Manufacturing Practices (cGMP), Good Clinical Practices (GCP), and Good Lab Practices (GLP).

 

We intend to conduct further in-vivo characterization and testing of our A2A antagonist and RT-AR001 to select a candidate for clinical trials in an oncology indication. This oncology work is expected to be run in conjunction with and oversight from Ridgeway Therapeutics, Inc. for the selection of an anti-cancer agent.

 

Commercialization Strategy

 

We intend to (i) license or sell the underlying technology of our therapeutics to third parties during or after our clinical trials, (ii) seek a corporate partner for further development, or (iii) continue developing our drug candidates ourselves. It is expected that such third parties would then continue to develop, market, sell, and distribute any resulting products. As part of our overall strategic plan, we are exploring our options and actively seeking to engage in a collaborative, strategic and/or licensing arrangement with another pharmaceutical company. If we enter into any such transaction, we may be required to give up certain rights to our technology and control over its future development.

 

Intellectual Property

 

We regard the protection of patents and other intellectual property rights that we own or license as critical to our business and competitive position. To protect our intellectual property, we rely on patent, trade secret, and copyright law, as well as confidentiality, nondisclosure, assignment of invention and other contractual arrangements with our officers, directors, employees, consultants, investigators, clinical trial sites, contractors, collaborators and other third parties to whom we disclose confidential information. Our policy is to pursue patent applications on inventions and discoveries that we believe are commercially important to the development and growth of our business. We solely own or have exclusive licenses to our patents and patent applications.

 

Our pipeline currently includes a substantial catalogue of synthesized compounds, specifically A2A agonists and A2B antagonists that require further characterization and testing for potential clinical candidates. Our proprietary dual A2A/A2B antagonists have great potential and need to be further explored.

 

Our intellectual property estate, shown above, has twenty-eight (28) issued patents in twenty-five (25) different jurisdictions and four (4) currently pending applications. With appropriate funding and upon further research into our dual A2A/A2B antagonists, we intend to file regular US and foreign applications to enable worldwide protection of these antagonists.

 

When appropriate and funding permitting, we plan to continue to seek patent protection for inventions in our core technologies and in ancillary technologies that support our core technologies or which we otherwise believe would provide us with a competitive advantage. We expect to be able to accomplish this by filing and maintaining patent applications for discoveries we make, either alone or in collaboration with scientific collaborators and strategic partners. Typically, we plan to file patent applications in the United States as well as foreign countries, where applicable. In addition, we may obtain licenses or options to acquire licenses to patent filings from other individuals and organizations that we anticipate could be useful in advancing our research, development and commercialization initiatives and our strategic business interest. 

 

Manufacturing and Supply

 

We do not plan to develop company-owned or company-operated manufacturing facilities. We historically have and we plan to in the future, outsource all drug manufacturing to contract manufacturers that are required to operate in compliance with cGMP. We may also seek to refine the current manufacturing process in order to achieve improvements in efficiency, costs, purity and the like as well as address different drug formulations to achieve improvements in stability and/or drug delivery.

 

Between September 2021 and February 2022, our CMO manufactured to GMP standards, both our adenosine A2A receptor antagonist as well as the nano- or microparticle formulation for intratumoral delivery known as RT-AR001. We have sufficient material to take us through the IND and initial clinical studies.

 

6

 

 

Governmental Regulations

 

FDA Approval Process

 

Prior to commencement of clinical studies involving humans, preclinical testing of new pharmaceutical products is generally conducted on animals in the laboratory to evaluate the potential efficacy and safety of the product candidate. The results of these studies are submitted to the FDA as part of an IND application, which must become effective before clinical testing in humans can begin. Typically, human clinical evaluation involves a time-consuming and costly three-phase process. In Phase I, clinical trials are conducted with a small number of people to assess safety, tolerability and to evaluate the pattern of drug distribution within the body. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. (In some cases, an initial trial is conducted in diseased patients to assess both preliminary efficacy and preliminary safety, in which case it is referred to as a Phase I/II trial.) In Phase III, large-scale, multi-center, comparative trials are conducted with patients afflicted with a target disease in order to provide enough data to demonstrate the efficacy and safety required by the FDA. The FDA closely monitors the progress of each of the three phases of clinical testing and may, at its discretion, re-evaluate, alter, suspend, or terminate the testing based upon the data which have been accumulated to that point and its assessment of the risk/benefit ratio to the patient. All adverse events must be reported to the FDA. Monitoring of all aspects of the study to minimize risks is a continuing process.

 

The results of the preclinical and clinical testing on non-biologic drugs and certain diagnostic drugs are submitted to the FDA in the form of a New Drug Application (NDA) for approval prior to commencement of commercial sales. In responding to an NDA submission, the FDA may grant marketing approval, may request additional information, may deny the application if it determines that the application does not provide an adequate basis for approval, and may also refuse to review an application that has been submitted if it determines that the application does not provide an adequate basis for filing and review. There can be no assurance that approvals would be granted on a timely basis, if at all, for any of our proposed products.

 

Orphan Drugs

 

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally defined as a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same orphan indication, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity in that it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

 

Asia, European and Other Regulatory Approval

 

Whether or not FDA approval has been obtained, approval of a product by comparable regulatory authorities in Europe and other countries is necessary prior to commencement of marketing the product in such countries. The regulatory authorities in each country may impose their own requirements and may refuse to grant an approval, or may require additional data before granting it, even though the relevant product has been approved by the FDA or another authority. As with the FDA, the regulatory authorities in the European Union (EU), countries located in Asia, and other developed regions have lengthy approval processes for pharmaceutical products. The process for gaining approval in particular countries and regions varies, but generally follows a similar sequence to that described for FDA approval. In Europe, the European Committee for Proprietary Medicinal Products provides a mechanism for EU-member states to exchange information on all aspects of product licensing. The EU has established a European agency for the evaluation of medical products, with both a centralized community procedure and a decentralized procedure, the latter being based on the principle of licensing within one member country followed by mutual recognition by the other member countries. In China, the CFDA functions as the counterpart to the FDA in the United States and is responsible for overseeing drug approvals in China and its territories.

 

7

 

 

Reimbursement and Health Care Cost Control

 

Reimbursement for the costs of treatments and products such as ours from government health administration authorities, private health insurers and others, both in the United States and abroad, is a key element in the success of new health care products. Significant uncertainty often exists as to the reimbursement status of newly approved health care products. The revenue and profitability of some health care-related companies have been affected by the continuing efforts of governmental and third-party payors to contain or reduce the cost of health care through various means. Payors are increasingly attempting to limit both coverage and the levels of reimbursement for new therapeutic products approved for marketing by the FDA, and are refusing, in some cases, to provide any coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. In certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control.

 

In the United States, there have been a number of federal and state proposals to implement government control over health care costs. The U.S. Patient Protection and Affordance Care Act and the Health Care and Education Reconciliation Act were signed into law in March 2010. A number of provisions of those laws require further rulemaking action by governmental agencies to implement. The laws change access to health care products and services and create new fees for the pharmaceutical and medical device industries. Future rulemaking could increase rebates, reduce prices or the rate of price increases for health care products and services, or require additional reporting and disclosure. The laws also include new authorization to the FDA to approve companies to market biosimilar products within the United States, although to date FDA rulemaking under this legislation has been limited. We cannot predict the timing or impact of any such future rulemaking on our business.

 

Other Regulations

 

We are also subject to various U.S. federal, state, local and international laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our business. Additionally, we are subject to regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and Securities and Exchange Commission regulations. We cannot accurately predict the extent of government regulation which might result from future legislation or administrative action. 

 

Employees

 

As of March 1, 2022, we employed only Mr. Silvestre, on a part time basis, as our interim chief executive officer who is our only employee. In addition, we contract with a limited number of consultants to assist in activities related to our operations.

 

Corporate History

 

We were incorporated in the State of Delaware in November 2003. In August of 2016, we changed our name from GenSpera, Inc. to Inspyr Therapeutics, Inc. In October 2021, we completed a holding company reorganization structure, changing our name to Rebus Holdings, Inc. Our principal office is located in Westlake Village, California. Since our inception, we have invested a substantial portion of our efforts and financial resources in the development of mipsagargin (G-202). In July of 2017, we acquired Lewis and Clark Pharmaceuticals and licensed certain assets to Ridgeway Therapeutics for further development. Upon the termination of such license in October 2020, we resumed operations focusing our efforts on our Adenosine Receptor Modulators. On October 12, 2021, we completed a 1:75 reverse stock split of our common stock. We have generated no revenues from the sale of our product candidates and have experienced substantial net operating losses.

 

Where to Find More Information

 

We make our public filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports. These materials are available on the SEC’s web site, www.sec.gov.

 

You may also read and copy any materials you file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1–800–SEC–0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Internet site is located at www.sec.gov. Alternatively, you may obtain copies of these filings, including exhibits, by writing or telephoning us at: 

 

REBUS HOLDINGS, INC.

2629 Townsgate Road #215

Westlake Village, CA 91361

Attn: Chief Executive Officer

Tel: (818) 597-7552

 

8

 

 

PROPERTIES

 

Our executive offices are located at 2629 Townsgate Road, Suite 215, Westlake Village, CA 91361. At present our employee and consultants work virtually from around the country. We currently pay no money for these facilities. There is no affiliation between us or any of our principals or agents and our landlords or any of their principals or agents.

 

ITEM 1A. RISK FACTORS

 

We have described below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Annual Report, may adversely affect our business, operating results and financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Annual Report should be considered carefully in evaluating us, our business and the value of our securities. The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from time to time. In these circumstances, the market price of our common stock could decline, and you could lose your entire investment

 

Risks Related to our Financial Position, Need to Raise Additional Capital, and Series F Preferred Stock

 

We were forced to curtail our operations due to a lack of operating capital and we will not be able to continue as a going concern if we do not obtain additional financing. 

 

Since our inception, we have funded our operations through the sale of our securities. Our cash balances at December 31, 2021 and 2020 were approximately $711,000 and $404,000, respectively. Despite raising $1,000,000 in gross proceeds through the sale of convertible debentures consisting of (i) $500,000 in January 2021 and (ii) $500,000 (for cash) in June 2021, our ability to continue as a going concern is still wholly dependent upon obtaining sufficient capital to fund our operations. We have no committed sources of additional capital and our access to capital funding is always uncertain. Accordingly, despite our ability to secure capital in the past, we cannot assure you that we will be able to secure additional capital through financing transactions, including issuance of debt, or through other means such as the licensing of our technology or grants. In the event that we are not able to secure additional funding, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy. 

 

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

 

Our auditors’ report on our December 31, 2021 consolidated financial statements expressed an opinion that our capital resources as of the date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Our current cash level raises substantial doubt about our ability to continue as a going concern past the third quarter of 2022. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

If we do not raise sufficient capital, we may lose rights to certain intellectual property which is the basis of our lead product candidates.

 

In October 2020, pursuant to the cancellation of a license agreement, we reacquired the rights to US Patent 9,593,118, which covers both A2B and dual A2A/A2B antagonists. The intellectual property contained in US Patent 9,593,118 is the basis of our lead product candidates. As a condition to the cancelation of the license, we are required to raise an aggregate of $5 million prior to October of 2023. If we are unable to raise such capital, the license cancelation will be revoked, and the license will be reinstated in exchange for the return of the common shares and Series F Preferred Stock. In such event, we will lose all rights to the technology which forms the basis of our lead product candidate which will have a material adverse effect on our business and prospects.

 

Our shareholders will experience substantial dilution upon the conversion of our Series F Preferred Stock.

 

On October 5, 2020, we reacquired the rights to certain intellectual property that is the basis of our lead proposed product. In exchange for the cancelation of the prior license, which resulted in our reacquisition of such technology, we issued 8,000 shares of Series F Preferred Stock. The 8,000 shares of Series F Preferred Stock are convertible into an aggregate of 80% of our issued and outstanding Common Stock immediately prior to conversion. Upon conversion, our shareholders will experience substantial dilution.

 

9

 

 

Risks Relating to Our Stage of Development and Business

 

If we are unable to successfully attract and retain a new management team and secure additional members and employees, our business could be harmed.

 

On June 16, 2021, Michael Cain, our interim chief executive officer and principal accounting officer resigned as an officer and as a member of the Board of Directors. On August 16, 2021, we appointed Raul Silvestre as interim chief executive officer and principal accounting officer. We will need to augment senior management as well as engage additional personnel to execute our business plan and grow our business. Our success depends largely on the development and execution of our business strategy by our management team. The recent transitions in our executive team may be disruptive to our business, and if we are unable to manage an orderly transition, our business may be adversely affected. Additionally, since our management team consists of only one individual, Mr. Silvestre, the loss of Mr. Silvestre would likely harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate. There may be a limited number of persons with the requisite skills to serve in these positions, and we cannot assure you that we would be able to identify or employ such qualified personnel on acceptable terms, if at all. Additionally, we cannot assure you that management will succeed in working together as a team. In the event that we are unsuccessful, our business and prospects could be harmed. 

 

We are an early-stage company, have no product revenues, are not profitable and may never be profitable.

 

From inception through December 31, 2021, we have raised approximately $39.1 million through the sale of our securities and exercise of outstanding warrants. During this same period, we have recorded an accumulated deficit of approximately $64.3 million. We recognized $2,698,000 of income for the year ended December 31, 2021 (resulting from net noncash income of $3,720,000 related to our convertible notes payable and related derivatives). Our net loss for the fiscal year ended December 31, 2020 was $6,295,000. Our decrease in net loss is primarily the result of a gain from the change in fair value of our derivative instruments, an increase in gains from conversion of debt and a decrease in the cost attributable to the termination of our license with Ridgeway Therapeutic, Inc., partially offset by an increase in research and development activities and an increase in interest expense. None of our products in development have received approval from the United States Food and Drug Administration or FDA, or other regulatory authorities; we have no sales and have never generated revenues nor do we expect to for the foreseeable future. We have currently curtailed our pre-clinical and clinical trials related to mipsagargin and are currently focusing our efforts on the development of our adenosine receptor modulators. We expect to incur significant operating losses for the foreseeable future as we continue the research, pre-clinical and clinical development of our product candidates as well as the possible in-licensing of additional clinical and pre-clinical assets. Accordingly, we will need additional capital to fund our continuing operations and any expansion plans. Since we do not generate any revenue, the most likely sources of such additional capital include the sale of our securities, a strategic licensing collaboration transaction or joint venture involving the rights to one or more of our product candidates, or from grants. To the extent that we raise additional capital by issuing equity securities, our stockholders are likely to experience dilution with regard to their percentage ownership of the company, which may be significant. If we raise additional funds through collaborations or licensing arrangements, we may be required to relinquish some or all the rights to our technologies, product candidates, or grant licenses on terms that are not favorable to us. If we raise additional capital by incurring debt, we could incur significant interest expense and become subject to covenants that could affect the manner in which we conduct our business, including securing such debt obligations with our assets.

 

Our product candidates are at various stages of early development and significant financial resources are required to develop commercially viable products and obtain regulatory approval to market and sell such products. We will need to devote significantly more research and development efforts, financial resources and personnel to develop commercially viable products and obtain regulatory approvals. We may encounter hurdles and unexpected issues as we proceed in the development of our other product candidates. While initial data from our research appear promising, the outcome of the pre-clinical and development work is uncertain and future trials may ultimately be unsuccessful. If we fail to develop and successfully commercialize our product candidates, our business may be materially harmed and could fail.

 

10

 

 

We have a limited operating history as a company and may not be able to effectively operate our business.

 

Our limited staff and operating history mean that there is a high degree of uncertainty regarding our ability to:

 

  develop and commercialize our technologies and proposed products;

 

  obtain regulatory approval to commence the marketing of our products;

 

  identify, hire and retain the needed personnel to implement our business plan;

 

  manage growth;

 

  achieve market acceptance or insurance reimbursement for any of our proposed products, if successfully developed; or

 

  respond to competition.

 

No assurances can be given as to exactly when, if at all, we will be able to fully develop, and take the necessary steps to derive any revenues from our proposed product candidates.

 

We rely on technologies that we may not be able to commercially develop, which will prevent us from generating revenues, operating profitably or providing investors any return on their investment. 

 

We have refocused our development on our adenosine receptor modulator technologies and our ability to generate revenue and operate profitably will depend on us being able to develop these technologies for human applications. We cannot guarantee that the results obtained in clinical evaluation of our therapies will be sufficient to warrant approval by the FDA for clinical use. Even if our therapies are approved for use by the FDA, there is no guarantee that they will exhibit an enhanced efficacy relative to competing products such that they will be adopted by the medical community. Without significant adoption by the medical community our product candidates will have limited commercial potential which will likely result in the loss of your entire investment.

 

Inability to complete pre-clinical and clinical testing and trials will impair the viability of the Company. 

