Canton Strategic Holdings, Inc 10-Q for FY2023 Q1
Canton Strategic Holdings, Inc. (CNTN)
About this 10-Q
Canton Strategic Holdings, Inc filed this 10-Q on May 22, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $2.69M
- compared with a net loss of $2.94M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to ___________
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
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| (Address of principal executive offices) | (Zip Code) |
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Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Number of common shares outstanding as of May 17, 2023 was .
| -2- |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
| ● | our projected financial position and estimated cash burn rate; | |
| ● | our estimates regarding expenses, future revenues and capital requirements; | |
| ● | our ability to continue as a going concern; | |
| ● | our need to raise substantial additional capital to fund our operation; | |
| ● | the success, cost and timing of our clinical trials; | |
| ● | our dependence on third parties in the conduct of our clinical trials; | |
| ● | our ability to obtain the necessary regulatory approvals to market and commercialize our product candidates; | |
| ● | the ultimate impact of the COVID-19 pandemic, or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole; | |
| ● | the potential that results of pre-clinical and clinical trials indicate our current product candidates or any future product candidates we may seek to develop are unsafe or ineffective; | |
| ● | the results of market research conducted by us or others; | |
| ● | our ability to obtain and maintain intellectual property protection for our current and future product candidates; | |
| ● | our ability to protect our intellectual property rights and the potential for us to incur substantial costs from lawsuits to enforce or protect our intellectual property rights; | |
| ● | the possibility that a third party may claim we or our third-party licensors have infringed, misappropriated or otherwise violated their intellectual property rights and that we may incur substantial costs and be required to devote substantial time defending against claims against us; | |
| ● | our reliance on third-party suppliers and manufacturers; | |
| ● | the success of competing therapies and products that are or become available; | |
| ● | our ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel; | |
| ● | the potential for us to incur substantial costs resulting from product liability lawsuits against us and the potential for these product liability lawsuits to cause us to limit our commercialization of our product candidates; | |
| ● | market acceptance of our product candidates, the size and growth of the potential markets for our current product candidates and any future product candidates we may seek to develop, and our ability to serve those markets; and | |
| ● | the successful development of our commercialization capabilities, including sales and marketing capabilities. |
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.
| -3- |
ITEM 1. FINANCIAL STATEMENTS
HILLSTREAM BIOPHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2023 | December 31, | |||||||
| (Unaudited) | 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Deferred offering costs | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Insurance premium financing liability | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see Note 8) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of March 31, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value, shares authorized, shares issued and shares outstanding as of March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares held in treasury as of March 31, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-1 |
HILLSTREAM BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| 2023 | 2022 | |||||||
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating expenses | ||||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Total other income (expense), net | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share: | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding: | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-2 |
HILLSTREAM BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
| Shares | Amount | Capital | Deficit | Shares | Amount | Total | ||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Treasury Stock | |||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Shares | Amount | Total | ||||||||||||||||||||||
| For the three months ended March 31, 2022: | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||
| Stock issuance pursuant to services agreement | - | |||||||||||||||||||||||||||
| Initial public offering, net of issuance costs of $ | - | |||||||||||||||||||||||||||
| Conversion of related-party convertible notes | - | |||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| For the three months ended March 31, 2023: | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-3 |
HILLSTREAM BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| 2023 | 2022 | |||||||
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount | ||||||||
| Stock based compensation | ||||||||
| Stock issuance pursuant to services agreement | ||||||||
| Interest and original issuance discount on promissory notes | ||||||||
| Increase in: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued interest | ||||||||
| Accrued expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and issuance costs | ||||||||
| Payment of deferred offering costs | ( | ) | ( | ) | ||||
| Proceeds from insurance premium financing liability | ||||||||
| Repayment of insurance premium financing liability | ( | ) | ( | ) | ||||
| Proceeds from promissory notes | ||||||||
| Repayments on promissory notes | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Unpaid deferred offering costs | $ | $ | ||||||
| Conversion of related party convertible notes: | ||||||||
| Related party convertible notes principal converted to common stock upon initial public offering | $ | $ | ||||||
| Related party convertible notes accrued interest converted to common stock upon initial public offering | $ | $ | ||||||
| Redemption liability converted to common stock upon initial public offering | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-4 |
HILLSTREAM BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 – Description of Business and Liquidity
Nature of Operations
Hillstream BioPharma, Inc. (“HBI” or the “Company”) was incorporated on March 28, 2017, as a Delaware C-corporation. At March 31, 2023, Hillstream BioPharma, Inc. had one wholly-owned subsidiary: HB Pharma Corp. (“HB”).
HBI is a pre-clinical biotechnology company developing novel therapeutic candidates targeting ferroptosis, an emerging new anti-cancer mechanism resulting in iron mediated cell death (“IMCD”), and targeted immuno-oncology novel biologics, for the treatment drug resistant cancers. The Company’s most advanced product candidate, HSB-1216, is an IMCD inducer, targeting a variety of solid tumors. In a clinical pilot study conducted at the University of Heidelberg, Germany, the active drug in HSB-1216 was found to reduce tumor burden in treatment resistant cancers, including triple negative breast cancer and epithelial carcinomas. The Company utilizes Quatramer™, its proprietary tumor targeting platform, to enhance the uptake of HSB-1216 in the tumor microenvironment with an extended duration of action and minimal off-target toxicity. The Company’s goal is to submit an investigational new drug application (“IND”) to the U.S. Food and Drug Administration (“FDA”) and initiate a clinical study with HSB-1216 in late 2023 or early 2024; however, no assurance can be provided that the Company’s IND will be accepted by the FDA in 2023 or early 2024, if at all. If the Company’s IND is accepted by the FDA, the Company’s HSB-1216 clinical studies will focus on expanding upon the clinical pilot study conducted in Germany. If the Company is able to initiate its clinical study with HSB-1216 in 2024, it anticipates that clinical data from such trial will be released in 2025. HSB-3215, the Company’s second product candidate, is an anti-HER2 monoclonal antibody candidate. The ErbB or HER family of cell surface proteins are some of the most well-known and validated oncology drug targets including ErbB2 or HER2 (human epidermal growth factor receptor) and Erb3 or HER3. The Applied Biomedical Science Institute has granted the Company an exclusive option to license technology from it to develop HER2 and HER3 antibodies, including multi-specific and Quatramer™-based therapeutics incorporating portions of the antibodies. The option terminates on September 30, 2023, unless extended by the parties. The Company intends to submit an IND to the FDA to gain approval to initiate clinical studies in 2025 for HSB-3215. HSB-1940, the Company’s third product candidate, is a Quatrabody, a proprietary immune-oncology (“IO”) biologic, in development targeting programed cell death protein 1 (“PD-1”). In November 2022, the Company entered into a research collaboration and product license agreement with Minotaur Therapeutics, Inc. (“Minotaur”) and a commercial license agreement with Taurus Biosciences, LLC (“Taurus”), for use of certain technology, including OmniAb antibodies, to advance Picobodies™ against novel, undruggable epitopes in high-value validated IO targets starting with PD-1.