 

We are in the development stage and have not yet applied for approval by the FDA to conduct clinical trials. Even if we successfully file an IND application and receive clearance from the FDA to commence trials, the outcome of pre-clinical, clinical and product testing of our product candidates is uncertain, and if we are unable to satisfactorily complete such testing, or if such testing yields unsatisfactory results, we will be unable to commercially produce our proposed products. Before obtaining regulatory approvals for the commercial sale of any potential human products, our product candidates will be subjected to extensive pre-clinical and clinical testing to demonstrate their safety and efficacy in humans. No assurances can be given that the clinical trials of our product candidates, or those of licensees or collaborators, will demonstrate the safety and efficacy of such product candidates at all, or to the extent necessary to obtain appropriate regulatory approvals, or that the testing of such product candidates will be completed in a timely manner, if at all, or without significant increases in costs, program delays or both, all of which could harm our ability to generate revenues. In addition, our product candidates may not prove to be more effective for treating disease than current therapies. Accordingly, we may have to delay or abandon efforts to research, develop or obtain regulatory approval to market our product candidates. Many companies involved in biotechnology research and development have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and efficacy of a therapeutic product under development could delay or prevent regulatory approval of the product and could harm our ability to generate revenues, operate profitably or produce any return on an investment in our company.

 

Raising capital may be difficult as a result of our history of losses and limited operating history in our current stage of development.

 

When making investment decisions, investors typically look at a company’s management, earnings and historical performance in evaluating the risks and operations of the business and the business’s future prospects. Our history of losses, new senior management team and relatively limited operating history in our current stage of development makes such evaluation, as well as any estimation of our future performance, substantially more difficult. As a result, investors may be unwilling to invest in us or on terms or conditions which are acceptable. If we are unable to secure additional financing, we may need to materially scale back our business plan and/or operations or cease operations altogether. 

 

11

 

 

A pandemic, epidemic or outbreak of an infectious disease in the markets in which we operate or that otherwise impacts our facilities or advisors could adversely impact our business.

 

If a pandemic, epidemic, or outbreak of an infectious disease including the recent outbreak of respiratory illness caused by a novel coronavirus (COVID-19) or other public health crisis were to affect our facilities or those of our suppliers, our business could be adversely affected. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, management, support staff and professional advisors. These factors, in turn, may not only materially impact our operations and financial condition, but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

 

Business or economic disruptions or global health concerns could seriously harm our development efforts and increase our costs and expenses.

 

Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. For example, in November 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread around the world, including to the United States. To date, this outbreak has already resulted in extended shutdowns of many businesses around the world, including in the United States. Global health concerns, such as coronavirus, could also result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. We cannot presently predict the scope, severity and longevity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage or plan to engage, including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business or plan to conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns such as this one could disproportionately impact the hospitals and clinical sites in which we conduct or plan to conduct any of our clinical trials, which could have a material adverse effect on our business and our results of operation and financial condition. 

 

12

 

 

Risks Related to Commercialization

 

The market for our proposed products is rapidly changing and competitive.

 

The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change and innovation. Developments by others may render our proposed products noncompetitive or obsolete, or we may be unable to keep pace with technological developments and other market factors. Competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.

 

As a pre-revenue company, our resources are limited, and we may experience challenges inherent in the early development of novel therapeutics. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competition. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic efforts compared to our proposed products. Our competitors may develop therapies that are safer, more effective and less costly than our proposed products and therefore, present a serious competitive threat to us.

 

The acceptance of therapies that are alternatives to ours may limit market acceptance of our proposed products, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medications and treatments. These treatments may be widely accepted in medical communities and have a longer history of use. The established use of other competing therapies may limit the potential for our proposed products, even if commercialized.

 

Our proposed products may not be accepted by the healthcare community.

 

Our proposed products, if approved for marketing, may not achieve market acceptance by the healthcare community since hospitals, physicians, patients, or the medical community in general may decide not to utilize them. We are attempting to develop products that are likely to be first approved for marketing as a treatment for late-stage cancer where there is no truly effective standard of care. If approved for use in late-stage cancer, our proposed products might then be evaluated in earlier stages where they could represent a substantial departure from established treatment methods and would most likely compete with a number of more conventional drugs and therapies which are manufactured and marketed by major pharmaceutical companies. It is too early in the development cycle of our proposed products for us to predict our major competitors. The degree of market acceptance of our products, if developed, will depend on a number of factors, including but not limited to:

 

  our ability to demonstrate the clinical efficacy and safety of our proposed products to the medical community;

 

  our ability to create products that are superior to alternative products;

 

  our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and

 

  the reimbursement policies of government and third-party payors.

 

If the healthcare community does not accept our products, our business could be materially harmed.

 

Our potential competitors in the biotechnology and pharmaceutical industries have significantly greater resources than we have.

 

We compete against numerous companies, many of which have substantially greater resources than we have. Several such competitors have research programs and/or efforts to treat the same diseases we target. Companies that may compete with us have substantially greater financial, research, manufacturing and marketing resources than we do. As a result, such competitors may find it easier to compete in our industry and bring competing products to market.

 

13

 

 

Risks Related to the Development and Manufacturing of Our Product Candidates

 

We intend to rely exclusively upon third-party FDA-regulated manufacturers and suppliers for our proposed products.

 

We currently have no internal manufacturing capability and intend to rely exclusively on FDA-approved licensees, strategic partners or third-party contract manufacturers or suppliers for the foreseeable future. Because manufacturing facilities are subject to regulatory oversight and inspection, the failure of any of our third-party FDA regulated manufactures or suppliers to comply with regulatory requirements could result in material manufacturing delays and product shortages, which could delay or otherwise negatively impact our clinical trials and product development plans. Should we be forced to manufacture our proposed products, we cannot give any assurance that we would be able to develop internal manufacturing capabilities or secure third-party suppliers for raw materials. In the event that we seek third party suppliers or alternative manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable terms. Any such event could materially impact our business prospects and could delay the development of our proposed products. Moreover, we cannot give any assurance that the contract manufacturers or suppliers that we select will be able to supply our products in a timely or cost-effective manner or in accordance with applicable regulatory requirements or our own specifications.

 

We may not be able to establish or maintain the third-party relationships that are necessary to develop or potentially commercialize our product candidates.

 

As needed, we plan to rely heavily on third party collaborators, partners, licensees, clinical research organizations, clinical investigators, vendors or other third parties to support our research and development efforts and to conduct clinical trials for our product candidates. We cannot guarantee that we will be able to successfully negotiate agreements for, or maintain relationships with, these third parties on a commercially reasonable basis, if at all. Additionally, to commercialize our proposed products, we intend to rely on third party licensees or the outright sale of our proposed products to pharmaceutical partner(s). If we fail to establish or maintain such third-party relationships as anticipated, our business could be adversely affected.

 

We are dependent upon third parties to develop our product candidates, and such parties are, to some extent, outside of our control.

 

We depend and plan to depend upon independent contract research organizations, investigators, and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical studies. These individuals and/or entities are not our employees and we cannot control the amount or timing of resources that they devote to our programs. These third parties may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If these third parties fail to devote sufficient time and resources to our programs, or if their performance is substandard, the development of our drug candidates and corresponding FDA approval could be delayed or fail entirely.

 

Our therapeutic compounds may not be able to be manufactured profitably on a large enough scale to support commercialization.

 

To date, our therapeutic compounds have only been manufactured at a scale which is adequate to supply our research activities and early-stage clinical trials. There can be no assurance that the procedures currently used to manufacture our therapeutic compounds will work at a scale which is adequate for commercial needs. In the event our therapeutic compounds cannot be manufactured in sufficient quantities for commercialization, our future prospects could be significantly impacted, and our financial prospects would be materially harmed.

 

14

 

 

Risks Relating to our Intellectual Property

 

Our competitive position is dependent on our intellectual property and we may not be able to withstand challenges to our intellectual property rights.

 

We rely on our intellectual property, including our issued and applied for U.S. and foreign patents as the foundation of our business. If our intellectual property rights are challenged, no assurances can be given that our patents or licenses would survive claims alleging invalidity or infringement on other patents and/or licenses. In addition, disputes may arise regarding inventorship of our intellectual property. It is possible that our intellectual property may be infringing upon existing patents that we are not currently unaware of. As the number of participants in the marketplace grows, the possibility of patent infringement claims against us increases. It is difficult, if not impossible, to determine how such disputes would be resolved. Furthermore, because of the substantial amount of discovery required in connection with patent litigation, there is a risk that some of our confidential information could be required to be publicly disclosed. Any litigation claims against us may cause us to incur substantial costs and could place a significant strain upon our financial resources, divert the attention of management or restrict our core business or result in the public disclosure of confidential information.

 

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use of, our technology.

 

Some or all of our patent applications may not issue as patents, or the claims of any issued patents may not afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors, if any, may be challenged and subsequently narrowed, invalidated or circumvented. Patent litigation is widespread in the biotechnology industry and could harm our business. Litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights. If we choose to go to court to stop someone else from using the inventions claimed in our patents, that individual or company would have the right to ask the court to rule that such patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive, and we may not have the required resources to pursue such litigation or to protect our patent rights. In addition, there is a risk that the court might decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court could refuse to stop the other party on the ground that such other party’s activities do not infringe on our rights contained in these patents.

 

Furthermore, a third party may claim that we are using inventions covered by their patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could materially increase our operating expenses and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court would order us to pay the other party damages for having violated the other party’s patents. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. 

 

Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications or that we were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies.

 

If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference or other proceeding in the U.S. Patent and Trademark Office, or the PTO, or a court to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.

 

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the capital necessary to continue our operations. 

 

15

 

 

Obtaining and maintaining our patent protection depends upon compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

 

We may not be able to adequately protect our intellectual property.

 

We rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others do not develop the same or similar technologies on their own. Additionally, research with regard to our technologies has been performed in countries outside of the United States, and we also anticipate conducting joint ventures, collaborations and future clinical trials outside the US. The laws in some of these countries may not provide protection for our trade secrets and intellectual property. We have taken steps, including entering into confidentiality agreements with our employees, consultants, service providers, and potential strategic partners to protect our trade secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. We also typically obtain agreements from these parties which provide that inventions conceived by the party in the course of rendering services to us are our property. However, these agreements may not be honored, including in foreign countries in which we conduct research, and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.

 

We may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets of their former employers.

 

As is common in the biotechnology and pharmaceutical industries, we may employ and hire individuals and/or entities who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these individuals, entities or that we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

 

16

 

 

Risks Relating to Marketing Approval and Government Regulations 

 

Data obtained from clinical trials are susceptible to varying interpretations and may not be sufficient to support approval of our proposed products by the FDA.

 

The design of our potential clinical trials will be based on many assumptions about the expected effect of our product candidates and if those assumptions are incorrect, our potential clinical trials may not produce statistically significant results. Preliminary results may not be confirmed on full analysis of the detailed results of early clinical trials. Data already obtained, or in the future obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that may be obtained from later trials. Moreover, pre-clinical and clinical data are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a proposed formulation or product under development could delay or prevent regulatory clearance of the potential drug. Our products may not prove to be safe and effective in clinical trials and may not meet all regulatory requirements needed to receive regulatory approval. While data from our completed trials appear promising, the outcome of the current trials is uncertain, and these trials or future trials may ultimately be unsuccessful. Our clinical trials may among other things, not demonstrate sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our drugs, and thus our proposed drugs may not be approved for marketing.

 

Our proposed products may not receive FDA or other regulatory approvals.

 

The FDA and comparable government agencies in foreign countries impose substantial regulations on the manufacture and marketing of pharmaceutical products through expensive, lengthy and detailed laboratory, pre-clinical and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these regulations typically takes several years or more and varies substantially based upon the type, complexity and novelty of the proposed product. Our proposed products are subject to extensive regulation and/or acceptance by numerous governmental authorities in the United States, including the FDA, and authorities in other countries. Most of our proposed products will require governmental approval before they can be commercialized. Our failure to receive the regulatory approvals in the United States or foreign countries will materially impact our business.

 

Our proposed products may not have favorable results in clinical trials or receive regulatory approval.

 

Encouraging results from our studies to date should not be relied upon as evidence that our planned pre-clinical and clinical trials will ultimately be successful, or our products approved for marketing. Even though the results of our studies to date may seem promising in certain respects, we will be required to demonstrate through further pre-clinical and clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. There is typically an extremely high rate of attrition from the failure of product candidates as they proceed through clinical trials. If any product candidate fails to demonstrate sufficient safety and efficacy in any clinical trial, then we could experience potentially significant delays in, or be required to abandon, development of that product candidate. While initial data from our preliminary studies appear promising, the outcome of any clinical trials is uncertain and such trials or future trials may ultimately be unsuccessful.

 

If users of our proposed products are unable to obtain adequate reimbursement from third-party payors, market acceptance of our proposed products may be limited, and we may not achieve revenues or profits.

 

The continuing efforts of governments, insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability as well as the future revenues and profitability of our potential customers, suppliers and collaborative partners in addition to the availability of capital. In other words, our ability to commercialize our proposed products depends in large part on the extent to which appropriate reimbursement levels for the cost of our proposed formulations, products and related treatments are obtained by the health care providers of these products and treatments. At this time, we cannot predict the precise impact that recently adopted or future laws will have on these reimbursement levels.

 

17

 

 

We may be unable to comply with our reporting and other requirements under federal securities laws.

 

The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the United States Securities and Exchange Commission, or SEC, and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, would be expected to materially increase the Company’s legal and financial compliance costs and make some activities more time-consuming and more burdensome. Presently we qualify as a non-accelerated filer. Accordingly, we are exempt from the requirements of Section 404(b) and our independent registered public accounting firm is not required to audit the design and operating effectiveness of our internal controls and management’s assessment of the design and the operating effectiveness of such internal controls. In the event that we become an accelerated filer, we will be required to expend substantial capital in connection with compliance.

 

We do not have effective internal controls over our financial reporting.

 

Because of our limited resources, management has concluded that our internal control over financial reporting may not be effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial and other reports and effectively prevent fraud. If we cannot provide reliable financial or SEC reports or prevent fraud, investors may lose confidence in our SEC reports, our operating results and the trading price of our common stock could suffer materially, and we may become subject to litigation. 

 

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses and will divert time and attention away from revenue generating activities.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team invests significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from developing our business to compliance activities which could have an adverse effect on our business.

 

18

 

 

Risks Relating to our Securities

 

Our common stock price may be particularly volatile because of our stage of development and business.

 

The market prices for the securities of biotechnology and pharmaceutical companies in general, and early-stage drug development companies in particular, such as ours, have been highly volatile and may continue to be highly volatile in the future. The following may have a significant impact on the market price of our common stock:

 

  our ability to retain and augment our current management team and workforce, which currently consists of only one employee, our chief executive officer;

 

  the development status of our drug candidates, particularly the results of our clinical trials;

 

  market conditions or trends related to the biotechnology and pharmaceutical industries, or the market in general;

 

  announcements of technological innovations, new commercial products, or other material events by our competitors or us;

 

  disputes or other developments concerning our proprietary rights;

 

  changes in, or failure to meet, securities analysts’ or investors’ expectations of our financial and developmental performance;

 

  additions or departures of key personnel;

 

  loss of any strategic relationship;

 

  discussions of our business, products, financial performance, prospects, or stock price by the financial and scientific press and online investor communities such as chat rooms;

 

  industry developments, including, without limitation, changes in healthcare policies or practices or third-party reimbursement policies;

 

  public concern as to, and legislative action with respect to, testing or other research areas of biopharmaceutical and pharmaceutical companies, the pricing and availability of prescription drugs, or the safety of drugs;

 

  regulatory developments in the United States or foreign countries; and

 

  economic, political and other external factors.

 

Broad market fluctuations may cause the market price of our common stock to decline substantially. Additionally, fluctuations in the trading price or liquidity of our common stock may materially and adversely affect, among other things, the interest of investors to purchase our common stock on the open market and, generally, our ability to raise capital.

 

19

 

 

Our board of directors has broad discretion to issue additional securities, in the event that we have adequate authorized capital to issue such securities.

 

We are authorized under our certificate of incorporation to issue up to 1,000,000,000 shares of common stock and 30,000,000 “blank check” shares of preferred stock. Shares of our blank check preferred stock provide the board of directors with broad authority to determine voting, dividend, conversion, and other rights. As of March 1, 2022, we have issued and outstanding 32,132,907 shares of common stock. We have also authorized 1,853 shares of Series A 0% Convertible Preferred Stock, of which 133.8125 are outstanding, 1,000 shares of Series B 0% Convertible Preferred Stock, of which 71 are outstanding, 290.43148 shares of Series C 0% Convertible Preferred Stock, that are all outstanding, 5,000 shares of Series D 0% Convertible Preferred Stock, all of which are outstanding, 5,000 shares of Series E 0% Convertible Preferred Stock, all of which are outstanding, and 8,000 shares of Series F 0% Convertible Preferred Stock, all of which are outstanding. Accordingly, we are entitled to issue 967,867,093 shares of common stock, and 29,981,505 additional shares of “blank check” preferred stock. Our board may generally issue those common and preferred shares, or convertible securities to purchase those shares, without further approval by our shareholders. Any additional preferred shares we may issue could have such rights, preferences, privileges, and restrictions as may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.

 

It is likely that we will issue a large number of additional securities to raise capital in order to further our business plans. It is also likely that we will issue a large number of additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our various stock plans. Any issuances could be made at a price that reflects a discount to, or a premium from, the then-current market price of our common stock. These issuances would dilute the percentage ownership interest of our current shareholders, which would have the effect of reducing your influence on matters on which our stockholders vote, and might dilute the net tangible book value per share of our common stock.

 

Future sales of our common stock could cause our stock price to fall.

 

Transactions that result in a large amount of newly issued shares become readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our common stock. In addition, the lack of a robust trading market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock. If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. We may become involved in securities class action litigation that could divert management’s attention and harm our business.

 

As of March 1, 2022, we had 1,000,000,000 shares of common stock authorized and 32,132,907 shares outstanding, 1,853 shares of Series A 0% Convertible Preferred Stock authorized and 133.8125 Series A 0% Convertible Preferred Stock outstanding, 1,000 shares of Series B 0% Convertible Preferred Stock authorized and 71 Series B 0% Convertible Preferred Stock outstanding, 290.43148 shares of Series C 0% Convertible Preferred Stock authorized and outstanding, 5,000 shares of Series D 0% Convertible Preferred Stock authorized and outstanding, 5,000 shares of Series E 0% Convertible Preferred Stock authorized and outstanding, and 8,000 shares of Series F 0% Convertible Preferred Stock authorized and outstanding. We additionally have issued an aggregate of $5,591,048 of senior convertible debentures and convertible notes that are convertible into common stock at any time, of which $310,072 is outstanding. Substantially all of the common shares and common shares underlying the Series A 0% Convertible Preferred, Series B 0% Convertible Preferred, Series C 0% Convertible Preferred, Series D 0% Convertible Preferred, Series E 0% convertible Preferred, and Series F 0% Convertible Preferred are available for public sale, subject in some cases to volume and other limitations or delivery of a prospectus. As of March 1, 2022, we were obligated to reserve for issuance (i) 5 shares of our common stock issuable upon the conversion of 133.8125 shares of Series A 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2015 offering; (ii) 189,334 shares of our common stock issuable upon the conversion of 71 shares of Series B 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2016 offering; (iii) 678 shares of our common stock issuable upon the conversion of 290.43148 shares of Series C 0% Convertible Preferred Stock including an additional number of common shares we are contractually obligated to reserve pursuant to our March 2017 offering, (iv) 18 shares of common stock issuable upon the conversion of 5,000 shares of Series D 0% Convertible Preferred Stock, (v) 222 shares of common stock issuable upon the conversion of 5,000 shares of Series E 0% Convertible Preferred Stock, (vi) an indeterminate number of shares of common stock issuable upon the conversion of 8,000 shares of Series F 0% Convertible Preferred Stock (such amount will equal 80% of the common stock post conversion), (vii) 45 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $11,567.93 per share, including an additional number of common shares we are contractually obligated to reserve pursuant to our December 2015 offering, December 2016 offering and March 2017 offering, (viii) 38,394,641 shares of our common stock issuable upon conversion of our outstanding convertible notes/debentures. Subject to applicable vesting requirements and holding periods, upon conversion or exercise of the outstanding convertible notes and warrants, the underlying shares may be resold into the public market. We cannot predict if future issuances or sales of our common stock, or the availability of our common stock for sale, would harm the market price of our common stock or our ability to raise capital.

 

20

 

 

The market for our common stock has historically been illiquid and our investors may be unable to sell their shares.

 

Our common stock has historically traded with limited volume on the pink sheets of the OTC Markets Group Inc. Accordingly, although there has been an increased public market for our common stock, it is still has historically been relatively illiquid compared to that of a seasoned issuer. Prior to making an investment in our securities, you should consider the historically limited market for our common stock. No assurances can be given that the trading volume of our common stock will increase or remain the same.

 

We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future.

 

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if the market price of our common stock appreciates.

 

Provisions of Delaware law and executive employment agreements may prevent or delay a change of control, which could depress the trading price of our common stock.

 

We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s assets unless:

 

  the Board of Directors approved the transaction in which the stockholder acquired 15% or more of the corporation’s assets;

 

  after the transaction in which the stockholder acquired 15% or more of the corporation’s assets, the stockholder owned at least 85% of the corporation’s outstanding voting stock, excluding shares owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

 

  on or after this date, the merger or sale is approved by the Board of Directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

 

A Delaware corporation may opt out of the Delaware anti-takeover laws if its certificate of incorporation or bylaws so provides. We have not opted out of the provisions of the anti-takeover laws. As such, these laws could prohibit or delay mergers or other takeover or change of control transactions and may discourage attempts by other companies to acquire us.

 

In addition, employment agreements with certain executive officers provide for the payment of severance and accelerated vesting of options and restricted stock in the event of termination following a change of control. These provisions could have the effect of discouraging potential takeover attempts even if it would be beneficial to shareholders. 

 

Our certificate of incorporation and bylaws contain provisions that could discourage a third-party from acquiring us.

 

Our certificate of incorporation and bylaws, as applicable, among other things (i) provide our board with the ability to alter the bylaws without stockholder approval and (ii) provide that vacancies on our board of directors may be filled by a majority of directors in office. These provisions, while designed to reduce vulnerability to an unsolicited acquisition proposal, and to discourage certain tactics used in proxy fights, may negatively impact a third-party’s decision to acquire us even if it would be beneficial to shareholders.

 

21

 

 

If securities or industry analysts do not publish research or reports or if they publish unfavorable research or reports, an active market for our common stock may not develop and the price of our common stock could decline.

 

We are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume. Even if we come to the attention of such persons, they may be reluctant to follow or recommend an unproven company such as ours until such time as we became more seasoned and viable. Generally, the trading market for a company’s securities depends in part on the research and reports that securities or industry analysts publish. We currently have limited research coverage by securities and industry analysts. As a consequence, there may be periods of time when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer with significant research coverage. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or if developed, will be sustained, or that current trading levels could be sustained or not diminish. In addition, in the event any analysts downgrades our securities, the price of our shares would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and its trading volume, if any, to decline. 

 

If securities or industry analysts do not publish research or reports or if they publish unfavorable research or reports, an active market for our common stock may not develop and the price of our common stock could decline.

 

We are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume. Even if we come to the attention of such persons, they may be reluctant to follow or recommend an unproven company such as ours until such time as we became more seasoned and viable. Generally, the trading market for a company’s securities depends in part on the research and reports that securities or industry analysts publish. We currently have limited research coverage by securities and industry analysts. As a consequence, there may be periods of time when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer with significant research coverage. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or if developed, will be sustained, or that current trading levels could be sustained or not diminish. In addition, in the event any analysts downgrades our securities, the price of our shares would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and its trading volume, if any, to decline. 

 

Our common stock is considered a “penny stock,” and is subject to additional sale and trading regulations that may make it more difficult to sell.

 

Our common stock is considered a “penny stock.” The principal result or effect of being designated a penny stock is that securities broker-dealers participating in sales of our common stock are subject to the penny stock regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

 

The number of brokerage firms depositing and transacting trades for penny stock companies is very limited.

 

Currently, our Common Stock is traded on the OTC Markets Pink Tier. Many traditional brokerage firms and on-line brokerages refuse to accept for deposit and trade any penny stocks generally. For those that do, the time, effort and costs associated with depositing common stock in companies such as ours which has recently had sub-penny bid and ask are onerous, time consuming and costly. This may present material concerns and obstacles to those persons beneficially owning our common stock in certificate or book entry form, and wish to deposit same into a brokerage account.

 

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ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our executive offices are located at 2629 Townsgate Road, Suite 215, Westlake Village, CA 91361. At present our employee and consultants work virtually from around the country. We currently pay no money for these facilities. There is no affiliation between us or any of our principals or agents and our landlords or any of their principals or agents.

 

ITEM 3. LEGAL PROCEEDINGS

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common shares are quoted on the pink sheets of the OCT Markets under the symbol RBSH. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Holders

 

As of March 1, 2022, we had approximately 168 record holders of our common stock.

 

Dividend Policy

 

We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance the operation and expansion of our business. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants, applicable law and other factors that our board of directors may deem relevant. If we do not pay dividends, a return on your investment will occur only if the market price of our common stock appreciates.

 

Equity Compensation Plan Information

 

See information contained in Part III, Item 12 of this Annual Report filed on Form 10-K.

 

Equity Compensation Plans Not Approved by Security Holders

 

See information contained in Part III, Item 12 of this Annual Report filed on Form 10-K.

 

Item 15. Recent Sales of Unregistered Securities.

 

The following information is given with regard to unregistered securities sold during the preceding three years including the dates and amounts of securities sold, the persons or class of persons to whom we sold the securities, the consideration received in connection with such sales and, if the securities were issued or sold other than for cash, the description of the transaction and the type and amount of consideration received. The descriptions contained below are a summary and qualified by the agreements, if applicable, included as Exhibits to this Annual Report. The following securities were issued in private offerings pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, or the Securities Act and the rules promulgated thereunder. All share amounts and prices reflect the 1-for-75 reverse stock split that was effective October 12, 2021 and include adjustment for any prior reverse stock splits that may have occurred subsequent the issuances described hereunder.

 

  During January 2019, we issued 5,000 shares of Series D Convertible Preferred Stock for proceeds of $5,000. The Series D Convertible Preferred Stock is convertible into common stock at a conversion price of $281.25 per share.

 

  Between January 1, 2019 and March 31, 2019, Debenture holders converted an aggregate of $204,221 into approximately 1,163 shares of common stock at per share conversion prices ranging from $118.125 to $258.75.

 

  In July 2019, we issued an aggregate of $154,000 in senior convertible debentures (“July 2019 Debentures”) to certain accredited investors in exchange for the extending the maturity dates of all of our existing debentures until September 30, 2019, and waiving certain potential defaults related to registration rights related to shares underlying such debentures. The July 2019 Debentures, as amended had materially the same terms as the March 2020 Debentures described below. As of the date hereof, they have been fully converted into common stock.

 

  On October 1, 2019, we issued an aggregate of $96,000 in senior convertible debentures (“October 2019 Debentures”) to certain accredited investors in exchange for the extending the maturity dates of all of our existing debentures until March 31, 2019. The October 2019 Debentures, as amended had materially the same terms as the March 2020 Debentures described below. As of the date hereof, they have been fully converted into common stock.

 

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  In November 2019, in exchange for the payment of a payable, we issued an aggregate of approximately $26,000 in senior convertible debentures to an accredited investor. The terms of these debentures, as amended, are materially the same as the March 2020 Debentures described below. As of the date hereof, they have been fully converted into common stock.

 

  Between October 1, 2019 and December 31, 2019, debenture holders converted an aggregate of $127,193 into approximately 5,622 shares of common stock at per share conversion prices ranging from $15.525 to $118.35.

 

  Between January 1, 2020 and March 31, 2020, debenture holders converted an aggregate of $451,662 into approximately 58,379 shares of common stock at per share conversion prices ranging from $0.1575 to $35.25.

 

  On March 6, 2020, we issued an aggregate of $250,000 in senior convertible debentures (“March 2020 Debentures”) to certain accredited investors for cash. At issuance, the conversion price of the March 2020 Debentures was equal to the lesser of (i) $24.75 and (ii) 85% of the lesser of (a) the volume weighted average price on the trading day immediately preceding a conversion date and (b) the volume weighted average price on a conversion date. Pursuant to an amendment to the March 2020 Debentures and all other outstanding convertible debentures owned by certain shareholders, the conversion price was amended such that the conversion price is equal to the lesser of (i) $24.75 and (ii) 85% of the lowest volume-weighted average price during the five trading days immediately prior to the date of conversion. As of the date of this Registration Statement, the March 2020 Debentures have been fully converted into common stock.

 

  On May 2, 2020, we sold 5,000 shares of Series E 0% Convertible Preferred Stock to an accredited investor at a price per share of $1.00 for aggregate gross proceeds of $5,000. The Series E Preferred Stock are convertible into shares of Common Stock at a conversion price of $22.50 per share.

 

  Between July 1, 2020 and August 12, 2020, debenture holders converted an aggregate of $80,906 into approximately 21,138 shares of common stock at per share conversion prices ranging from $2.3625 to $6.45.

 

  On October 5, 2020, we entered into an agreement with Ridgeway Therapeutics (“Ridgeway”) to terminate an outstanding license agreement previously entered into with Ridgeway (“Termination Agreement”). Pursuant to the Termination Agreement, as consideration, we issued Ridgeway (i) 866,667 shares of our Common Stock and (ii) 8,000 shares of Series F 0% Convertible Preferred Stock. The 8,000 shares of Series F Preferred Stock are convertible into an aggregate of eighty percent (80%) of the issued and outstanding Common Stock post-conversion on the conversion date. The Series F Preferred Stock votes on an as converted to Common Stock basis. Additionally, upon the termination, conversion, or otherwise extinguishment of certain or our outstanding convertible debentures, the Series F Preferred Stock will automatically convert into Common Stock.

 

  On October 23, 2020, we issued an aggregate of $600,000 in senior convertible debentures (“October 2020 Debentures”) to certain accredited investors for $500,000 cash and the cancellation of $100,000 in outstanding obligations. The October 2020 Debentures have the same terms as the March 2020 Debentures, as amended, and mature on October 23, 2021. As of the date hereof, they have been fully converted into common stock.

 

  Between August 17, 2020 and October 9, 2020, debenture holders converted an aggregate of $525,290 into approximately 1,045,504 shares of common stock at per share conversion prices ranging from $0.195 to $1.425.

 

  Between November 30, 2020 and December 31, 2020, debenture holders converted an aggregate of $252,210 into approximately 475,000 shares of common stock at per share conversion prices ranging from $0.3375 to $0.6675.

 

  Between January 1, 2021 and March 15, 2021, debenture holders converted an aggregate of $1,964,500 into 4,248,864 shares of common stock at per share conversion prices ranging from $0.3375 to $0.5475.

 

  On January 12, 2021 we issued an aggregate of $500,000 in senior convertible debentures (“January 2021 Debentures”) to certain accredited investors for cash. The January 2021 Debentures mature on January 12, 2022. The conversion price of the January 2021 Debentures is equal to the lesser of (i) $24.75 and (ii) 85% of the lowest volume-weighted average price during the five trading days immediately prior to the date of conversion. As of the date of this report, all of January 2021 Debentures have been converted into common stock of the Company.

 

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  Between March 16, 2021 and June 30, 2021, debenture holders converted an aggregate of $191,068 into 378,167 shares of common stock at per share conversion prices ranging from $0.3975 to $0.7275.
     
  On June 18, 2021, we issued an aggregate of $600,000 in senior convertible debentures (“June 2021 Debentures”) to certain accredited investors for $500,000 cash and $100,000 in cancellation of obligations. The June 2021 Debentures have the same terms as the January 2021 Debentures and mature on June 18, 2022. As of the date of this report, $500,000 of June 2021 Debentures have been converted into common stock of the Company.

 

  Between July 1, 2021 and August 2, 2021, debenture holders converted an aggregate of $58,000 into 133,333 shares of common stock at per share conversion prices ranging from $0.315 to $0.3375.
     
  Between August 3, 2021 and September 30, 2021, debenture holders converted an aggregate of $354,480 into 2,340,667 shares of common stock at per share conversion prices ranging from $0.12 to $0.37.

 

  Between October 1, 2021 and October 31, 2021, debenture holders converted an aggregate of $87,520 into 729,333 shares of common stock at a per share conversion price of $0.12.

 

  Between November 1, 2021 and December 31, 2021, debenture holders converted an aggregate of $38,028 into 1,460,000 shares of common stock at a per share conversion prices ranging from $0.0219 to $0.0323.

 

  During January 2022, debenture holders converted an aggregate of $461,972 into 20,363,686 shares of common stock at a per share conversion prices ranging from $0.0217 to $0.0247.

 

ITEM 6. SELECTED FINANCIAL DATA

 

We are not required to provide the information as to selected financial data as we are considered a smaller reporting company.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding our business development plans, pre-clinical and clinical studies, regulatory reviews, timing, strategies, expectations, anticipated expenses levels, business prospects and positioning with respect to market, demographic and pricing trends, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations) and express our current intentions, beliefs, expectations, strategies or predictions. These forward-looking statements are based on a number of assumptions and currently available information and are subject to a number of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Special Note Regarding Forward-Looking Statements” and under “Risk Factors” and elsewhere in this annual report. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this annual report.

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

 

  Company Overview – Discussion of our business plan and strategy in order to provide context for the remainder of MD&A.