Liquidity and Going Concern
The
accompanying condensed consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates,
among other things, the realization of assets and satisfaction of liabilities in the normal course of business. For the three months
ended March 31, 2023, the Company incurred operating losses in the amount of approximately $
Based on the Company’s limited operating history, recurring negative cash flows from operations, current plans and available resources, the Company will need substantial additional funding to support future operating activities. The Company has concluded that the prevailing conditions and ongoing liquidity risks faced raise substantial doubt about the Company’s ability to continue as a going concern for at least one year following the date these condensed consolidated financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
| F-5 |
The Company may seek to raise additional funding through the sale of additional equity or debt securities, enter into strategic partnerships, grants or other arrangements or a combination of the foregoing to support its future operations; however, there can be no assurance that the Company will be able to obtain additional capital on terms acceptable to the Company, on a timely basis or at all. The failure to obtain sufficient additional funding could adversely affect the Company’s ability to achieve its business objectives and product development timelines and may result in the Company delaying or terminating clinical trial activities which could have a material adverse effect on the Company’s results of operations.
Other Risks and Uncertainties
There can be no assurance that the Company’s products, if approved, will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all. The Company is subject to risks common to biopharmaceutical companies including, but not limited to, the development of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market acceptance of products and the need to obtain additional financing. The Company is dependent on third party suppliers. The Company’s products require approval or clearance from the FDA prior to commencing commercial sales in the United States. Approvals or clearances are also required in foreign jurisdictions in which the Company may license or sell its products. There can be no assurance that the Company’s products will receive all of the required approvals or clearances.
COVID-19 Considerations
On March 11, 2020, the World Health Organization characterized the outbreak of a novel strain of coronavirus (“COVID-19”) as a pandemic, prompting many national, regional, and local governments to implement preventative or protective measures, such as travel and business restrictions, temporary store closures and capacity limitations, and wide-sweeping quarantines and stay-at-home orders. As a result, COVID-19 and the related restrictive measures have had a significant adverse impact upon many sectors of the economy.
As a result of the COVID-19 pandemic, the Company had to delay the start of its IND enabling studies for over a year. The Company intends to closely monitor the impact of the COVID-19 pandemic on all aspects of its business, including, but not limited to, impacts on third-party contractors, suppliers, vendors and employees. The Company believes that the ultimate impact of the COVID-19 pandemic on operating results, cash flows, and financial condition is likely to be determined by factors which are uncertain, unpredictable, and outside of the Company’s control.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
These accompanying unaudited condensed consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the balance sheet, operating results, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 or any other future period. Certain information and footnote disclosure normally included in the annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. The Company’s financial position, results of operations, and cash flows are presented in U.S. Dollars. These financial statements and related notes should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2023. The Company operates in one segment.
| F-6 |
Principles of Consolidation
The condensed consolidated financial statements include the accounts of HBI and its wholly-owned subsidiaries, HB and Farrington. All significant intercompany balances and transactions have been eliminated in consolidation. On February 27, 2023, the Company filed a Certificate of Cancellation with the Delaware Secretary of State with respect to Farrington Therapeutics LLC.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: research and development expense recognition, valuation of common shares and stock options, allowances of deferred tax assets, valuation of debt related instruments, and cash flow assumptions regarding going concern considerations. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.
Concentration of Credit Risk
The
Company maintains cash balances with various financial institutions. Account balances at these institutions are insured by the Federal
Deposit Insurance Corporation up to $
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash equivalents are stated at cost and consist primarily of money market accounts.
Research and Development
Research
and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and
development activities, including third party contractors to perform research, conduct clinical trials, and manufacture drug supplies
and materials. The Company accrues for costs incurred by external service providers, including contract research organizations and clinical
investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed
by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the
services completed. Approximately $
The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees, and directors as an expense in the condensed consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option grant to employees, non-employees and directors is estimated as of the date of grant using the Black-Scholes option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on the straight-line basis over the requisite service period of the awards, which is generally the vesting period.
| F-7 |
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to January 12, 2022, the Company was a private company and the Company’s common stock has only been publicly traded since that date. As a result, the Company has lacked company-specific historical and implied volatility information. Therefore, it has estimated its expected stock volatility based on the historical data regarding the volatility of a publicly traded set of peer companies. The expected term of stock options granted was between five and seven years. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
Common Stock Valuations
Prior to the IPO, the Company was required to periodically estimate the fair value of common stock with the assistance of an independent third-party valuation expert when issuing stock options and computing its estimated stock-based compensation expense and value of shares issued in acquiring product candidates. The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of significant levels of management judgment. In order to determine the fair value, the Company considered, among other things, contemporaneous valuations of the Company’s common stock; the Company’s business, financial condition and results of operations, including related industry trends affecting its operations; the likelihood of achieving various liquidity events; the lack of marketability of the Company’s common stock; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions. After the closing of the Company’s IPO on January 14, 2022, the fair value of common stock is determined by using the closing price of the Company’s common stock on The Nasdaq Capital Market.
Treasury Stock
The Company’s board of directors authorized the repurchase of up to $ million of shares of the Company’s common stock, from time to time, until December 31, 2022, in the open market or through privately-negotiated transactions, at such times and at such prices as the Company’s management may decide. Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired common stock is recorded as treasury stock.
Debt Discount and Derivative Instruments
The initial fair value of the redemption feature relating to the convertible debt instruments was treated as a debt discount and was amortized over the term of the related debt using the straight-line method, which approximates the interest method. Amortization of debt discount was recorded as a component of interest expense. If a loan is paid in full, any unamortized debt discounts will be removed from the related accounts and charged to operations. As the convertible debt was converted into common stock at the date of the IPO, the unamortized debt discount was charged to interest expense.