 

  Critical Accounting Policies – Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

 

  Results of Operations – Analysis of our financial results comparing the year ended December 31, 2021 to the year ended December 31, 2020.

 

  Liquidity and Capital Resources – Liquidity discussion of our financial condition and potential sources of liquidity.

 

26

 

 

Company Overview

 

Business

 

Rebus Holdings, Inc. (fka Inspyr Therapeutics, Inc.) is a pharmaceutical company focused on the research and development of novel targeted precision therapeutics for the treatment of cancer. Our approach utilizes our proprietary delivery technology to better enhance immuno-modulation for improved therapeutic outcomes. Our potential first-in-class immune-oncology lead asset, RT-AR001, an adenosine A2B receptor antagonist, is differentiated by its intratumoral delivery of nano- or microparticle formulations that allows for better tumor infiltration. The adenosine A2 Receptor is one of many T-cell surface immune checkpoint proteins. Our patented portfolio of adenosine receptor antagonists provides flexibility to optimize treatment based on the specific adenosine targets found in each type of cancer.

 

Adenosine Receptor Modulators

 

The adenosine receptor modulators include A2B and dual A2A/A2B antagonists that have broad development applicability including indications within immuno-oncology. Very high concentrations of adenosine are produced in the tumor microenvironment which prevents the host’s own immune cells from attacking the tumor. Adenosine receptor antagonists as single-agents and in combination with other existing immuno-oncology agents may overcome this immunosuppression, and boost the host immune response leading to enhanced anti-tumor activity as well as inhibition of metastasis. Preclinical data has shown effects with our drug candidates in animal models utilizing a novel platform delivery system. While we believe that the data from our nonclinical studies appear encouraging, the outcome of our ongoing or future studies may ultimately be unsuccessful.

 

Rebus Holdings / Ridgeway Licensing Agreement

 

Pursuant to our recent termination of license with Ridgeway Therapeutics, Inc., a Delaware Corporation, we reacquired the rights to certain intellectual property, discussed above, and are currently focusing on a pipeline of small molecule adenosine receptor modulators. In October 2020, pursuant to the cancellation of a license agreement whereby we previously licensed US Patent 9,593,118, we reacquired the exclusive right to such patent that covers both A2B and dual A2A/A2B antagonists. Accordingly, going forward our major focus will be to: (i) further characterization of the anti-cancer activity of our unique pipeline delivery platform containing A2B and dual A2A/A2B antagonists, leading to selection of a clinical candidate or candidates for an Investigative New Drug or IND enabling studies; and (ii) licensing and/or partnering our delivery platform and the A2B and dual A2A/A2B antagonists for further development.

 

During March 2020, we sold $250,000 of debt securities for cash, in October 2020, we sold $500,000 of debt securities for cash, in January 2021, we sold $500,000 of debt securities for cash and in June 2021 we sold $500,000 of debt securities for cash. We are currently using such funds to maintain our SEC reporting requirements, pay outstanding invoices to our independent registered accounting firm, legal fees, and to retain consultants and other personnel in preparation for an Investigational New Drug Application filing related to our unique delivery platform and portfolio of adenosine A2R antagonists for the treatment of certain solid tumors. Should we fail to further raise sufficient funds to execute our business plan, our priority would be to maintain our intellectual property portfolio and seek business development opportunities with potential development partners and/or acquirors.

 

Pre-Revenue

 

We are a pre-revenue, early-stage company that has not achieved profitability, and has no product revenues. Additionally, we have no approved products for sale.

 

Recent Developments

 

  Effective October 12, 2021, we (i) completed a 1-for-75 Reverse Stock Split and (ii) a holding company reorganization whereby we changed our name to Rebus Holdings, Inc.
     
  On August 16, 2021, we appointed Raul Silvestre, Esq. as (i) our interim chief executive officer and principal accounting officer and (ii) a member of the Board of Directors.

 

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  On June 18, 2021, we completed the private placement of $600,000 of non-interest bearing senior convertible debentures in exchange for $500,000 in cash and the cancellation of $100,000 in obligations.
     
  On January 12, 2021, we completed the private placement of $500,000 of non-interest bearing senior convertible debentures.
     
  On October 5, 2020, in exchange for the issuance of (i) 65,000,000 shares of Common Stock and (ii) 8,000 shares of Series F 0% Convertible Preferred Stock, we entered into an agreement to terminate an outstanding license agreement with Ridgeway Therapeutics, Inc. whereby we had previously licensed certain immune-oncology delivery technologies for the treatment of cancer to Ridgeway Therapeutics (“License Termination”). As a result of the License Termination, the Company announced on October 8, 2020 that it would be refocusing its efforts on a novel-immuno-oncology delivery technology targeting adenosine receptor antagonists for the treatment of cancer.

 

Financial

 

To date, we have devoted substantially all of our efforts and financial resources to the development of our proposed drug candidates. We have not received FDA approval to market, distribute or sell any products. We have recently begun working on developing IND approved studies for our adenosine receptor technology platform.

 

Since our inception in 2003, we have generated no revenue from product sales and have funded our operations principally through the private and public sales of our equity securities. We have never been profitable and as of December 31, 2021, we had an accumulated deficit of approximately $64.3 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our product candidates and advance them through clinical trials.

 

Our cash balances at December 31, 2021 were approximately $711,000 representing 99% of total assets. In January 2021, we completed a private placement of $500,000 in cash of our debt securities and in June 2021 we completed an additional private placement of $500,000 in cash of our debt securities. Based on our current expected level of operating expenditures and current cash balance as of the date of this report, we expect to be able to fund our operations into the third quarter of 2022. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen events.

 

We anticipate raising additional cash through the private or public sales of equity or debt securities to continue to fund our operations and the development of our product candidates. There is no assurance that any such collaborative arrangement will be entered into or that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay or stop our ongoing pre-clinical studies and potential clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding from any source.

 

Going Concern

 

Our auditors’ report on our December 31, 2021 consolidated financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Upon the cancellation of the Ridgeway license, we resumed preclinical development. Notwithstanding our recent financings in (i) January of 2021 whereby we raised $500,000 in cash and (ii) June 2021 whereby we raised $500,000 in cash, our current cash level raises substantial doubt about our ability to continue as a going concern. If we do not obtain additional funds, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment

 

Critical Accounting Policies and Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments or conditions. There were no material changes to our critical accounting policies and use of estimates previously disclosed in our 2021 Annual Report on Form 10-K.

 

28

 

 

Recent Accounting Pronouncements

 

With the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the twelve months ended December 31, 2021 that are of significance or potential significance to the Company.

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

Results of Operations

 

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

 

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue during the years ending December 31, 2021 and 2020. We do not anticipate generating any revenues during 2022. Net income for 2021 was approximately $2.7 million and net loss for 2020 was approximately $6.3 million, resulting from the operational activities described below.

 

Operating Expenses

 

Operating expense totaled $1.0 million and $2.5 million during 2021 and 2020, respectively. The decrease in operating expenses is the result of the following factors.

 

    Year Ended     Change in 2021  
    December 31,     Versus 2020  
    2021     2020     $     %  
    (amount in thousands)              
Operating Expenses                                
Research and development   $ 494     $ 18     $ 476       2,644 %
License termination cost     -       1,969       (1,969 )     (100 )%
General and administrative     528       494       34       7 %
Total operating expense   $ 1,022     $ 2,481     $ (1,459 )     59 %

 

Research and Development

 

Research and development expenses totaled $0.5 million and $0.02 million for the years ended 2021 and 2020, respectively. Our current research and development expenses currently consist primarily of consulting fees and development expense related to development of the adenosine A2R antagonists and preparation for an IND filing.

 

29

 

 

License Termination Cost

 

License termination cost in 2020 relates to the termination of a licensing agreement previously entered into on August 3, 2018, as more fully described elsewhere in this filing. We incurred noncash expense of approximately $1,944,000 related to the issuance of 65 million shares of common stock and 8,000 shares of Series F 0% Convertible Preferred Stock. Additionally, we have assumed certain expenses and costs of approximately $25,000.

 

General and Administrative

 

General and administrative expenses totaled $0.5 million and $0.5 million during 2021 and 2020, respectively. The increase of approximately $0.03 million, or 7%, in 2021 compared to 2020 was primarily due to increased professional fees partially offset by a reduction in director compensation.

 

Our general and administrative expenses currently consist primarily of expenditures related to legal, accounting and tax, other professional services, and general operating expenses.

 

Other Income (Expense)

 

Other income (expense) totaled approximately $3.7 million of income and $3.8 million of expense for 2021 and 2020, respectively.

 

    Year Ended     Change in 2021  
    December 31,     Versus 2020  
    2021     2020     $     %  
    (amount in thousands)              
Gain (loss) on change in fair value of derivative liability   $ 3,687     $ (3,846 )   $ 7,533       196 %
Gain on conversion of debt     1,116       334       782       234 %
Interest (expense), net     (1,083 )     (302 )     (781 )     (259 )%
Total other income (expense)   $ 3,720     $ (3,814 )   $ 7,534       198 %

 

Gain (loss) on change in fair value of derivative liability

 

As a result of a change in the fair value of our derivative liability, we realized gain of $3.7 million and loss of $3.8 million during the years ended December 31, 2021 and 2020, respectively. The change in the fair value of our derivative liability was the result of our convertible debentures and notes issued in September 2017, July 2018, December 2018, July 2019, October 2019, November 2019, March 2020, October 2020, January 2021 and June 2021, where we issued convertible notes with variable conversion rates, and to the issuance of our Series F preferred stock in October 2020, which is convertible into a variable number of shares of common stock. Refer to Note 7 in our Consolidated Financial Statements for further discussion on our derivative liability.

 

Gain on conversion of debt

 

There was a gain on conversion of debt of approximately $1.1 million during the year ended December 31, 2021, with a gain of approximately $0.3 million during the year ended December 31, 2020. Gain on conversion of debt results from the difference between the fair value of common stock issued upon conversion and the carrying amount of the debt converted.

 

Interest income (expense)

 

We had $1.1 million net interest expense in 2021, compared to $0.3 million of expense in 2020. The increase of $0.8 million was attributable an increase in the cost associated with derivative instruments issued with a value in excess of proceeds received. 

 

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Liquidity and Capital Resources

 

We have incurred losses since our inception in 2003 as a result of significant expenditures for operations and research and development and the lack of any approved products to generate revenue. We have an accumulated deficit of approximately $64.3 million as of December 31, 2021 and anticipate that we will continue to incur additional losses for the foreseeable future. Through December 31, 2021, we have funded our operations through the private sale of our equity securities, convertible debt and exercise of options and warrants, resulting in gross proceeds of $39.1 million. Cash at December 31, 2021 was approximately $711,000.

 

Our auditors’ report on our December 31, 2021 financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Based on our current level of expected operating expenditures, we expect to be able to fund our operations into the third quarter of 2022. This assumes that we spend minimally on general operations and only continue conducting our ongoing clinical trials, and that we do not encounter any unexpected events or other circumstances that could shorten this time period. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell equity or debt securities, or enter into collaborative, strategic and/or licensing transactions. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise. If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease development of our product candidates, or cease operations altogether.

 

    Year Ended  
    December 31,  
    2021     2020  
    (amounts in thousands)  
Cash at beginning of year   $ 404     $ 23  
Net cash used in operating activities     (693 )     (374 )
Net cash provided by investing activities            
Net cash provided by financing activities     1,000       755  
Cash at end of year   $ 711     $ 404  

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $0.7 million and $0.4 million during 2021 and 2020, respectively. The increase of $0.3 million in cash used during 2021 compared to 2020 was primarily attributable to an increase in net loss (after adjusting for noncash items) of approximately $0.5 million, partially offset by an increase in changes in accounts payable and accrued expense of approximately $0.2 million.

 

Net Cash Used in Investing Activities

 

Cash provided by investing activities was $0 for each of the years 2021 and 2020.

 

Net Cash Provided by Financing Activities

 

During 2021, we received net proceeds of $1,000,000 from the sales of our securities and convertible debentures, compared to $755,000 during 2020 in net proceeds from the sales of our securities and convertible debentures. We are actively seeking sources of financing to fund our continued operations and research and development programs.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

We are not required to provide the information as to selected financial data as we are considered a smaller reporting company.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The information required by this Item is included in our Financial Statements and Supplementary Data listed in Item 15 of Part IV of this Annual Report.

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, which consists only of our Principal Executive Officer and Principal Accounting Officer (who is also our Principal Executive Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021. Based on that evaluation, management concluded that our disclosure controls and procedures as of December 31, 2021 were ineffective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

Inherent Limitations Over Internal Controls

 

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that:

 

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

 

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

 

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Management, which consists only of our Principal Executive Officer and Principal Accounting Officer (who is also our Principal Executive Officer), does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, 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 internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on the Company’s assessment, management has concluded, that due to limited resources and limited number of employees, its internal control over financial reporting was ineffective as of December 31, 2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. To mitigate the current limited resources and employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase the number of employees, which would enable us to implement adequate segregation of duties within the internal control framework.

 

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Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2021, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit smaller reporting companies to provide only the management’s report in this annual report.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors, Executive Officers and Significant Employees

 

The names of our directors and executive officers and their ages, positions, and biographies as of March 1, 2022, are set forth below. Our executive officers are appointed by, and serve at the discretion of the Board. There are no family relationships among any of our directors or executive officers. All directors hold office until the next annual meeting of shareholders or until their respective successors are elected, except in the case of death, resignation, or removal. On June 16, 2021, Michael Cain resigned as chief executive officer, principal accounting officer and as a member of the Board. On August 16, 2021, we appointed Raul Silvestre, Esq. as our interim chief executive officer, principal accounting officer, president, and a member of our Board of Directors.

 

Name   Position   Age   Position Since  
Executive Directors              
Raul Silvestre   Chief Executive Officer, Chief Financial Officer, President and Director   51   8/2021  
Independent Directors              
Scott V. Ogilvie   Director   67   03/2008  
Claire Thom, Pharm.D.   Director   66   10/2016  

 

Raul Silvestre, Esq., has been general outside counsel to Rebus Holdings since 2008 and the managing partner of the Silvestre Law Group, P.C. since 1999. While serving as counsel to the company, Mr. Silvestre has been responsible for managing and overseeing all legal aspects of the company including capital raising transaction and corporate governance and has been instrumental in the reacquisition of the technology which is the basis of our lead proposed product. Mr. Silvestre’s legal career has focus on corporate and securities law where he has assisted both private and public companies in capital raising, merger and acquisition transactions as well as general corporate matters, recapitalizations and restructurings. Mr. Silvestre has also been an active investor, manager, and principal in, public and private entities with an emphasis in the biotechnology and pharmaceutical industries. Mr. Silvestre received a B.S. with an emphasis in Finance from the University of Southern California and his Juris Doctorate from Pepperdine School of Law. In evaluating Mr. Silvestre’s specific experience, qualifications, attributes, and skills in connection with his appointment to our Board, we took into account his prior service to the company, corporate legal experience, knowledge of capital markets, and experience in publicly traded biotechnology and drug development companies.

 

Scott V. Ogilvie has served as a director on our board since February 2008. Mr. Ogilvie is currently the President of AFIN International, Inc., a private equity/business advisory firm, which he founded in 2006. He is also Exec. Chairman of Oxigen Beverages, Inc., a BC, Canadian privately held company. Prior to December 31, 2009, he was CEO of Gulf Enterprises International, Ltd, a company that brings strategic partners, expertise and investment capital to the Middle East and North Africa. He held this position since August 2006. Mr. Ogilvie previously served as Chief Operating Officer of CIC Group, Inc., an investment manager, a position he held from 2001 to 2007. He began his career as a corporate and securities lawyer with Hill, Farrer & Burrill, and has extensive public and private corporate management and board experience in finance, real estate, and technology companies. Mr. Ogilvie also previously served on the board of directors of Preferred Voice Inc. (OTCQB: PRFV), Innovative Card Technologies, Inc. (OTCBB: INVC), National Healthcare Exchange, Inc. (OTCBB: NHXS), and Research Solutions, Inc. (OTCQB: RSSS). In evaluating Mr. Ogilvie’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his prior work in both public and private organizations regarding corporate finance, securities and compliance and international business development. 

 

Claire Thom, PharmD has served as a director on our board since October 2016. Dr. Thom has two decades of experience in the pharmaceutical industry, with responsibilities including drug development, new product planning, and marketing. Most recently, from July 2013 until June 2016, Dr. Thom was the Senior Vice President Global Therapeutic Head for Oncology at Astellas Pharma (TOKYO: ALPMY). At Astellas, she developed and supervised the implementation of the company’s oncology strategy. In addition, she was appointed to serve on the Board of Directors for Agensys, a fully-owned subsidiary of Astellas. Prior to her roles at Astellas, Dr. Thom served as Senior Vice President of Portfolio Management, Drug Development Management and Strategic Business Operations at Millennium Pharmaceuticals, the Takeda Oncology Company, (TOKYO: TKPYY) from August 2008 until January 2013. Prior to her assignment at Millennium, she held several positions of increasing responsibility at Takeda to become the company’s Oncology Franchise Leader. Earlier, she worked at G.D. Searle and began her career as a clinical pharmacist. Ms. Thom was awarded a Doctor of Pharmacy and a Bachelor of Pharmacy, both with honors, from the University of Illinois. In evaluating Dr. Thom’s specific experience, qualifications, attributes and skills in connection with her appointment to our board, we took into account her knowledge of scientific matters affecting our business and her understanding of our industry.

 

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Family Relationships

 

There are no family relationships between any director, executive officer, or person nominated or chosen by the registrant to become a director or executive officer.

 

CORPORATE GOVERNANCE

 

Independent Directors

 

For purposes of determining independence, the Company has adopted the definition of independence as contained in NASDAQ Market Place Rule 5605(a)(2). Pursuant to the definition, the Company has determined that Dr. Thom and Mr. Ogilvie qualify as independent. 

 

Committees

 

The board of directors has established three standing committees: (1) an Audit Committee, (2) a Nominating and Corporate Governance Committee, and (3) a Leadership Development and Compensation Committee. Each of the committees operates under a written charter adopted by the board of directors. A copy of each respective committee’s charter can be viewed as Exhibits 99.01, 99.02 and 99.03 to this Annual Report.

 

The table below identifies the Board’s standing committees and committee membership as of October 31, 2021:

 

Director   Independent   Audit
Committee
  Nominating
and
Corporate
Governance
Committee
  Leadership
Development
and
Compensation
Committee
 
Scott Ogilvie   Yes   Chair   Chair    
                   
Claire Thom, PharmD   Yes   Member     Chair  

 

Each member of the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee is considered independent under the NASDAQ Market Place Rules.

 

Audit Committee

 

The main function of our Audit Committee, which was established in accordance with Section 3(a)(58)(A) of the Exchange Act, is to oversee our accounting and financial reporting processes, internal systems of control, independent auditor relationships and the audits of our financial statements. This committee’s responsibilities include:

 

  Selecting and hiring our independent auditors.

 

  Evaluating the qualifications, independence and performance of our independent auditors.

 

  Approving the audit and non-audit services to be performed by our independent auditors.

 

  Reviewing the design, implementation, adequacy and effectiveness of our internal controls and our critical accounting policies.

 

  Overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters.

 

  Reviewing with management any earnings announcements and other public announcements regarding our results of operations.

 

  Reviewing regulatory filings with management and our auditors.

 

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  Preparing any report the SEC requires for inclusion in our annual proxy statement.

 

  The Audit Committee will review and approve all related party transactions.

 

Our Audit Committee is currently comprised of Scott V. Ogilvie and Claire Thom, each of whom is a non-employee member of our board of directors. Our board of directors has determined that each of the directors serving on our Audit Committee is independent within the meaning of the rules of the SEC and rule 5605(a)(2) of the Marketplace Rules of NASDAQ. Additionally, our board has determined that Scott V. Ogilvie is an audit committee financial expert as defined under the rules of the SEC. A copy of the charter is contained in Exhibit 99.01 to this Annual Report.

 

Nominating and Corporate Governance Committee

 

Our Nominating and Corporate Governance Committee’s purpose is to assist our board of directors in identifying individuals qualified to become members of our board of directors consistent with criteria set by our board of directors and to develop our corporate governance principles. This committee’s responsibilities include:

 

  Evaluating the composition, size, organization and governance of our board of directors and its committees, determining future requirements, and making recommendations regarding future planning, the appointment of directors to our committees and selection of chairs of these committees.

 

  Reviewing and recommending to our board of directors, director independence determinations made with respect to continuing and prospective directors.

 

  Establishing a policy for considering stockholder nominees for election to our board of directors.

 

  Recommending ways to enhance communications and relations with our stockholders.

 

  Evaluating and recommending candidates for election to our board of directors.

 

  Overseeing our board of directors’ performance and self-evaluation process and developing continuing education programs for our directors.

 

  Evaluating and recommending to the board of directors, termination of service of individual members of the board of directors as appropriate, in accordance with governance principles, for cause or for other proper reasons.

 

  Making regular written reports to the board of directors.

 

  Reviewing and reexamining the committee’s charter and making recommendations to the board of directors regarding any proposed changes.

 

  Reviewing annually the committee’s own performance against responsibilities outlined in its charter and as otherwise established by the board of directors.

 

Our Nominating and Corporate Governance Committee is currently comprised of Scott V. Ogilvie, a non-employee member of our board of directors. Our board of directors has determined that Mr. Ogilvie is independent as defined in rule 5605(a)(2) of the Marketplace Rules of NASDAQ. The charter of the Nominating and Corporate Governance Committee is contained in Exhibit 99.03 of this Annual Report.

 

Leadership Development and Compensation Committee

 

The purpose of our Leadership Development and Compensation Committee is to oversee our compensation programs. The committee may form and delegate authority to subcommittees or, with respect to compensation for employees and consultants who are not executive officers for purposes of Section 16 of the Exchange Act, to our officers, in either instance as the committee determines appropriate. The committee’s responsibilities include:

 

  Reviewing and approving our general compensation strategy.

 

36

 

 

  Establishing annual and long-term performance goals for our CEO and other executive officers.

 

  Conducting and reviewing with the board of directors an annual evaluation of the performance of the CEO and other executive officers.

 

  Evaluating the competitiveness of the compensation of the CEO and the other executive officers.

 

  Reviewing and making recommendations to the board of directors regarding the salary, bonuses, equity awards, perquisites and other compensation and benefit plans for the CEO.

 

  Reviewing and approving all salaries, bonuses, equity awards, perquisites and other compensation and benefit plans for our other executive officers.

 

  Reviewing and approving the terms of any offer letters, employment agreements, termination agreements or arrangements, change-in-control agreements, indemnification agreements and other material agreements between the company and our executive officers.

 

  Acting as the administering committee for our stock and bonus plans and for any equity or cash compensation arrangements that we may adopt from time to time.

 

  Providing oversight for our overall compensation plans and benefit programs, monitoring trends in executive and overall compensation and making recommendations to the board of directors with respect to improvements to such plans and programs or the adoption of new plans and programs.

 

  Reviewing and approving compensation programs as well as salaries, fees, bonuses and equity awards for non-employee members of the board of directors.

 

  Reviewing plans for the development, retention and succession of our executive officers.

 

  Reviewing executive education and development programs.

 

  Monitoring total equity usage for compensation and establishing appropriate equity dilution levels.

 

  Reporting regularly to the board of directors on the committee’s activities.

 

  Reviewing and discussing with management the required annual compensation discussion and analysis disclosure, if any, regarding named executive officer compensation and, based on this review and discussions, making a recommendation to include in our annual public filings.

 

  Preparing and approving any required committee report to be included in our annual public filings.

 

  Performing a review, at least annually, of the performance of the committee and its members and reporting to the board of directors on the results of this review.

 

  Investigating any matter brought to its attention, with full access to all our books, records, facilities and employees and obtaining advice, reports or opinions from internal or external counsel and expert advisors in order to help it perform its responsibilities.

 

Our Leadership Development and Compensation Committee is currently comprised of Claire Thom, who is a non-employee member of our board of directors. Dr. Thom is an “outside” director as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and a “non-employee” director within the meaning of Rule 16b-3 of the Exchange Act. Our board of directors has determined that Dr. Thom is independent as defined in rule 5605(a)(2) of the Marketplace Rules of NASDAQ. A copy of the charter is contained in Exhibit 99.02 to this Annual Report.

 

37

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our officers, directors, and stockholders owning more than ten percent of our common stock, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of such reports. Based solely on our review of Form 3, 4 and 5’s, the following table provides information regarding any of the reports which were filed late during the fiscal year ended December 31, 2020:

 

Name of Reporting Person   Type of Report and Number Filed Late   No. of
Transactions
Reported Late
 
Raul Silvestre   Form 3   1(1)  

 

 
(1) Transaction not reported as of the date hereof.

 

Limitation on Liability and Indemnification of Directors and Officers

 

Our certificate of incorporation states that, to the fullest extent permitted by the Delaware General Corporate Law, or the DGCL, no director shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as director; provided, however, that this provision eliminating personal liability of a director shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.

 

Section 174 of the DGCL provides, among other things, that a director who willfully and negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time the action occurred or immediately after the absent director receives notice of the unlawful acts.

 

Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers and may indemnify our employees or agents to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices or positions with us. However, nothing in our certificate of incorporation or bylaws protects or indemnifies a director, officer, employee or agent against any liability to which that person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of that person’s office or position. To the extent that a director has been successful in defending any proceeding brought against him, the Delaware General Corporation Law provides that the director shall be indemnified against reasonable expenses incurred by him in connection with the proceeding.

 

Diversity of Board of Directors

 

We do not have a formal policy with regard to the consideration of diversity in identifying director nominees, but the Nominating and Corporate Governance Committee strives to nominate Directors with a variety of complementary skills so that, as a group, the board of directors will possess the appropriate talent, skills, and expertise to oversee our businesses.

 

Code of Ethics

 

We have adopted a “Code of Ethics” that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our code is attached to this Annual Report as Exhibit 14.01.

 

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ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation

 

The following table provides disclosure concerning all compensation paid for services to us in all capacities for our fiscal years ended December 31, 2021 and 2020 provided by (i) each person serving as our principal executive officer, or PEO, or acting in a similar capacity during our fiscal year ended December 31, 2021 (ii) our most highly compensated executive officers other than our PEO who were serving as executive officers on December 31, 2021 and whose total compensation exceeded $100,000 (collectively with the PEO referred to as the “named executive officers” in this Executive Compensation section); and (iii) our Principal Financial Officer.

 

Name & Principal Position   Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Nonqualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)
    Total
($)
 
Raul Silvestre,   2021     (1)                            
Chief Executive Officer and Principal Accounting Officer   2020                                  
                                                       
Michael Cain,   2021     (2)                            
Chief Executive Officer and Principal Accounting Officer   2020     (2)                            

 

 
(1) Mr. Silvestre was appointed as principal executive and accounting officer, and as a member of the Board effective August 16, 2021. Mr. Silvestre does not receive any compensation for his services as an officer of the Company. Mr. Silvestre is the principal of Silvestre Law Group, P.C., the Company’s outside corporate counsel. We pay Silvestre Law Group $10,000 per month for legal services related to SEC compliance, which began in September of 2021. Additional legal work outside of the scope of the monthly legal services are being billed at Silvestre Law Group’s standard rates and have all been accrued. See “Related Party Transactions” in Part III, Item 13 of this Annual Report for additional information related to Silvestre Law Group.
(2) Mr. Cain became our chief executive officer and principal accounting officer effective July 26, 2019. Mr. Cain did not receive any compensation for his services.

 

Outstanding Executive Equity Awards at Fiscal Year-End 2021

 

None.

 

Employment Agreements and Change in Control

 

Raul Silvestre

 

Raul Silvestre was appointed chief executive officer and chief financial officer / principal accounting officer of the Company effective August 16, 2021. He was also appointed as a member of the Board of Directors. Mr. Silvestre does not have an employment agreement covering his services and has not received any compensation for services as chief executive officer or principal accounting financial officer Mr. Silvestre is not subject to any compensation arrangements in the event that he is terminated or resigns as an officer for any reason.

 

Mr. Silvestre is the principal of Silvestre Law Group, P.C., the Company’s outside corporate counsel. The law firm receives payment from bona fide legal services that it provides to the Company

 

39

 

 

Michael Cain

 

Michael Cain was appointed chief executive officer and chief financial officer / principal accounting officer of the Company effective July 26, 2019. Effective June 16, 2021, Mr. Cain resigned from all positions with the Company and as a member of the Board of Directors. During his tenure, the Company did not have any employment agreement covering Mr. Cain’s services and he did not receive any compensation as our chief executive officer or chief financial officer.

 

Equity Compensation Plans

 

For information related to our equity compensation plans for which our officers and directors are issued securities from, please see Equity Compensation Plan Information contained in Part III, Item 12 of this Annual Report.

 

Director Compensation

 

Current Amended Non-Employee Director Compensation Policy

 

Effective April 1, 2021, the Board of Directors amended its employee director compensation policy (“Amended Director Policy”). Pursuant to the Amended Director Policy, each Board member will receive $5,000 in cash per quarter of service on the Board of Directors, or such pro-rated portion for any partial quarter.

 

For the year end 2021, non-employee directors received the following:

 

Name   Fees
Earned
or Paid in
Cash
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Non-Qualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)
    Total
($)
 
Scott Ogilvie     15,000                               30,000 (1)      45,000  
                                                         
Claire Thom     15,000                               20,000 (2)      35,000  

 

 
(1) On March 1, 2021, we entered into an agreement with Mr. Ogilvie whereby each of the parties entered into a mutual release and we agreed to pay Mr. Ogilvie an aggregate of $60,000, of which $30,000 was due and payable on November 13, 2020 with the remaining $30,000 due and payable on February 18, 2021. In exchange for such payments, Mr. Ogilvie agreed to waive $231,167 in outstanding director fees owed to Mr. Ogilvie from March 31, 2017 through March 31, 2021. Further, pursuant to the agreement, we agreed to issue a common stock purchase option with a Black Scholes’ value of $60,000 to Mr. Ogilvie immediately prior to the announcing approval from the FDA to commence our first Phase 1 clinical trial (this has not yet occurred). The option will have an exercise price equal to the closing price of the Company’s common stock on the day preceding the announcement and a term of 10 years.
(2) On March 1, 2021, we entered into an agreement with Dr. Thom whereby each of the parties entered into a mutual release and we agreed to pay Dr. Thom an aggregate of $40,000, of which $20,000 was due and payable on November 13, 2020 with the remaining $20,000 due and payable on February 18, 2021. In exchange for such payments, Dr. Thom agreed to waive $204,500 in outstanding director fees owed to Dr. Thom from March 31, 2017 through March 31, 2021. Further, pursuant to the agreement, we agreed to issue a common stock purchase option with a Black Scholes’ value of $40,000 to Dr. Thom immediately prior to the announcing approval from the FDA to commence our first Phase 1 clinical trial (this has not yet occurred). The option will have an exercise price equal to the closing price of the Company’s common stock on the day preceding the announcement and a term of 10 years.

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

 

Securities authorized for issuance under equity compensation plans

 

The following table sets forth information as of December 31, 2021 with respect to our compensation plans under which equity securities may be issued.

 

    (a)     (b)     (c)  
    Number of Securities
to be Issued
upon Exercise of
Outstanding
Options, Warrants
and Rights
    Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
    Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
 
Equity compensation plans approved by security holders:                  
N/A (1)                        
Equity compensation plans not approved by security holders:                        
N/A (1)                        
Total                        

 

 
(1) Our 2007 Equity Compensation Plan, 2009 Executive Compensation Plan, Inducement Award Stock Option Plan and 2017 Equity Compensation Plan have all expired or been terminated by the Board.

 

2007 Equity Compensation Plan

 

Our 2007 Equity Compensation Plan (“2007 Plan”) was administered by our board or any of its committees. The purposes of the 2007 Plan was to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of our business. The issuance of awards under our 2007 Plan was at the discretion of the administrator, which had the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2007 Plan, we were able to grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards. All awards under the 2007 Plan have expired, been forfeited or converted into Common Stock pursuant to our holding company reorganization. The 2007 Plan was terminated by the Board and has no remaining shares authorized.

 

2009 Executive Compensation Plan

 

Our 2009 Executive Compensation Plan, as amended (“2009 Plan”) was administered by our Board or any of its committees. The purpose of our 2009 Plan was to advance the interests of the Company and our stockholders by attracting, retaining and rewarding persons performing services for us and to motivate such persons to contribute to our growth and profitability. The issuance of awards under our 2009 Plan was at the discretion of the administrator, which had the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2009 Plan, we were able to grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock-based awards. All awards under the 2009 Plan have expired, been forfeited or converted into Common Stock pursuant to our holding company reorganization. The 2009 Plan was terminated by the Board and has no remaining shares authorized.

 

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Inducement Award Stock Option Plan

 

Our Inducement Award Stock Option Plan (“Inducement Plan”) was administered by our board or our compensation committee. The Plan is intended to be used in connection with the recruiting and inducement of senior management and employees. The issuance of wards under the Inducement Plan is at the discretion of the administrator which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. The Company did not seek approval of the Plan by our stockholders. All awards under the Inducement Plan have expired, been forfeited or converted into Common Stock pursuant to our holding company reorganization. The Inducement Plan was terminated by the Board and has no remaining shares authorized.