The Company accounts for derivative instruments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivative and Hedging, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value. The Company’s derivative financial instrument consisted of an embedded feature contained in the Company’s convertible debt that was bifurcated and accounted for separately. See Note 3 to the condensed consolidated financial statements for further details.
Fair Value Measurements
The Company applies FASB ASC 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
| F-8 |
The carrying value of the Company’s cash equivalents, prepaid expenses, accounts payable, and accrued expenses approximate fair value because of the short-term maturity of these condensed consolidated financial instruments. The redemption feature of the debt instruments is recorded at fair value. See Note 4 to the condensed consolidated financial statements for further details.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
Level 1 Inputs: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 Inputs: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for assets or liabilities recently traded in active markets, with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals, as well as quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 Inputs: Unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities, that reflect the reporting entity’s own assumptions.
Deferred Offering Costs
Deferred offering costs prior to the IPO consisted of legal, accounting, printing, and filing fees that the Company capitalized which were offset against the proceeds from the IPO. Deferred offering costs at March 31, 2023 consist of professional services incurred for filing of the Company’s Registration Statement on Form S-3 using a “shelf” registration process for additional securities offerings which will be offset against the proceeds from public offering of shares of the Company’s common stock which closed on May 2, 2023. See Note 9 to the condensed consolidated financial statements.
Insurance Premium Financing Liability
Relating
to the directors’ and officers’ insurance premium with an effective date of January 2022, the Company entered into an insurance
premium financing agreement for $
Relating to the directors’
and officers’ insurance premium with an effective date of January 2023, the Company entered into an insurance premium financing
agreement for $
Income Taxes
The Company accounts for income taxes using the asset-and-liability method in accordance with FASB ASC 740, Income Taxes (“ASC 740”). 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 income taxes are recognized for the tax effect of temporary differences between the financial statement carrying amount of assets and liabilities and the amounts used for income tax purposes and for certain changes in valuation allowances. Valuation allowances are recorded to reduce certain deferred tax assets when, in management’s estimation, it is more-likely-than-not that a tax benefit will not be realized. A valuation allowance has been recognized for all periods since it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized in future periods.
The Company follows the guidance in FASB ASC Topic 740-10 in assessing uncertain tax positions. The standard applies to all tax positions and clarifies the recognition of tax benefits in the financial statements by providing for a two-step approach of recognition and measurement. The first step involves assessing whether the tax position is more-likely-than-not to be sustained upon examination based upon its technical merits. The second step involves measurement of the amount to be recognized. Tax positions that meet the more-likely-than-not threshold are measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate finalization with the taxing authority. The Company recognizes the impact of an uncertain income tax position in the financial statements if it believes that the position is more likely than not to be sustained by the relevant taxing authority. The Company will recognize interest and penalties related to tax positions in income tax expense. At March 31, 2023 and December 31, 2022, the Company had no unrecognized uncertain income tax positions, and therefore no amounts have been recognized in the condensed consolidated financial statements.
| F-9 |
The Company reports loss per share in accordance with FASB ASC 260-10, Earnings Per Share, which provides for calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net earnings (loss) per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive.
Potentially dilutive securities not included in the computation of loss per share for the three months ended March 31, 2023 and 2022 included options to purchase and shares of common stock, respectively. Other potentially dilutive securities also not included in the computation of loss per share for the three months ended March 31, 2023 and 2022 included warrants to purchase shares of the Company’s common stock.
Reclassifications
Certain items have been reclassified on the March 31, 2022 condensed consolidated statement of cash flows for comparison purposes with the December 31, 2022 consolidated statement of cash flows. Interest and the original issuance discount on promissory notes was added to the net cash used in operating activities and proceeds from promissory notes and repayments of promissory notes were added net cash provided by (used in) financing activities.
Recently Adopted Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements that were required to be adopted and believes that none of them will have a material effect on the Company’s financial position, results of operations, or cash flows.
Recent Accounting Pronouncements Not Yet Adopted
Debt with Conversion and Other Options and Derivatives and Hedging
The FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), to reduce complexity in applying U.S. GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in FASB ASC Subtopic 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in FASB ASC Subtopic 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in FASB ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding smaller reporting companies (as defined by the SEC) for fiscal years beginning after December 15, 2021. For all other entities, including the Company, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
| F-10 |
Note 3 – Convertible Notes - Related Parties
Commencing
in May 2017, the Company entered into Subordinated Convertible Promissory Note Agreements (the “Agreements”) with certain
lenders (together, the “Holders” or individually, the “Holder”), pursuant to which the Company issued Subordinated
Convertible Promissory Notes (individually the “Note” or together, the “Notes”) to the Holders, principally all
to the Chief Executive Officer (“CEO”) and founder of the Company, a member of the Company’s board of directors and
third parties that are family members of the founder and CEO. Interest on the unpaid principal balance accrued at a rate of
In
general, the stated maturity date was
The
Notes were to automatically convert into the type of Equity Securities issued in the Next Equity Financing upon closing. The number of
shares of such Equity Securities to be issued was equal to the quotient obtained by dividing the outstanding principal and unpaid accrued
interest due on the Note on the date of conversion by the lesser of (i)
Certain
embedded features contained in the Notes in the aggregate were embedded derivative instruments, which were recorded as a debt discount
and derivative liability at the issuance date at their estimated fair value for all Notes of approximately $
Accrued
interest expense associated with the Notes at the date of the IPO was approximately $
Note 4 – Redemption Liability
The
fair value of the redemption liability is calculated under Level 3 of the fair value hierarchy, determined based upon a probability-weighted
expected returns method (“PWERM”). This PWERM was determined to be the most appropriate method of estimating the value of
possible redemption or conversion outcomes over time, since the Company had not entered into a priced equity round through December 31,
2021. The significant assumptions utilized in these calculations are the possible exit scenarios (either a conversion of the principal
and accrued interest of the Notes in the event of a Next Equity Financing (see Note 3 to the condensed consolidated financial statements),
a repayment of the Notes and accrued interest in the event of a corporate transaction (as defined in the Notes) or a repayment of the
Notes and accrued interest at maturity), the pre-money valuation of the Company’s common stock, the probabilities of such exit
events occurring, and discounts/premiums available to the Holders at such measurement dates. The calculation of the redemption liability
prior to the IPO was based upon the actual incremental value derived by the Holders at the IPO date. The balance of approximately
$
| F-11 |
Note 5 – Common Stock
Pursuant
to an amendment to the Company’s Certificate of Incorporation filed in April 2019, the Company increased the number of authorized
shares of common stock to shares. On September 16, 2021, the Company effectuated a
reverse split of shares of its common stock at a ratio of
On
January 14, 2022, the Company closed the IPO pursuant to which it issued shares of its common stock at a public offering price
of $ per share. The gross proceeds to the Company from the IPO were $
On
February 16, 2022, the Company entered into an agreement for marketing and investor related consulting services. Pursuant to the agreement,
compensation includes a monthly fee and an upfront issuance of shares of the Company’s common stock. On the effective date of February
16, 2022, the Company issued shares of common stock with a per share value of $ and a total value of $
On
March 17, 2023, the Company filed a Registration Statement on Form S-3 with the SEC using a “shelf” registration process
pursuant to which it may sell, from time to time in one or more offerings, shares of common stock and preferred stock, various
series of debt securities and/or warrants to purchase any of such securities, either individually or as units comprised of a
combination of one or more of the other securities in one or more offerings up to a total dollar amount of $
Incentive Plans and Options
Under the Company’s 2017 Stock Incentive Plan (the “2017 Stock Incentive Plan”) the Company may grant incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock, performance shares, and performance units to employees, directors, and consultants of the Company and its affiliates. Up to shares of the Company’s common stock may be issued pursuant to the 2017 Stock Incentive Plan.