 

Inspyr Therapeutics 2017 Equity Compensation Plan

 

Our 2017 Equity Compensation Plan (“2017 Plan”) was administered by our board or any of its committees. The purposes of the 2017 Plan was to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of our business. The issuance of awards under our 2017 Plan was at the discretion of the administrator, which had the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2017 Plan, we were able to grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards. All awards under the 2017 Plan have expired, been forfeited or converted into Common Stock pursuant to our holding company reorganization. The 2017 Plan was terminated by the Board and has no remaining shares authorized.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth, as of March 1, 2022, information regarding beneficial ownership of our capital stock by:

 

  each person, or group of affiliated persons, known by us to be the beneficial owner of 5% or more of any class of our voting securities;
     
  each of our current directors and nominees;
     
  each of our current named executive officers; and
     
  all current directors and named executive officers as a group.

 

Beneficial ownership is determined according to the rules of the SEC. Beneficial ownership means that a person has or shares voting or investment power of a security and includes any securities that person or group has the right to acquire within 60 days after the measurement date. This table is based on information supplied by officers, directors and principal stockholders. Except as otherwise indicated, we believe that each of the beneficial owners of the common stock listed below, based on the information such beneficial owner has given to us, has sole investment and voting power with respect to such beneficial owner’s shares, except where community property laws may apply.

 

Name and Address of Beneficial Owner(1)   Shares     Common Stock Shares
Underlying
Convertible
Securities(2)
    Total     Percent of
Class(2)
 
Directors and named Executive Officers                                
Raul Silvestre(3)     2       1,687,643       1,687,645       4.99 %
Michael Cain(4)                       *  
Scott Ogilvie     1             1       *  
Claire Thom     1             1       *  
All directors and executive officers as a group (4 persons)     4       1,687,643       1,687,647       4.99 %
                                 
5% Shareholders                                
Ridgeway Therapeutics, Inc.(5)     866,667       (6)      866,667 (6)      2.70 %

 

 
* Less than one percent.
+ Mr. Cain resigned as an officer and director of the Company effective June 16, 2021.

 

42

 

 

(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is 2629 Townsgate Road #215, Westlake Village, CA 91361.
(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. There were 32,132,907 shares of common stock issued and outstanding as of March 1, 2022.
(3) All share amounts underlying convertible securities represent debentures held by Silvester Law Group, P.C., of which Mr. Silvestre serves as its managing director. Excludes 34,246,892 shares of common stock underlying debentures held by Silvestre Law Group, P.C.
(4) Mr. Cain resigned as an officer and director of the Company effective June 16, 2021.
(5) 4085 Campbell Ave. #150, Menlo Park, CA 94025. Colin Hislop has voting and dispositive control with respect to the securities.
(6) Ridgeway Therapeutics additionally holds 8,000 shares of our Series F Convertible Preferred Stock that converts into Common Stock. The 8,000 shares of Series F Convertible Preferred Stock are convertible into an aggregate of 80% of the issued and outstanding Common Stock post-conversion on the conversion date. The Series F Preferred Stock votes on an as converted to Common Stock basis. Additionally, upon the termination, conversion or otherwise extinguishment of certain of our outstanding convertible debentures, the Series F Preferred Stock will automatically convert into Common Stock.

 

43

 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Information regarding disclosure of an employment relationship or transaction involving an executive officer and any related compensation solely resulting from that employment relationship or transaction is incorporated by reference from the section of this annual report entitled “Executive Compensation.”

 

Information regarding disclosure of compensation to a director is incorporated by reference from the section of this annual report entitled “Director Compensation.”

 

Related Party Transactions

 

  We have entered into an indemnification agreement with each of our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. The indemnification agreements are substantially similar to those entered into with our executive officers and as a more fully described in the section of this annual report entitled “Employment Agreements and Change in Control.”
     
 

On March 1, 2021, we entered into a settlement and release agreement with Claire Thom, one of our independent directors for the settlement of past due director fees and the mutual release of all claims. Pursuant to the agreement, Dr. Thom agreed to waive $204,500 in outstanding director fees in exchange for the following: (i) the payment of $40,000 (of which $20,000 was paid in November 2020 and $20,000 in February 2021) and (ii) immediately prior to the announcement that the Company has received approval from the FDA to commence its first Phase 1 clinical trial after March 1, 2021, a common stock purchase option with a Black Scholes’ value of $40,000, having an exercise price equal to the closing price on the day preceding the announcement, and a term of 10 years. We also agreed to amend our non-employee director compensation policy such that on April 1, 2021, each director will be entitled to receive a quarterly Board fee of $5,000 in cash.

 

  On March 1, 2021, we entered into a settlement and release agreement with Scott Ogilvie, one of our independent directors for the settlement of all past due director fees and the mutual release of all claims. Pursuant to the agreement, Mr. Ogilvie agreed to waive $231,167 in outstanding director fees in exchange for the following: (i) the payment of $60,000 (of which $30,000 was paid in November 2020 and $30,000 in February 2021) and (ii) immediately prior to the announcement that the Company has received approval from the FDA to commence its first Phase 1 clinical trial after March 1, 2021, a common stock purchase option with a Black Scholes’ value of $60,000, having an exercise price equal to the closing price on the day preceding the announcement, and a term of 10 years. We also agreed to amend our non-employee director compensation policy such that on April 1, 2021, each director will be entitled to receive a quarterly Board fee of $5,000 in cash.

 

  In September of 2021, we began paying $10,000 per month to Silvestre Law Group, P.C., our outside corporate counsel for our SEC compliance legal work (“Monthly Fee”). Mr. Silvestre, our CEO is a principal of Silvestre Law Group, P.C. Additionally, Silvestre Law Group bills us at their standard rates for additional services outside of the scope of the Monthly Fee, which is all accrued and not paid as of the date of this Annual Report on Form 10-K. Between January 1, 2021 and August 15, 2021, we accrued $84,223.97 in legal fees to Silvestre Law Group. Beginning August 16, 2021 and December 31, 2021, we paid Silvestre Law Group $40,000 for the Monthly fee and accrued an additional $54,140.62 in legal fees for other services not covered by the Monthly fee. The company has a balance due to Silvestre Law Group of $294,005 at December 31, 2021. Silvestre Law Group also holds $290,000 of our convertible debentures at December 31, 2021.

 

44

 

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table summarizes the approximate aggregate fees billed to us or expected to be billed to us by our independent auditors for our 2021 and 2020 fiscal years:

 

Type of Fees   2021     2020  
Audit Fees   $ 50,000     $ 50,000  
Audit Related Fees            
Tax Fees            
All Other Fees            
Total Fees   $ 50,000     $ 50,000  

 

Pre-Approval of Independent Auditor Services and Fees

 

Our board of directors reviewed and pre-approved all audit and non-audit fees for services provided by independent registered accounting firm and has determined that the provision of such services to us during fiscal 2021 is compatible with and did not impair independence. It is the practice of the audit committee to consider and approve in advance all auditing and non-auditing services provided to us by our independent auditors in accordance with the applicable requirements of the SEC. The firm we engaged during 2021 provided no other services, other than those listed above.

 

45

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

  1. Financial Statements: See “Index to Financial Statements” beginning on Page F-1 of this Form 10-K.

 

  2. Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

 

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

  may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

 

  may apply standards of materiality that differ from those of a reasonable investor;

 

  and were made only as of specified dates contained in the agreements and are subject to later developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and investors should not rely on them as statements of fact.

 

ITEM 16. FORM 10-K SUMMARY

 

None.

 

46

 

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed by the undersigned hereunto duly authorized.

 

  REBUS HOLDINGS, INC.
   
Date: March 31, 2022 /s/ Raul Silvestre
  Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ Raul Silvestre   Principal Executive Officer, Principal Accounting Officer   March 31, 2022
Raul Silvestre        
         
/s/ Scott Ogilvie   Director   March 31, 2022
Scott Ogilvie        
         
/s/ Claire Thom, PharmD   Director   March 31, 2022
Claire Thom, PharmD        

 

47

 

 

REBUS HOLDINGS, INC.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

    Page
Report of Liggett & Webb, P.A., Independent Registered Public Accounting Firm   F-2
     
Consolidated Balance Sheets   F-4
     
Consolidated Statements of Operations   F-5
     
Consolidated Statement of Stockholders’ Deficit   F-6
     
Consolidated Statements of Cash Flows   F-7
     
Notes to Consolidated Financial Statements   F-8

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of:

Rebus Holdings, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Rebus Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as “the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred losses since inception and has generated no revenues. The Company has a working capital deficit and an accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

F-2

 

 

Valuation of Derivative Liabilities

 

As described in Note 7 to the consolidated financial statements, the Company measures fair value of derivative liabilities at fair value using level three inputs. To determine fair value of derivative liabilities, the Company determines the appropriate valuation methodology and assumptions, including unobservable inputs. The derivative liabilities are measured at fair value using a Black-Scholes valuation model that uses significant assumptions, including the Company’s stock price, historical volatility of the Company’s shares, risk-free interest rate and probability of conversion occurrence through maturity.

 

Auditing management’s estimate for the fair value of derivative liabilities was complex and highly judgmental as it involved our assessment of the significant assumptions used by management because the fair value calculations were sensitive to changes in assumptions described above, and certain inputs used in the determination of fair values were based on unobservable data, including, but not limited to, the historical volatility and probability of conversion.

 

To test the fair value of derivative liabilities, we performed audit procedures that included, among others, evaluating the methodologies used in the valuation model and the significant assumptions used by the Company.

 

/s/ Liggett & Webb, P.A.

 

We have served as the Company’s auditor since 2014.

 

Boynton Beach, Florida

March 31, 2022

 

 

F-3

 

 

REBUS HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

             
    December 31,     December 31,  
    2021     2020  
ASSETS                
                 
Current assets:                
Cash   $ 711     $ 404  
Prepaid expenses     4       -  
Total current assets     715       404  
                 
Total assets   $ 715     $ 404  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current liabilities:                
Accounts payable   $ 1,801     $ 2,261  
Accounts payable – related party     294       -  
Accrued expenses     2,004       1,940  
Convertible debentures, net of unamortized discount of $212 and $488     250       1,878  
Convertible debentures – related party, net of unamortized discount of $46     154       -  
Derivative liability     1,124       6,828  
Total current liabilities     5,627       12,907  
                 
Long-term liabilities:                
Convertible debentures, net of current      20       -  
Convertible debentures – related party, net of current      90       -  
Total long-term liabilities     110       -  
Total liabilities     5,737       12,907  
                 
Commitments and contingencies (Note 8)     -       -  
                 
Stockholders’ deficit:                
Convertible preferred stock, undesignated, par value $.0001 per share; 29,978,846 shares authorized, no shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series A, par value $.0001 per share; 1,854 shares authorized, 134 shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series B, par value $.0001 per share; 1,000 shares authorized, 71 shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series C, par value $.0001 per share; 300 shares authorized, 290 shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series D, par value $.0001 per share; 5,000 shares authorized, 5,000 shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series E, par value $.0001 per share; 5,000 shares authorized, 5,000 shares issued and outstanding, respectively     -       -  
Convertible preferred stock Series F, par value $.0001 per share; 8,000 shares authorized, 8,000 shares issued and outstanding, respectively     -       -  
Common stock, par value $.0001 per share; 1,000,000,000 shares authorized, 11,769,221 and 2,478,848 shares issued and outstanding, respectively     1       -  
Additional paid-in capital     59,254       54,472  
Accumulated deficit     (64,277 )     (66,975 )
                 
Total stockholders’ deficit     (5,022 )     (12,503 )
                 
Total liabilities and stockholders’ deficit   $ 715     $ 404  

 

The accompanying notes are an integral part of these audited consolidated financial statements.

 

F-4

 

 

REBUS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

                 
    Years Ended
December 31,
 
    2021     2020  
Operating expenses:                
Research and development   $ 494     $ 18  
License termination cost     -       1,969  
General and administrative     528       494  
Total operating expenses     1,022       2,481  
                 
Loss from operations     (1,022 )     (2,481 )
                 
Other income (expense):                
Gain (loss) on change in fair value of derivative liability     3,687       (3,846 )
Gain on conversion of debt     1,116       334  
Interest (expense), net     (1,083 )     (302 )
                 
Income (loss) before provision for income taxes     2,698       (6,295 )
                 
Provision for income taxes     -       -  
                 
Net income (loss)     2,698       (6,295 )
Deemed dividend     -       (64 )
                 
Net income (loss) attributable to common shareholders   $ 2,698     $ (6,359 )
                 
Net income (loss) per common share, basic   $ 0.35     $ (10.93 )
Net income (loss) per common share, diluted   $ (0.07 )   $ (10.93 )
                 
Weighted average shares outstanding, basic     7,645,188       581,760  
Weighted average shares outstanding, diluted     21,132,450       581,760  

 

The accompanying notes are an integral part of these audited consolidated financial statements.

 

F-5

 

 

REBUS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

(in thousands, except share and per share data)

 

                                           
    Convertible                 Additional              
    Preferred Stock     Common Stock     Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
Balance, December 31, 2019     5,495     $ -       12,160     $ -     $ 51,957     $ (60,680 )   $ (8,723 )
                                                         
Sale of preferred stock     5,000       -       -       -       5       -       5  
                                                         
Issuance of preferred stock for license termination     8,000       -       -       -       -       -       -  
                                                         
Issuance of common stock for license termination     -       -       866,667               267       -       267  
                                                         
Conversion of notes     -       -       1,600,021       -       2,243       -       2,243  
                                                         
Net loss     -       -       -       -       -       (6,295 )     (6,295 )
                                                         
Balance, December 31, 2020     18,495       -       2,478,848       -       54,472       (66,975 )     (12,503 )
                                                         
Conversion of notes     -       -       9,290,364       1       4,446       -       4,447  
                                                         
Director compensation waived     -       -       -       -       336       -       336  
                                                         
Issuance of common stock in settlement of options, pursuant to merger     -       -       9       -       -       -       -  
                                                         
Net income     -       -       -       -       -       2,698       2,698  
                                                         
Balance, December 31, 2021     18,495     $ -       11,769,221     $ 1     $ 59,254     $ (64,277 )   $ (5,022 )

 

The accompanying notes are an integral part of these audited consolidated financial statements.

 

F-6

 

 

REBUS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

             
    Years Ended
December 31,
 
    2021     2020  
Cash flows from operating activities:                
Net income (loss)   $ 2,698     $ (6,295 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Common and preferred stock issued for license termination     -       1,944  
(Gain) loss on change in fair value of derivative liability     (3,687 )     3,846  
Gain on conversion of debt     (1,116 )     (334 )
Amortization of debt discount     828       280  
Finance cost     254       20  
Changes in operating assets and liabilities:                
Prepaid expenses     (4 )     -  
Accounts payable and accrued expenses     334       165  
Cash used in operating activities     (693 )     (374 )
                 
Cash flows from investing activities:                
Cash provided by investing activities     -       -  
                 
Cash flows from financing activities:                
Proceeds from convertible notes     1,000       750  
Proceeds from sale of preferred stock     -       5  
Cash provided by financing activities     1,000       755  
                 
Net increase in cash     307       381  
Cash, beginning of year     404       23  
                 
Cash, end of year   $ 711     $ 404  

 

The accompanying notes are an integral part of these audited consolidated financial statements.

 

F-7

 

 

REBUS HOLDINGS, INC.

(FKA INSPYR THERAPEUTICS, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

 

NOTE 1 – BACKGROUND

 

Rebus Holdings, Inc. (“we”, “us”, “our company”, “our”, “Rebus,” “Rebus Holdings,” or the “Company”) (formerly known as Inspyr Therapeutics, Inc., see below) was formed under the laws of the State of Delaware in November 2003, and has its principal office in Westlake Village, California. We are focused on the research and development of novel targeted precision therapeutics for the treatment of cancer.

 

Our approach utilizes our proprietary delivery technology to better enhance immuno-modulation for improved therapeutic outcomes. Our potential first-in-class immune-oncology lead asset, RT-AR001, an adenosine receptor A2B antagonist, is differentiated by its novel microparticle formulation that allows for better tumor infiltration and enhanced outcomes when administered intra-tumorally. Our patented portfolio of adenosine receptor antagonists provides flexibility to optimize treatment based on the specific targets found in each type of cancer.

 

The adenosine receptor modulators include A 2B antagonists, dual A 2A /A 2B antagonists, and A 2A antagonists that have broad development applicability including indications within immuno-oncology and inflammation. Adenosine is implicated in immunosuppression in the tumor microenvironment. Adenosine receptor antagonists may boost the host immune response against the tumor as a single-agent and in combination with other existing immuno-oncology agents leading to enhanced tumor killing and inhibition of metastasis. Adenosine also has anti-inflammatory properties in the acute and chronic setting. Adenosine receptor antagonists may promote a decreased inflammatory response and can potentially treat a broad range of inflammatory and autoimmune based diseases and conditions (e.g., rheumatoid arthritis, joint injury, Crohn’s disease, psoriasis) as well as improve wound healing and decrease pain.

 

Pursuant to our recent termination of license with Ridgeway Therapeutics, Inc., a Delaware Corporation (“Ridgeway”), we reacquired the rights to certain intellectual property, discussed above, and are currently focusing on a pipeline of small molecule adenosine receptor modulators. In October 2020, pursuant to the cancellation of a license agreement whereby we previously licensed US Patent 9,593,118, we reacquired the exclusive right to such patent that covers both A2B and dual A2A/A2B antagonists. Accordingly, going forward our major focus will be to: (i) further characterization of the anti-cancer activity of our unique pipeline delivery platform containing A2B and dual A2A/A2B antagonists, leading to selection of a clinical candidate or candidates for an Investigative New Drug or IND enabling studies; and (ii) licensing and/or partnering our delivery platform and the A2B and dual A2A/A2B antagonists for further development.

 

Our ability to execute the business plan is contingent upon our ability to raise the necessary funds. During March 2020, we sold approximately $250,000 of debt securities and in October 2020, we sold $500,000 of debt securities for cash. In January 2021, we sold an additional $500,000 of debt securities for cash and in June 2021, we sold an additional $500,000 of debt securities for cash. We are currently using such funds to maintain our SEC reporting requirements, pay legal accounting and other professional fees, and to retain consultants and other personnel to develop the adenosine A2R antagonists and in preparation for an IND filing related to our unique delivery platform and portfolio of adenosine A2R antagonists for the treatment of certain solid tumors. Should we fail to further raise sufficient funds to execute our business plan, our priority would be to maintain our intellectual property portfolio and seek business development opportunities with potential development partners and/or acquirors.

 

Adoption of Agreement and Plan of Merger and Consummation of Reorganization

 

On September 28, 2021 the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to implement a holding company reorganization, which became effective on October 11, 2021 at 5:00 p.m. Eastern Time (the “Effective Time”). The Merger Agreement was entered into by and among Inspyr Therapeutics, Inc., Rebus Holdings, Inc., and Rebus Sub, Inc., a wholly-owned subsidiary of Rebus Holdings which has resulted in Rebus becoming the direct parent company of Inspyr Therapeutics and replacing Inspyr Therapeutics as the public company trading on the OTC Markets (“OTC”) (the “Reorganization”). Further, the Company began trading under the symbol RBSH on November 9, 2021.

 

Pursuant to the Merger Agreement, Rebus Sub merged with Inspyr Therapeutics pursuant to the filing of a certificate of merger with Inspyr Therapeutics surviving as a direct, wholly-owned subsidiary of Rebus Holdings (the “Merger”). At the Effective Time of the Merger:

 

(i) Each outstanding share of Inspyr Therapeutics Common Stock, par value $0.0001 per share (“Inspyr Common Stock”), automatically converted into one share of Common Stock of Rebus Holdings, having the same designation, rights, powers, and preferences, and qualifications, limitations, and restrictions as a share of Inspyr Therapeutics Common Stock immediately prior to the Reorganization;

 

F-8

 

 

(ii) Each outstanding share of Inspyr Series A Convertible Preferred Stock, par value $0.0001 per share (“Inspyr Series A Stock”), automatically converted into one share of Series A Convertible Preferred Stock par value $0.0001 per share, of Rebus Holdings (“Rebus Series A Stock”), having the same designation, rights, powers, and preferences, and qualifications, limitations, and restrictions as a share of Inspyr Series A Stock immediately prior to the Reorganization;

 

(iii) Each outstanding share of Inspyr Series B Convertible Preferred Stock, par value $0.0001 per share (“Inspyr Series B Stock”), automatically converted into one share of Series B Convertible Preferred Stock par value $0.0001 per share, of Rebus Holdings (“Rebus Series B Stock”), having the same designation, rights, powers, and preferences, and qualifications, limitations, and restrictions as a share of Inspyr Series B Stock immediately prior to the Reorganization;

 

(iv) Each outstanding share of Inspyr Series C Convertible Preferred Stock, par value $0.0001 per share (“Inspyr Series C Stock”), automatically converted into one share of Series C Convertible Preferred Stock par value $0.0001 per share, of Rebus Holdings (“Rebus Series C Stock”), having the same designation, rights, powers, and preferences, and qualifications, limitations, and restrictions as a share of Inspyr Series C Stock immediately prior to the Reorganization;

 

(v) Each outstanding share of Inspyr Series D Convertible Preferred Stock, par value $0.0001 per share (“Inspyr Series D Stock”), automatically converted into one share of Series D Convertible Preferred Stock par value $0.0001 per share, of Rebus Holdings (“Rebus Series D Stock”), having the same designation, rights, powers, and preferences, and qualifications, limitations, and restrictions as a share of Inspyr Series D Stock immediately prior to the Reorganization;

 

(vi) Each outstanding share of Inspyr Series E Convertible Preferred Stock, par value $0.0001 per share (“Inspyr Series E Stock”), automatically converted into one share of Series E Convertible Preferred Stock par value $0.0001 per share, of Rebus Holdings (“Rebus Series E Stock”), having the same designation, rights, powers, and preferences, and qualifications, limitations, and restrictions as a share of Inspyr Series E Stock immediately prior to the Reorganization; and

 

(vii) Each outstanding share of Inspyr Series F Convertible Preferred Stock, par value $0.0001 per share (“Inspyr Series F Stock”), automatically converted into one share of Series F Convertible Preferred Stock par value $0.0001 per share, of Rebus Holdings (“Rebus Series F Stock”), having the same designation, rights, powers, and preferences, and qualifications, limitations, and restrictions as a share of Inspyr Series F Stock immediately prior to the Reorganization.

 

Accordingly, upon consummation of the Reorganization (and the Reverse Stock Split as defined below), Inspyr stockholders automatically became stockholders of Rebus Holdings, on a one-for-one basis, with the same number and approximate ownership percentage of shares of the same class as they held in Inspyr immediately prior to the Effective Time. The Reorganization was intended to be a tax-free transaction for U.S. federal income tax purposes for Inspyr stockholders.

 

The Reorganization has been conducted pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, which provides for the formation of a holding company without a vote of the stockholders of the constituent corporation. The conversion of stock occurred automatically without an exchange of stock certificates. In addition, at the Effective Time:

 

Each outstanding and unexpired option to purchase Inspyr Common Stock automatically converted into share of Rebus Holdings Common Stock;

 

Each outstanding warrant to purchase Inspyr Common Stock (“Inspyr Warrant”), whether or not vested, automatically converted into and become a warrant to purchase Rebus Holdings Common Stock (“Rebus Warrant”) and Rebus Holdings assumed each Inspyr Warrant in accordance with the terms of each Inspyr Warrant, and such Rebus Warrant has the same number of shares, the same exercise price (subject to adjustments), the same restrictions on exercise, and any other provisions contained in the Inspyr Warrants; and

 

Each outstanding convertible debt instrument of Inspyr Therapeutics, including but not limited to, promissory notes or debentures that are convertible into Inspyr Common Stock (“Inspyr Convertible Notes”) automatically converted into, assumed, and became the convertible debt instruments of Rebus Holdings (“Rebus Convertible Notes”).

 

As a result of the Reorganization, Rebus Holdings became the successor issuer to Inspyr Therapeutics pursuant to Rule 12g-3(a) of the Exchange Act, and as a result, shares of Rebus Holdings Common Stock are deemed registered under Section 12(g) of the Exchange Act as the Common Stock of the successor issuer.

 

F-9

 

 

Reverse Stock Split

 

On September 1, 2021, the Board of Directors approved a one-for-seventy-five (1-for-75) reverse stock split of the Company’s Common Stock (“Reverse Stock Split”). The Reverse Stock Split became effective with the Secretary of State of Delaware as of 4:59 p.m. Eastern Time on October 5, 2021, and the Company began trading on a post Reverse Stock Split basis at the market open on October 12, 2021. As a result of the Reverse Stock Split, each of the holders of the Company’s Common Stock received one (1) new share of Common Stock for every seventy-five (75) shares such shareholder held immediately prior. No fractional shares were issued as a result of the Reverse Stock Split. Any fractional shares that would have otherwise resulted from the Reverse Stock Split will be rounded up to the next whole number of shares. The Reverse Stock Split also affected the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the Reverse Stock Split ratio. All share and per share data have been retroactively restated in the accompanying consolidated financial statements and footnotes for all periods presented to reflect the effects of the Reverse Stock Split.

 

Post Reverse Stock Split and Reorganization Information

 

The Company began trading on post Reverse Stock Split and Reorganization basis on the Pink Sheets of the OTC Markets Group on October 12, 2021. The symbol remained NSPX until November 9, 2021, at which time the Company began trading under the symbol RBSH.

 

The officers and members of the Board of Inspyr became the officers and members of the board of directors of the Rebus Holdings.

 

Pursuant to the Reorganization, Rebus Holdings has, on a consolidated basis, the same assets, businesses, and operations as Inspyr Therapeutics had immediately prior to the Reorganization.

 

Termination of License Agreement

 

On October 5, 2020, the Company entered into an agreement with Ridgeway (“Termination Agreement”) whereby the parties terminated the licensing agreement previously entered into on August 3, 2018 (“Licensing Agreement”), The Company had previously licensed certain technologies related to targeting adenosine receptor antagonists for the treatment of cancer (the “Licensed Assets”). As a result of the Termination Agreement, the Company reacquired full ownership and worldwide rights to all of the Licensed Assets as well as any improvements made thereto.

 

In exchange for entering into the Termination Agreement, the Company issued to Ridgeway: (i) 866,667 shares Common Stock, and (ii) 8,000 shares of Series F 0% Convertible Preferred Stock (“Series F Preferred Stock”). Additionally, the Company paid approximately $25,000 of Ridgeway’s expenses and costs.

 

Pursuant to the Certificate of Designation of the Series F Preferred Stock, each share of Series F Preferred Stock has a stated value of $10.00 per share and is convertible into Common Stock at any time at the election of the holder. In the aggregate, all of the Series F Preferred Stock issued to Ridgeway is convertible into such number of shares of Common Stock equal to eighty percent (80%) of the issued and outstanding shares of Common Stock, post-conversion, on the conversion date (taking into effect any forward or reverse stock splits or consolidations). The Series F Preferred Stock votes on an as if converted to Common Stock basis. Additionally, upon the Company’s outstanding Convertible Debentures (as such term is defined in the Certificate of Designation) being terminated, converted, or otherwise extinguished, the Series F Preferred Stock will automatically convert into Common Stock.

 

Pursuant to the Termination Agreement, in the event that the Company is unable to secure equity financing resulting in aggregate gross proceeds to the Company of at least $5,000,000 by October 5, 2023, or in the event that the Company ceases its operations, then the Termination Agreement will be deemed terminated and the Licensing Agreement will be reinstated in exchange for the return of the Common Shares and Series F Preferred Stock previously issued to Ridgeway.

 

As a result of the issuance of the Common Shares and Series F Preferred Stock, Ridgeway became the owner of approximately 54.14% of the Company’s issued and outstanding Common Stock as of the termination date. Furthermore, by virtue of the issuance of the Series F Preferred Stock, Ridgeway will vote its Series F Preferred Stock on an as if converted to Common Stock basis which shall be equal to eighty percent (80%) of the issued and outstanding Common Stock post-conversion. Accordingly, the Board of Directors determined that a change in control of the registrant had occurred. The Company did not have a prior relationship with Ridgeway, or any of its principals, except pursuant to the terms contained in the Termination Agreement and its previous relationship under the Licensing Agreement.

 

F-10

 

 

NOTE 2 – MANAGEMENT’S PLANS TO CONTINUE AS A GOING CONCERN

 

Basis of Presentation

 

The opinion of our independent registered accounting firm on our consolidated financial statements contains explanatory going concern language. We have prepared our consolidated financial statements on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred losses from operations since inception, we have a working capital deficit of $4.9 million and we have an accumulated deficit of $64 million as of December 31, 2021. We anticipate incurring additional losses for the foreseeable future until such time, if ever, that we can generate significant sales from our therapeutic product candidates which are currently in development or we enter into cash flow positive business development transactions.

 

To date, we have generated no sales or revenues, have incurred significant losses and expect to incur significant additional losses as we advance our product candidates through development. Consequently, our operations are subject to all the risks inherent in the establishment of a pre-revenue business enterprise as well as those risks associated with a company engaged in the research and development of pharmaceutical compounds.

 

Our cash balances at December 31, 2021 were approximately $711,000, representing 99% of our total assets. Based on our current expected level of operating expenditures, and including $500,000 that we raised in January 2021 and $500,000 that we raised in June 2021, pursuant to the sale of our senior convertible debentures, we expect to be able to fund our operations into the third quarter of 2022. We will require additional cash to fund and continue our operations beyond that point. This period could be shortened if there are any unanticipated increases in planned spending on development programs or other unforeseen events. We anticipate raising additional funds through public or private sales of debt or equity securities, or some combination thereof. There is no assurance that any such financing will be available when needed in order to allow us to continue our operations, or if available, on terms favorable or acceptable to us.

 

In the event additional financing is not obtained, we may pursue cost cutting measures as well as explore the sale of assets to generate additional funds. If we are required to significantly reduce operating expenses and delay, reduce the scope of, or eliminate any of our development programs or clinical trials, these events could have a material adverse effect on our business, results of operations, and financial condition. These factors raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Our current cash level raises substantial doubt about our ability to continue as a going concern past the third quarter of 2022. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

NOTE 3 – SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the parent company, Rebus Holdings, Inc., (fka Inspyr Therapeutics, Inc.) and its wholly-owned subsidiaries, Inspyr Therapeutics, Inc., Lewis & Clark Pharmaceuticals, Inc. and Ridgeway Therapeutics, Inc. (a California corporation). All significant intercompany accounts and transactions have been eliminated.

 

Reverse Stock Split and Increase in Authorized Shares

 

The one for seventy-five (1-for-75) Reverse Stock Split became effective with the Secretary of State of Delaware as of 4:59 p.m. Eastern Time on October 5, 2021, and the Company began trading on a post Reverse Stock Split basis at the market open on October 12, 2021. As a result of the Reverse Stock Split, each of the holders of the Company’s Common Stock received one (1) new share of Common Stock for every seventy-five (75) shares such shareholder held immediately prior. No fractional shares were issued as a result of the Reverse Stock Split. Any fractional shares that would have otherwise resulted from the Reverse Stock Split will be rounded up to the next whole number of shares. The Reverse Stock Split also affected the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the Reverse Stock Split ratio.

 

F-11

 

 

On June 10, 2020, the Company’s Board of Directors approved a one-for-thirty (1-for-30) reverse stock split of the Company’s common stock (“2020 Reverse Stock Split”). Pursuant to the 2020 Reverse Stock Split, the Company filed an amended and restated certificate of incorporation with the Secretary of State of Delaware to effect the Reverse Stock Split effective as of 5:00 p.m. Eastern Time on June 26, 2020 (“2020 Effective Time”). Accordingly, at the 2020 Effective Time, each of the Company’s common stock shareholders received one new share of common stock for every thirty shares such shareholder held immediately prior to the Effective Time. The 2020 Reverse Stock Split also affected the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the 2020 Reverse Stock Split ratio.

 

All share and per share data has been retroactively adjusted in the accompanying consolidated financial statements and footnotes for all periods presented to reflect the effects of the Reverse Stock Split and the 2020 Reverse Stock Split.

 

Pursuant to a joint written consent of the board of directors and a majority of the voting power of the Company’s stockholders, the Company’s shareholders approved amending and restated the Company’s Certificate of Incorporation to (i) increase the Company’s authorized Common Stock from 150,000,000 shares to 1,000,000,000 shares and to (ii) increase or decrease (but not below the number of shares of such class outstanding) the number of authorized shares of the class of Common Stock or Preferred Stock by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Company irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law.

 

The Company filed the Amended and Restated Certificate of Incorporation with Delaware’s Secretary of State reflecting the foregoing changes with an effective date and time of November 27, 2020.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Significant estimates include the fair value of derivative instruments, stock-based compensation, recognition of clinical trial costs and other accrued liabilities. Actual results may differ from those estimates.

 

Research and Development

 

Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for pre-clinical research, toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs associated therewith.

 

We incurred research and development expenses of $0.5 million and $0.02 million for the years ended December 31, 2021 and 2020, respectively.

 

Cash Equivalents

 

For purposes of the statements of cash flows, we consider all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. We maintain our cash in bank deposit accounts which, at times, may exceed applicable government mandate insurance limits. We have not experienced any losses in our accounts. We did not have any cash equivalents at December 31, 2021 or 2020.

 

Restricted Cash

 

Restricted cash consisted of funds held in trust for the Company. The use of these funds was restricted to: (i) the payment of professional fees in connection with bringing the Company’s filings current, and (ii) the payment of vendors associated with the issuance and trading of the Company’s securities, such as transfer agent fees and fees payable to the OTC Markets and FINRA. There were no restrictions on the use of cash at December 31, 2021 or 2020.