The Company has granted options to acquire shares of common stock at $ per share under the 2017 Stock Incentive Plan, and shares remain available for issuance. At both March 31, 2023 and December 31, 2022, there were options outstanding to acquire shares of common stock. As of both March 31, 2023 and December 31, 2022, all such options were fully vested, and the weighted average remaining contractual life for such options was approximately and years, respectively.
| F-12 |
In July 2019, the Company authorized a new plan (the “2019 Stock Incentive Plan”). The Company initially reserved shares of its common stock for issuance pursuant to the 2019 Stock Incentive Plan in the form of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock, performance shares, and performance units to employees, directors, and consultants of the Company and its affiliates. On August 30, 2019, the Company approved an increase in the number of shares authorized for issuance under the 2019 Stock Incentive Plan by shares. In January 2021, the Company approved an increase in the number of shares reserved for issuance under the 2019 Stock Incentive Plan by shares. On May 31, 2021, the Company approved an increase in the number of shares reserved for issuance under the 2019 Stock Incentive Plan by shares. At both March 31, 2023 and December 31, 2022, a total of shares were authorized for issuance under the 2019 Stock Incentive Plan.
The Company has granted options to acquire and shares of common stock under the 2019 Stock Incentive Plan, and and shares of common stock remain available for issuance under the 2019 Stock Incentive Plan at March 31, 2023 and December 31, 2022, respectively. There are stock options outstanding to acquire and shares of common stock with weighted average exercise prices of $ and $ and weighted average contractual terms of years and years at March 31, 2023 and December 31, 2022, respectively.
Schedule of Stock Option Activity
| Weighted | Weighted | |||||||||
| Shares | Average | Average | ||||||||
| Underlying | Exercise | Contractual | ||||||||
| Options | Price | Terms | ||||||||
| Outstanding at December 31, 2022 | $ | years | ||||||||
| Granted | $ | |||||||||
| Outstanding at March 31, 2023 | $ | years | ||||||||
| Exercisable options at March 31, 2023 | $ | years | ||||||||
| Vested and expected to vest at March 31, 2023 | $ | years | ||||||||
The fair value of stock option awards is estimated at the date of grant using the Black-Scholes option-pricing model. The estimated fair value of each stock option is then expensed over the requisite service period, which is generally the vesting period (ranging between immediate vesting and four years). The determination of fair value using the Black-Scholes model is affected by the Company’s share price as well as assumptions regarding a number of complex and subjective variables, including expected price volatility, expected life, risk-free interest rate and forfeitures.
Schedule of Options Weighted Average Assumptions
| For the three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Expected life of options in years | – | |||||||
| Estimated fair value of options granted | $ | $ | ||||||
| F-13 |
The weighted average grant date fair value of stock options granted during the three months ended March 31, 2023 and 2022 was approximately $ and $, respectively. The weighted average fair value of stock options vested during the three months ended March 31, 2023 and 2022 was approximately $ and $, respectively.
Included in the above table are stock options granted in 2019 to purchase shares of the Company’s common stock at an exercise price of $ per share, which vested upon a specified performance condition. These stock options vested at the date of the Company’s IPO, which was the specified performance condition.
Schedule of Stock Based Compensation Expense
| 2023 | 2022 | |||||||
| For the three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total stock based compensation | $ | $ | ||||||
At March 31, 2023, the total unrecognized compensation expense related to non-vested options was approximately $million and is expected to be recognized over the remaining weighted average service period of approximately years.
Warrants
In
connection with the IPO, the Company issued warrants to purchase such number of shares of the Company’s common stock equal to 5%
of the total shares of common stock issued in the IPO. The warrants are exercisable at $
Schedule of Warrants
| Initial | Exercise | Warrants | Warrants | Warrants | ||||||||||||||||
| Issuance Date | Exercise Date | Expiration Date | Price | Issued | Exercised | Outstanding | ||||||||||||||
| $ | ||||||||||||||||||||
Also see Note 9 to the condensed consolidated financial statements for discussion of the issuance of additional warrants in conjunction with the April 27, 2023 underwriting agreement.