 

Concentrations of Credit Risk

 

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may exceed applicable government mandated insurance limits. Cash was $0.7 million and $0.4 million at December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, there was no cash over the federally insured limit.

 

F-12

 

 

Intangible Assets

 

Intangible assets consist of licensed technology, patents, and patent applications (see Note 5). The assets associated with licensed technology are recorded at cost and have been amortized on the straight line basis over their estimated useful lives of twelve to seventeen years.

 

Income (Loss) per Share

 

Basic income (loss) per share is calculated by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period.

 

The following potentially dilutive securities have been excluded from the computations of basic weighted average shares outstanding as of December 31, 2021 and 2020, as they would be anti-dilutive:

 

               
    Year Ended
December 31,
 
    2021     2020  
Shares underlying options outstanding     -       16  
Shares underlying warrants outstanding     23       53  
Shares underlying convertible notes outstanding     35,204,931       6,949,870  
Shares underlying convertible preferred stock outstanding     47,172,096       9,995,250  
      82,377,050       16,945,189  

 

Diluted loss per share for the year ended December 31, 2021 is calculated as follows:

 

     
    Year ended  
    December 31,  
    2021  
Net income attributable to common shareholders   $ 2,698  
Income attributable to convertible instruments     (4,928 )
Expense attributable to convertible instruments     829
Diluted loss attributable to common shareholders   $ (1,401 )
         
Basic shares outstanding     7,645,186  
Dilutive convertible instruments     13,487,262  
Diluted shares outstanding     21,132,448  
         
Diluted loss per share   $ (0.07 )

 

Derivative Liability

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company values its derivative liabilities using the Black-Scholes option valuation model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.

 

Fair Value of Financial Instruments

 

Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments with maturities of one year or less when acquired. We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts.

 

The derivative liabilities consist of our convertible notes and Series F preferred stock with variable conversion features. The Company uses the Black-Scholes option-pricing model to value its derivative liabilities which incorporate the Company’s stock price, volatility, U.S. risk-free interest rate, dividend rate, and estimated life.

 

F-13

 

 

Fair Value Measurements

 

The U.S. GAAP Valuation Hierarchy establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The Company has recorded a derivative liability for its convertible notes and preferred stock with variable conversion features as of December 31, 2021 and 2020. The tables below summarize the fair values of our financial liabilities as of December 31, 2021 and 2020 (in thousands):

 

                               
    Fair Value at
December 31,
    Fair Value Measurement Using  
    2021     Level 1     Level 2     Level 3  
Convertible notes   $ 518                 $ 518  
Preferred stock     606                   606  
Derivative liability   $ 1,124     $     $     $ 1,124  

 

    Fair Value at
December 31,
    Fair Value Measurement Using  
    2020     Level 1     Level 2     Level 3  
Convertible notes   $ 2,705                 $ 2,705  
Preferred stock     4,123                   4,123  
Derivative liability   $ 6,828     $     $     $ 6,828  

 

The reconciliation of the derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):

 

               
    Year ended
December 31,
 
    2021     2020  
Balance at beginning of year   $ 6,828     $ 1,785  
Additions to derivative instruments     1,354       2,465  
Reclassification on conversion     (3,371 )     (1,268 )
Loss (gain) on change in fair value of derivative liability     (3,687 )     3,846  
Balance at end of year   $ 1,124     $ 6,828  

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which the related temporary difference becomes deductible.

 

F-14

 

 

Stock-Based Compensation

 

We account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the shorter of the service period or the vesting period of the stock-based compensation. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. Determining the fair value of stock-based compensation at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based compensation represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

 

Recent Accounting Pronouncements

 

With the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the year ended December 31, 2021 that are of significance or potential significance to the Company.

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION

 

The following table contains additional information for the periods reported (in thousands).

 

           
    Year Ended
December 31,
 
    2021     2020  
Non-cash financial activities:                
Common stock issued on conversion of notes payable and derivative liability   $ 4,447     $ 2,243  
Debentures converted to common stock     2,694       1,310  
Derivative liability extinguished upon conversion of notes payable     3,371       1,268  
Derivative liability issued     1,354       2,465  
Accounts payable paid through issuance of debentures     100       100  
Accrued director fees forgiven and credited to paid in capital     336        

 

There was no cash paid for interest and income taxes for the years ended December 31, 2021 and 2020.

 

F-15

 

 

NOTE 5 – INTELLECTUAL PROPERTY

 

We solely own or have exclusive licenses to all of our patents and patent applications. Between 2008 and 2011, we entered into license and assignment agreements with Johns Hopkins University (JHU), the University of Copenhagen (UC) and certain co-inventors (Assignee Co-Founders), in which we paid $212,000 in cash and common stock. As a result of these payments and pursuant to the agreements, we acquired worldwide, exclusive, fully paid up rights in know-how, pre-clinical data, development data and certain patent portfolios that relate to, and form the basis of, our technology. Under these agreements, we are not required to make any other future payments, including fees or other reimbursements, milestones, or royalties, to JHU, UC, or the Assignee Co-Founders.

 

Intangibles have been fully amortized at December 31, 2021 and 2020.

 

NOTE 6 – ACCRUED EXPENSES

 

Accrued expenses consist of the following (in thousands):

 

               
    December 31,  
    2021     2020  
Accrued compensation and benefits   $ 1,326     $ 1,326  
Accrued research and development     233       233  
Accrued other     445       381  
Total accrued expenses   $ 2,004     $ 1,940  

 

NOTE 7 – DERIVATIVE LIABILITY

 

We account for equity-linked financial instruments, such as our convertible preferred stock, convertible debentures and our common stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the respective agreement. Equity-linked financial instruments are accounted for as derivative liabilities, in accordance with ASC Topic 815 – Derivatives and Hedging, if the instrument allows for cash settlement or issuance of a variable number of shares. We classify derivative liabilities on the balance sheet at fair value, and changes in fair value during the periods presented in the statement of operations, which is revalued at each balance sheet date subsequent to the initial issuance of the stock warrant.

 

We have issued convertible debentures and preferred stock which contain variable conversion features, anti-dilution protection and other conversion price adjustment provisions. As a result, the Company assessed its outstanding equity-linked financial instruments and concluded that the convertible notes and preferred stock are subject to derivative accounting. The fair value of the conversion feature is classified as a liability in the consolidated financial statements, with the change in fair value during the periods presented recorded in the consolidated statement of losses.

 

During the years ended December 31, 2021 and 2020, we recorded gain of approximately $3.7 million and loss of approximately $3.8 million, respectively, related to the change in fair value of the derivative liabilities during the periods. For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuations of the derivatives at December 31, 2021 are as follows:

 

         
   

For the
Years Ended

December 31

 
    2021  

2020

 
Expected dividends   0%   0%  
Expected volatility   205% - 262%   343% - 367%  
Risk free interest rate   0.06% - 0.19%   0.09% - 0.095%  
Expected term   36 Months   312 Months  

 

As of December 31, 2021 and 2020, the derivative liability recognized in the financial statements was approximately $1.1 million and $6.8 million, respectively.

 

F-16

 

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company currently does not have any ongoing leases for office space. It has availability to office space on an as needed basis. Its employees work on a remote basis.

 

There was no rent expense for the years ended December 31, 2021 and 2020, respectively.

 

Legal Matters

 

The Company is subject at times to legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.

 

COVID-19 Uncertainty

 

On March 11, 2020, the World Health Organization declared a pandemic related to the rapidly spreading coronavirus (COVID-19) outbreak, which has led to a global health emergency. The extent of the public-health impact of the outbreak is currently unknown and rapidly evolving, and the related health crisis could adversely affect the global economy, resulting in an economic downturn. Any disruption of the Company’s facilities or those of our suppliers could likely adversely impact the Company’s operations. At this time, there is significant uncertainty relating to the potential effect of the novel coronavirus on our business.

 

NOTE 9 – CAPITAL STOCK AND STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

As of December 31, 2021, there were outstanding 133.8 shares of Series A Preferred Stock, 71 shares of Series B Preferred Stock, 290.4 shares of Series C Preferred Stock, 5,000 shares of Series D Preferred Stock, 5,000 shares of Series E Preferred Stock and 8,000 shares of Series F Preferred Stock.

 

Series F Preferred Stock

 

On October 6, 2020, the Company filed a certificate of designation of Series F Preferred Stock (“Series F COD”) with the Secretary of State of the State of Delaware that contains the rights, preferences, and privileges of the Series F Preferred Stock. Pursuant to the Series F COD, each share of Series F Preferred Stock has a stated value of $10.00 per share and is convertible into Common Stock at any time at the election of the holder. We issued all 8,000 shares of the Series F stock to Ridgeway Therapeutics, Inc. in connection with the Termination Agreement described in Note 1. In the aggregate, all of the Series F Preferred Stock issued to Ridgeway is convertible into such number of shares of Common Stock equal to eighty percent (80%) of the issued and outstanding shares of Common Stock, post-conversion, on the conversion date (taking into effect any forward or reverse stock splits or consolidations). The Series F Preferred Stock votes on an as if converted to common stock basis. Additionally, upon the Company’s outstanding Convertible Debentures (as such term is defined in the Series F COD) being terminated, converted, or otherwise extinguished, the Series F Preferred Stock will automatically convert into Common Stock.

 

F-17

 

 

Series E Preferred Stock

 

On May 2, 2020, we sold 5,000 shares of Series E 0% Convertible Preferred Stock to an accredited investor at a price per share of $1.00 for aggregate gross proceeds of $5,000. Pursuant to the certificate of designation of Series E Preferred Stock (“Series E COD”), each share of Series E Preferred Stock has stated value of $1.00 and is convertible, at any time after the Original Issue Date (as such term is defined in the Series E COD) at the option of the Holder into that number of shares of Common Stock (Subject to the limitations set forth in Section 6(d) of Series E COD), determined by dividing the stated value by the then in effect conversion price. As of December 31, 2021, the conversion price is $22.50 per share.

 

As provided for in the Series E COD, with respect to a vote of stockholders to approve a reverse split of the Common Stock to occur no later than December 31, 2022 only, each share of Series E Preferred Stock held by a holder, as such, is entitled to 1,333 votes. On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series E Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series E Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the certificate of incorporation, holders of the Series E Preferred Stock shall vote together with the holders of Common Stock as a single class.

 

Series D Preferred Stock

 

During December 2018, we designated 5,000 shares of preferred stock as Series D 0% Convertible Preferred Stock (the “Series D Preferred Stock”). Each share of Preferred Stock has a par value of $0.0001 per share and a stated value equal to $1.00. During January 2019, we issued the 5,000 shares of Series D Convertible Preferred Stock for proceeds of $5,000. Pursuant to the certificate of designation of Series D Preferred stock (“Series D COD”), each share of Series D Preferred Stock shall be convertible, at any time and from time to time from and after its original issue date at the option of the holder thereof, into that number of shares of Common Stock (subject to beneficial ownership limitations contained in Section 6(d) of the Series D COD) determined by dividing the stated value of such share of Series D Preferred Stock by the conversion price in effect. As of December 31, 2021, the conversion price is $281.25 per share of Series D Preferred Stock.

 

On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series D Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series D Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the certificate of incorporation, holders of the Series D Preferred Stock shall vote together with the holders of Common Stock as a single class.

 

Series C Preferred Stock

 

In March and April 2017, we issued 290.43148 shares of Series C 0% Convertible Preferred Stock (the “Series C Preferred Stock”). Pursuant to the certificate of designation of Series C Preferred Stock (“Series C COD”), the Series C Preferred Stock has a stated value of $1,000. Pursuant to the Series C COD, the Series C Preferred Stock is convertible into that number of shares of Common Stock (subject to beneficial ownership limitations as set forth in Section 6(d) of the Series C COD) determined by dividing the stated value of such Series C Preferred Stock by the conversion price in effect. As of December 31, 2021, the conversion price is $1,125.00 per share for 200 shares of Series C Preferred Stock and $562.50 per shares for 90.43418 shares of Series C preferred, subject to certain beneficial ownership limitations and subject to adjustment pursuant to stock splits and dividends.

 

Series B Preferred Stock

 

In December 2016, we issued 1,000 shares of our Series B 0% Convertible Preferred Stock (the “Series B Preferred Stock”). Pursuant to the certificate of designation of the Series B Preferred Stock (“Series B COD”), the Series B Preferred Stock has a stated value of $1,000 per share. Pursuant to the Series B COD, the Series B Preferred stock is convertible into that number of shares of Common Stock (subject to beneficial ownership limitations as set forth in Section 6(d) of the Series B COD), determined by dividing the stated value of such Series B Preferred Stock by the conversion price in effect. As of December 31, 2021, the conversion price is $0.75 per share, subject to adjustment pursuant to stock splits and dividends, and subject to adjustment pursuant to anti-dilution protection for subsequent equity sales and other conversion price adjustments.

 

F-18

 

 

Series A Preferred Stock

 

In December 2015, we issued 1,853 shares of our Series A 0% Convertible Preferred Stock (the “Series A Preferred Stock”). Pursuant to the certificate of designation of Series A Preferred Stock (“Series A COD”), the Series A Preferred Stock has a stated value of $1,000 per share. Pursuant to the Series A COD, the Series A Preferred Stock is convertible into that number of shares of Common Stock (subject to beneficial ownership limitations as set forth in Section 6(d) of the Series A COD), determined by dividing the stated value of such Series A Preferred Stock by the conversion price in effect. As of December 31, 2021, the conversion price is $29,812.50 per share, subject to adjustment pursuant to stock splits and dividends.

 

As a result of past equity financings and conversions of debentures, the conversion prices of (i) our Series A Preferred Stock has been reduced to $29,812.50 per share at December 31, 2021, (ii) our Series B Preferred Stock has been reduced to $0.75 per share at December 31, 2021, (iii) 200 shares of our Series C preferred stock has been reduced to $1,125.00 per share at December 31, 2021, (iv) 90.43418 shares of our Series C Preferred Stock has been reduced to $562.50 per share at December 31, 2021.

 

As a result of the reductions of the conversion prices of our preferred stock, we have recorded a deemed dividend of approximately $64,000 during the year ended December 31, 2020. 

 

Common Stock

 

Increase in Authorized Shares

 

Pursuant to a joint written consent of the board of directors and a majority of the voting power of the Company’s stockholders, the Company’s shareholders approved amending and restated the Company’s Certificate of Incorporation to (i) increase the Company’s authorized Common Stock from 150,000,000 shares to 1,000,000,000 shares and to (ii) increase or decrease (but not below the number of shares of such class outstanding) the number of authorized shares of the class of Common Stock or Preferred Stock by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Company irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law.

 

The Company filed the Amended and Restated Certificate of Incorporation with the Delaware Secretary of State reflecting the foregoing changes with an effective date and time of November 27, 2020.

 

Reverse Stock Splits

 

On September 1, 2021, the Board of Directors approved a one-for-seventy-five (1-for-75) Reverse Stock Split. The Reverse Stock Split became effective with the Secretary of State of Delaware as of 4:59 p.m. Eastern Time on October 5, 2021, and the Company began trading on a post Reverse Stock Split basis at the market open on October 12, 2021. As a result of the Reverse Stock Split, each of the holders of the Company’s Common Stock received one (1) new share of Common Stock for every seventy-five (75) shares such shareholder held immediately prior. No fractional shares were issued as a result of the Reverse Stock Split. Any fractional shares that would have otherwise resulted from the Reverse Stock Split will be rounded up to the next whole number of shares. The Reverse Stock Split also affected the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the Reverse Stock Split ratio.

 

On June 10, 2020, the Company’s Board of Directors approved the 2020 Reverse Stock Split with a ratio of the one-for-thirty (1-for-30). Pursuant to the 2020 Reverse Stock Split, the Company filed an amended and restated certificate of incorporation with the Secretary of State of Delaware to effect the 2020 Reverse Stock Split effective as of 5:00 p.m. Eastern Time on June 26, 2020. Accordingly, at the 2020 Effective Time, each of the Company’s common stock shareholders received one new share of common stock for every thirty shares such shareholder held immediately prior to the 2020 Effective Time. The 2020 Reverse Stock Split also affected the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and resulted in the shares underlying such instruments being reduced and the exercise price being increased proportionately to the 2020 Reverse Stock Split ratio.

 

All share and per share data has been retroactively adjusted in the accompanying consolidated financial statements and footnotes for all periods presented to reflect the effects of the Reverse Stock Split and the 2020 Reverse Stock Split..

 

F-19

 

 

Common Stock Activity

 

During the year ended December 31, 2021, we issued a total of 9,290,364 shares of common stock, valued at $4,447,246, upon the conversion of $2,693,596 principal amount of our convertible debentures. We recorded gain on conversion of debt of $1,116,424 during the year ended December 31, 2021.

 

During the year ended December 31, 2021, we issued a total of 9 shares of common stock in settlement of outstanding options, pursuant to the merger discussed in Note 1.

 

During the three months ended March 31, 2021, we entered into settlement and release agreements with two of our independent directors for the settleme