Note 7 – Related-party Transactions
As described in Note 3 to the condensed consolidated financial statements, the Company entered into the Notes with the Holders commencing in May 2017. The Holders of substantially all of the Notes were the Company’s founder and CEO, a member of the Company’s board of directors, and third parties that are family members of the founder and CEO. The Notes were converted into shares of the Company’s common stock on January 14, 2022 in connection with the closing of the IPO.
| F-14 |
On
January 4, 2022 and January 6, 2022, the Company issued unsecured promissory notes in the aggregate principal amount of approximately
$
Note 8 – Commitments and Contingencies
Small Molecule Analogues
On
December 30, 2019,
Research Collaboration and Product License Agreement with Minotaur Therapeutics, Inc. (“Minotaur”) and Commercial License Agreement with Taurus Biosciences, LLC (“Taurus”)
The Company has entered into a research collaboration and product license agreement with Minotaur (the “Minotaur Agreement”) and a commercial license agreement with Taurus (the “Taurus Agreement”) to advance Picobodies against novel, unreachable and undruggable epitopes in high-value validated targets starting with PD-1. The Minotaur Agreement and Taurus Agreement are for the development of proprietary targeted biologics, Knob Quatrabodies™ (HSB-1940), against PD-1. The technologies of Hillstream and Minotaur will be combined under the license from Taurus to discover, develop and advance biotherapeutics against high-value validated IO targets. Picobodies are bovine-derived antibody “knob” domains comprised of cysteine-rich ultralong complementary determining region H3 sequences of 30-40 amino acids weighing ~3-4KDa, which have the potential to access challenging epitopes better than full size antibodies can. By combining Quatramers with their long half-life coated with a PD-1 Picobody™ to create HSB-1940, the Company believes it could more efficiently target novel epitopes with greater binding affinity than approved anti-PD-1 antibodies. The Company further believes that the development of HSB-1940 is a step toward enabling Hillstream to enter the rapidly growing IO market with additional targets thereafter.
The Minotaur Agreement included an up-front payment of $
Employment Agreement
In
January 2019, the Company entered into a three-year employment agreement with its CEO which provided a specified base salary and bonus.
The employment agreement also provided the CEO with certain benefits while employed and if employment ceases. The Company accrued $
| F-15 |
In
January 2020, the Company amended the employment agreement pursuant to which, in lieu of a cash base salary, the CEO was to be compensated
with stock options to purchase shares of the Company’s common stock per month (at an exercise price based upon the Company’s
most recent 409A valuation at the date of the grant) effective January 1, 2020 until the Company received a minimum of $
Effective
January 1, 2021, the Company amended the employment agreement with its CEO to provide a revised base salary pre-funding (as defined in
the employment agreement). In lieu of cash base salary, the CEO was to be compensated with stock options to purchase shares of
the Company’s common stock per month at an exercise price of $ per share effective January 1, 2021 until funding met or exceeded
$
On
June 1, 2021, the Company entered into an Amended and Restated Employment Agreement, as amended on September 24, 2021 (the “Amended
and Restated Employment Agreement”) with the Company’s CEO. The term of the Amended and Restated Employment Agreement commenced
upon the closing of the Company’s IPO and continues for a period of five years and automatically renews for successive one-year
periods at the end of each term unless either party provides written notice of their intent not to renew at least 60 days prior to the
expiration of the then effective term. Pursuant to the Amended and Restated Employment Agreement, the CEO will receive an annual base
salary of $
On January 1, 2023, in lieu of half of his 2023 salary, the CEO was issued options to purchase up to shares of the Company’s common stock at an exercise price of $ per share, which options vested immediately on the date of grant.
Note 9 – Subsequent Events
Except as follows, there were no material subsequent events that required recognition or additional disclosure in these condensed consolidated financial statements.
Underwriting Agreement
In connection with the Company’s filing of a
Registration Statement on Form S-3 with the SEC using a “shelf” registration process as disclosed in Note 5 to the condensed
consolidated financial statements, on April 27, 2023 (the “Effective Date”), the Company
entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity LLC (“ThinkEquity”), as
representative of several underwriters (the “Underwriters”), relating to the public offering (the “Offering”)
of shares (the “Shares”) of the Company’s common stock at a price to the public of $ per Share (the “Offering
Price”). Pursuant to the terms of the Underwriting Agreement, the Company has also granted the Underwriters a 45-day option to purchase
up to an additional shares of common stock (the “Option Shares” and together with the Shares, the “Securities”)
to cover over-allotments, if any, at the Offering Price less the underwriting discounts and commissions. The net proceeds to the Company
from the sale of the Shares, after deducting the underwriting discounts and commissions and other estimated offering expenses payable
by the Company, were approximately $
Also, in connection
with the Offering, the Company issued designees of ThinkEquity warrants (the “Representative’s Warrants”) to purchase
such number of shares of the Company’s common stock equal to
| F-16 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Throughout this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” “Hillstream,” or “Hillstream BioPharma” refer to Hillstream BioPharma, Inc., individually, or as the context requires, collectively with its subsidiaries.
Overview
Hillstream BioPharma is a pre-clinical biotechnology company developing novel therapeutic candidates targeting ferroptosis, an emerging new anti-cancer mechanism resulting in iron mediated cell death (“IMCD”), and targeted immuno-oncology (“IO”) novel biologics, for the treatment drug resistant cancers. Our most advanced product candidate, HSB-1216, is an IMCD inducer, targeting a variety of solid tumors. In a clinical pilot study conducted at the University of Heidelberg, Germany, the active drug in HSB-1216 was found to reduce tumor burden in treatment resistant cancers, including triple negative breast cancer (“TNBC”) and epithelial carcinomas. We utilize Quatramer™, our proprietary tumor targeting platform, to enhance the uptake of HSB-1216 in the tumor microenvironment (“TME”) with an extended duration of action and minimal off-target toxicity. Our goal is to submit an investigational new drug application (“IND”) to the U.S. Food and Drug Administration (“FDA”) and initiate a clinical study with HSB-1216 in late 2023 or early 2024; however, no assurance can be provided that our IND will be accepted by the FDA in 2023 or early 2024, if at all. If our IND is accepted by the FDA, our HSB-1216 clinical studies will focus on expanding upon the clinical pilot study conducted in Germany. If we are able to initiate our clinical study with HSB-1216 in 2024, we anticipate that clinical data from such trial will be released in 2025.
The discovery of regulated cell death processes, such as apoptosis and autophagy, has enabled novel target discovery for drug development. Ferroptosis, a form of IMCD, is an emerging regulated cell death process which decreases intracellular iron or the Labile Iron Pool (“LIP”), a known factor required for cell growth. Cancer cells promote increase in the LIP leading to unregulated cell growth and metabolism. Decreasing the LIP, induces iron-led reactive-oxygen species (“ROS”) production and lipid peroxidation, two key hallmarks of ferroptosis/IMCD, which lead to regulated cell death. HSB-1216 sequesters iron in the cytoplasm of cancer cells and decreases the LIP, thereby inducing ferroptosis/IMCD, leading to regulated cell death. Areas of interest for the development of HSB-1216 are as a treatment of solid tumors, including small cell lung cancer, TNBC, uveal melanoma, glioblastoma multiforme, head and neck squamous cell carcinoma and other drug resistant cancers with high unmet need.
Quatramer is a tumor targeting platform which allows us to leverage and exploit key tumor targets and novel emerging pathways such as IMCD to facilitate the delivery of potent drugs directly to the TME while sparing healthy tissue. By efficiently extending the circulation half-life, as well as targeting delivery to the tumor site, Quatramer preferentially traps drugs in the TME. This emerging orthogonal anti-cancer approach leverages a fundamental recognized mechanism of iron mediated tumor growth and metabolism. We are building a portfolio of long-acting, potent anti-cancer drug candidates using our Quatramer platform.
The Quatrabody™ provides an entry into development of next generation IO biologics including, bispecific and trispecific antibodies, antibody-drug conjugates (“ADCs”), CAR-T, CAR-NKs among others. Quatrabodies capitalize on the long half-life of tumor targeting Quatramers combined with Picobodies™, bovine-derived antibody “knob” domains which have potential to access and bind more tightly to “undruggable” epitopes better than full sized antibodies. HSB-1940 is a combination of PD-1 targeting Picobodies bound to the surface of Quatramers. Quatrabodies have the potential for delivering an increased drug payload to the tumor with a longer half-life while targeting novel “undruggable” epitopes of well-established and validated IO targets such as programed cell death protein 1 (“PD-1”).
| -4- |
The critical components of our business strategy to achieve our goals include:
| ● | Developing drug candidate, HSB-1216, in solid tumors. |
Data from a clinical pilot study conducted at the University of Heidelberg, Germany, led us to progress HSB-1216 into IND-enabling studies with the goal of submitting an IND to the FDA in 2023.
| ● | Developing drug candidate, HSB-3215 |
The ErbB family of cell surface proteins are some of the most well-known and validated oncology drug targets including ErbB2 or HER2 (human epidermal growth factor receptor) and Erb3 or HER3.
| ● | Developing drug candidate, HSB-1940 |
The Quatrabody™ provides an entry into next generation of IO biologics including, bispecific and trispecific antibodies, ADCs, CAR-T, CAR-NKs and others. Quatrabodies capitalize on the long half-life of tumor targeting Quatramers, combined with Picobodies™, bovine-derived antibody “knob” domains which have potential to access and bind more tightly to “undruggable” epitopes better than full sized antibodies.
| ● | Leveraging our novel platform to develop a pipeline of high value Quatramer leads. |
The tunability of our technology allows us to efficiently expand our pipeline of Quatramer, both on our own and in collaboration with others, through various combinations of targeted DNA encoded for anti-tumor cytokines and therapeutic payloads, which enables us to move into other areas of oncology, including IO whereby we could potentially increase the effectiveness of immune checkpoint inhibitors.
| ● | Developing and commercializing Quatramer in collaboration with leading pharmaceutical companies. |
In addition to our internal development programs, we actively seek opportunities to collaborate with recognized biopharmaceutical companies to develop Quatramer incorporating therapeutic payloads from their proprietary product portfolios. We intend to establish collaborations with industry leaders and strategic pharmaceutical organizations.
| ● | Commercializing proprietary Quatramer based products, including HSB-1216, directly in the United States and with collaborators outside the United States. |
We own HSB-1216 and our other proprietary pipeline and expect to maintain similar rights with respect to other proprietary Quatramer we develop. Following FDA approval in the United States, we may partner with a larger biopharmaceutical company as well as potentially build a focused oncology sales organization to market Quatramer-based therapeutics. Outside of the United States, we intend to rely on collaborators to commercialize proprietary approved Quatramer.
| ● | Continuing to extend and protect our product technology and Quatramer through our intellectual property portfolio. |
We seek to protect our novel platform through U.S. and international patents as well as know-how and trade secrets relating to the design and manufacturing of our technology. We expect to continue to file patent applications as we apply our technology to new targets and therapeutic payloads. In addition, we believe the heightened regulatory requirements for generics of this technology may strengthen the protection afforded by our intellectual property portfolio.
| -5- |
Minotaur Research and Collaboration Agreement and Taurus License Agreement
On November 21, 2022, we entered into a research collaboration and product license agreement with Minotaur Therapeutics, Inc. (“Minotaur”) and a commercial license agreement with Taurus Biosciences, LLC (“Taurus”) for use of certain technology, including OmniAb antibodies, to advance Picobodies against novel, unreachable and undruggable epitopes in high-value validated targets starting with PD-1. The research and collaboration agreement and product license agreement is for the development of proprietary targeted biologics, Knob Quatrabodies™ (HSB-1940), against PD-1.
Our technology along with Minotaur’s technology will be combined under the license from Taurus to discover, develop and advance biotherapeutics against high-value validated IO targets. Picobodies are bovine-derived antibody “knob” domains comprised of cysteine-rich ultralong CDR H3 sequences of 30-40 amino acids weighing ~3-4KDa, which have the potential to access challenging epitopes better than full size antibodies can.
By combining Quatramers with their long half-life coated with a PD-1 Picobody™ to create HSB-1940, we believe we can more efficiently target novel epitopes with greater binding affinity than approved anti-PD-1 antibodies. We further believe that the development of HSB-1940 is a step toward enabling us to enter the rapidly growing IO market with additional targets thereafter.
Applied Biomedical Research Institute Option Agreement
Applied Biomedical Science Institute (“ABSI”) has developed technology to target unique functional epitopes of the cancer targets HER2 and HER3. Monoclonal antibodies being developed at ABSI are unique from the currently approved anti-HER2 antibodies. ABSI has granted us an exclusive option to license technology to develop HER2 and HER3 antibodies, including multi-specific and Quatramer-based therapeutics incorporating portions of the antibodies. These antibodies could be incorporated into proprietary multi-format biologics (bi- and tri-specific antibodies, ADCs, CAR-T and CAR-NKs, in Quatramers and Quatrabodies) against drug resistant cancers including HER2-positive metastatic breast cancer, gastric cancer, lung cancer and ovarian cancer. The ABSI option terminates on September 30, 2023, unless extended by the parties.
Recent Developments
On May 2, 2023, we closed a public offering (the “Offering”) of our securities pursuant to which we issued an aggregate of 5,300,000 shares of our common stock at a purchase price of $0.50 per share (the “Offering Price”) for net proceeds of approximately $2.2 million. We have granted the underwriters a 45-day option to purchase up to an additional 795,000 shares of our common stock to cover over-allotments, if any, at the Offering Price less the underwriting discounts and commissions.
Trends and Uncertainties-COVID-19
The global COVID-19 pandemic continues to evolve. The extent of the impact of the COVID-19 on our business, operations, pre-clinical and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak, COVID-19 variants, and the future impact of COVID-19 on our clinical trial enrollment, clinical trial sites, clinical research organizations, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with many of our employees and consultants working remotely. We will continue to actively monitor the evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.
Components of Results of Operations
Revenue
We did not recognize revenues for the three months ended March 31, 2023 and 2022.
Research and Development Expenses
Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials, stock-based compensation and manufacture drug supplies and materials. Research and development expenses are charged to operations as incurred.
We accrue costs incurred by external service providers, including contract research organizations and clinical investigators, based on estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.
| -6- |
We have incurred research and development expenses related to the development of HSB-1216. We expect that our research and development expenses will increase as we plan for and commence our clinical trials of HSB-1216, HSB-3215 and HSB-1940.
We cannot determine with certainty the duration and costs of future clinical trials of our product candidates, HSB-1216, HSB-3215 and HSB-1940, or any other product candidates we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our current and future product candidates will depend on a variety of factors, including:
| ● | the scope, rate of progress, expense and results of clinical trials of our current product candidates, as well as of any future clinical trials of our future product candidates and other research and development activities that we may conduct; |
| ● | uncertainties in clinical trial design and patient enrollment rates; |
| ● | the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability; |
| ● | significant and changing government regulations and regulatory guidance; and |
| ● | the timing and receipt of any marketing approvals. |
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation and consulting related expenses, including stock-based compensation. General and administrative expenses also include professional fees and other corporate expenses, including legal fees relating to corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses and other operating costs that are not specifically attributable to research activities.
We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities and development of our product candidates. We also incur expenses associated with being a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, director and officer insurance expenses, corporate governance expenses, investor relations activities and other administrative and professional services.
Interest Income
Interest income consists of interest income from funds held in our cash and cash equivalent accounts.
| -7- |
Deferred Offering Costs
Deferred offering costs prior to our initial public offering (“IPO”) consisted of legal, accounting, printing, and filing fees that we capitalized which were offset against the proceeds from the IPO. Deferred offering costs at March 31, 2023 consisted of professional services incurred for filing a Registration Statement on Form S-3 using a “shelf” registration process for additional securities offerings which will be offset against the proceeds from Offering. See Note 9 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations
Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022
Three Months Ended March 31, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| Condensed Consolidated Statements of Operations Data: | ||||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 1,047,677 | $ | 307,829 | $ | 739,848 | ||||||
| General and administrative | 1,666,721 | 1,043,331 | 623,390 | |||||||||
| Total operating expenses | 2,714,398 | 1,351,160 | 1,363,238 | |||||||||
| Other expense: | ||||||||||||
| Interest expense | (6,138 | ) | (1,591,244 | ) | 1,585,106 | |||||||
| Interest income | 32,248 | - | 32,248 | |||||||||
| Total other income (expense) | 26,110 | (1,591,244 | ) | 1,617,354 | ||||||||
| Net loss | $ | (2,688,288 | ) | $ | (2,942,404 | ) | $ | 254,116 | ||||
Research and Development Expenses
Research and development expenses increased by $739,848, or 240.3%, to $1,047,677 for the three months ended March 31, 2023 from $307,829 for the three months ended March 31, 2022. The increase was primarily the result of an increase in expenses for pre-clinical activities of $510,485; stock based compensation expense of $149,914 related to research and development team members; and consulting expenses of $79,449.
General and Administrative Expenses
General and administrative expenses increased by $623,390, or 59.7%, to $1,666,721 for the three months ended March 31, 2023 from $1,043,331 for the three months ended March 31, 2022. The increase in general and administrative expenses was primarily due to an increase of $494,846 in investor relations expenses; $176,137 in stock-based compensation expense; $76,251 in legal expenses; $25,875 in remuneration paid to our directors; and $14,626 in various other expenses. These increases were offset by a decrease of $72,526 in insurance expense; $48,287 in payroll expenses; and $43,532 in filing fees.
Interest Expense
Interest expense decreased by $1,585,106, or 100.0%, to $6,138 for the three months ended March 31, 2023 from $1,591,244 for the three months ended March 31, 2022. The decrease in interest expense was primarily related to the unamortized debt discount charged to interest expense on the date of the closing of our IPO. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Interest Income
Interest income increased by $32,248, or 100.0%, to $32,248 for the three months ended March 31, 2023 from $0 for the three months ended March 31, 2022. The increase in interest income was primarily from the funds held in our cash and cash equivalent accounts.
| -8- |
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared on the basis that we are a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. For the three months ended March 31, 2023, we incurred operating losses in the amount of approximately $2.7 million, expended approximately $2.9 million in cash in operating activities, and had an accumulated deficit of approximately $18.1 million as of March 31, 2023. We financed our working capital requirements through March 31, 2023 primarily through the issuance of common stock in our IPO which closed on January 14, 2022. Net proceeds to us from the IPO were approximately $13.0 million. See Note 5 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for details regarding the IPO. In addition, we closed the Offering of shares of our common stock on May 2, 2023. Net proceeds to us from the Offering were approximately $2.2 million. See Note 9 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for details regarding the Offering.
Based on our limited operating history, recurring negative cash flows from operations, current plans and available resources, we will need substantial additional funding to support future operating activities. We have concluded that the prevailing conditions and ongoing liquidity risks faced by us raise substantial doubt about our ability to continue as a going concern for at least one year following the date the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
We may seek to raise additional funding through the sale of additional equity or debt securities, enter into strategic partnerships, grants or other arrangements or a combination of the foregoing to support its future operations; however, there can be no assurance that we will be able to obtain additional capital on terms acceptable to us, on a timely basis or at all. The failure to obtain sufficient additional funding could adversely affect our ability to achieve our business objectives and product development timelines and may result in the delaying or terminating clinical trial activities which could have a material adverse effect on our results of operations.
On May 2, 2023, we closed the Offering of shares of our common stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments” for additional information.
Cash Flow Activities for the Three Months Ended March 31, 2023 and 2022
The following table sets forth a summary of our cash flows for the periods presented.
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (3,464,690 | ) | $ | (2,728,315 | ) | ||
| Net cash provided by financing activities | 523,364 | 13,845,813 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (2,941,326 | ) | $ | 11,117,498 | |||
Cash Flows from Operating Activities
Cash used in operating activities for the three months ended March 31, 2023 was $3,464,690 which consisted of net loss of $2,688,288, partially offset by $345,432 in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and $1,121,834 in net decrease in operating accounts. The non-cash charges consist of stock based compensation of $345,432. The net decrease in operating accounts was primarily due to a decrease of $280,622 in accounts payable, an increase of $892,964 in prepaid expenses and other current assets offset by an increase of $51,752 in accrued expenses.
Cash used in operating activities for the three months ended March 31, 2022 was $2,728,315 which consisted of net loss of $2,942,404, partially offset by $1,703,029 in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and $1,488,940 in net decrease in operating accounts. The non-cash charges consist of amortization of debt discount of $1,569,003, stock issuance pursuant to services agreement of $100,000, stock based compensation of $19,381 and interest and original issuance discount on promissory notes of $14,645. The net decrease in operating accounts was primarily due to a decrease of $498,220 in accounts payable, a decrease in accrued expenses of $99,338, an increase of $898,619 in prepaid expenses and other current assets, offset by an increase of $7,237 in accrued interest.
Cash Flows from Financing Activities
Cash provided by financing activities for the three months ended March 31, 2023 was $523,364. The net increase in financing activities was due to proceeds from insurance premium financing liability of $716,775, offset by repayments of insurance premium financing liability of $156,858 and $36,553 of deferred offering costs with respect to the filing of a Registration Statement on Form S-3 using a “shelf” registration process for additional securities offerings.
Cash provided by financing activities for the three months ended March 31, 2022 was $13,845,813. The net increase in financing activities was due to net cash proceeds of $13,645,643 from the issuance of our common stock in connection with our IPO, $125,000 from issuance of promissory notes, $917,472 in proceeds received from insurance premium financing liability, offset by deferred offering costs of $521,294, $181,363 in repayments of insurance premium financing liability, and $139,645 repayments on promissory notes.
| -9- |
Critical Accounting Policies and Use of Estimates
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: research and development expense recognition, valuation of common shares and stock options, allowances of deferred tax assets, valuation of debt related instruments, accrued expenses and liabilities, and cash flow assumptions regarding going concern considerations.
Concentration of Credit Risk
We maintain cash balances with various financial institutions. Account balances at these institutions are insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor. At various times during the year, bank account balances may have been in excess of federally insured limits. We have not experienced losses in such accounts. We believe that we are not subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash equivalents are stated at cost and consist primarily of money market accounts.
Critical Accounting Policies
Research and development
Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on our estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the services completed.
Stock based compensation
Stock based compensation represents the cost related to stock based awards granted to our employees, directors and consultants and our affiliates. We measure stock based compensation costs at the grant date, based on the estimated fair value of the award and recognize the cost over the requisite service period.
We recognize compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the condensed consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option grant to employees, non-employees and directors is estimated as of the date of grant using the Black-Scholes option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to January 12, 2022, we were a private company and our common stock has only been publicly traded since that date. As a result, we lacked company-specific historical and implied volatility information. Therefore, we have estimated our expected stock volatility based on the historical data regarding the volatility of a publicly traded set of peer companies. The expected term of stock options granted was between five and seven years. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
Recently Issued and Adopted Accounting Standards
See Note 2 to our condensed consolidated financial statements included elsewhere in this quarterly Report on Form 10-Q.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
| -10- |
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with the requirement adopted by the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on financial statements. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer evaluated the effectiveness of our “disclosure controls and procedures” as of March 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Based on the evaluation of our disclosure controls and procedures as of March 31, 2023, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective. The material weaknesses that have been identified relate to (i) the design and implementation of appropriate segregation of duties to separate the roles of authorizing, initiating, and recording transactions or reviewing transactions for the completeness and accuracy of contracts with financial reporting implications and (ii) the Company lacking sufficient appropriate accounting and reporting knowledge to effectively perform review controls surrounding technical accounting matters. Effective internal control contemplates an appropriate level of review to ensure timely preparation and completeness and accuracy of the financial statements and disclosures.
Remediation Plans
We continue to work to strengthen internal control over financial reporting and management is committed to ensuring that such controls are designed and operating effectively. We are implementing processing and control improvements to address the above material weaknesses as follows:
| ● | we have initiated a procedure to remediate the material weakness by reviewing the material contracts on a quarterly basis with the accounting department and supporting staff; and |
| ● | we will use third party experts to review the accounting treatment for significant transactions and provide management with guidance on the treatment of the transactions. |
Changes in Internal Control
Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
| -11- |
ITEM 1A. RISK FACTORS.
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 16, 2023 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| * | Filed herewith. |
| ** | Furnished herewith. |
| -12- |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HILLSTREAM BIOPHARMA, INC. | ||
| Date: May 19, 2023 | By: | /s/ Randy Milby |
| Randy Milby | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 19, 2023 | By: | /s/ Thomas Hess |
| Thomas Hess | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| -13- |
Exhibit 31.1
Certification of Chief Executive Officer of Hillstream BioPharma, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Randy Milby, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Hillstream BioPharma, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 19, 2023 | /s/ Randy Milby |
| Randy Milby | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Certification of Chief Financial Officer of Hillstream BioPharma, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas Hess, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Hillstream BioPharma, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 19, 2023 | /s/ Thomas Hess |
| Thomas Hess | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Randy Milby, Chief Executive Officer of Hillstream BioPharma, Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge:
| 1. | The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 19, 2023 | /s/ Randy Milby |
| Randy Milby | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Thomas Hess, Chief Financial Officer of Hillstream BioPharma, Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge:
| 1. | The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 19, 2023 | /s/ Thomas Hess |
| Thomas Hess | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |