First Wave BioPharma(FWBI) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Consolidated Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows, highlighting a net loss of $9.7 million and a 'going concern' uncertainty Consolidated Balance Sheets The company's balance sheet as of June 30, 2019, shows total assets of $9.6 million, total liabilities of $6.7 million, and negative working capital of approximately $2.6 million Consolidated Balance Sheet Highlights (unaudited) | Account | June 30, 2019 ($) | December 31, 2018 ($) | | :--- | :--- | :--- | | Assets | | | | Cash | $1,310,687 | $1,114,343 | | Total Current Assets | $3,628,632 | $4,800,001 | | Total Assets | $9,612,406 | $7,469,395 | | Liabilities & Equity | | | | Total Current Liabilities | $6,221,272 | $2,995,523 | | Total Liabilities | $6,664,304 | $2,995,523 | | Total Stockholders' Equity | $2,948,102 | $4,473,872 | | Accumulated Deficit | ($57,220,637) | ($47,517,046) | - The company had negative working capital of approximately $2,593,000 at June 30, 2019[35] Consolidated Statements of Operations and Comprehensive Loss For the six months ended June 30, 2019, the company reported a net loss of $9.7 million, primarily due to a significant increase in Research and Development expenses Statement of Operations Summary (unaudited) | Metric | Six Months Ended 06/30/19 ($) | Six Months Ended 06/30/18 ($) | | :--- | :--- | :--- | | Research and development expenses | $4,857,301 | $2,603,805 | | General and administrative expenses | $4,678,533 | $4,083,580 | | Loss from operations | ($9,535,834) | ($6,847,385) | | Net loss | ($9,703,591) | ($6,942,174) | | Loss per share - basic and diluted | ($0.51) | ($0.50) | Consolidated Statements of Cash Flows Net cash used in operating activities was $6.7 million for the six months ended June 30, 2019, largely offset by $6.9 million from financing activities Cash Flow Summary (unaudited) | Cash Flow Activity | Six Months Ended 06/30/19 ($) | Six Months Ended 06/30/18 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,653,777) | ($4,862,321) | | Net cash used in investing activities | ($13,337) | ($41,041) | | Net cash provided by financing activities | $6,895,228 | $11,770,338 | | Increase in cash | $228,114 | $6,866,976 | | Cash, ending balance | $1,310,687 | $7,420,425 | Notes to Consolidated Financial Statements Detailed notes disclose the company's focus on biologics for GI disorders, clinical trial progress, recent financing, a 'going concern' warning, and a cyber-fraud incident - The company is engaged in the research and development of non-systemic biologics for gastrointestinal disorders, with a product pipeline consisting of MS1819-SD and a b-Lactamase program[21] - The Phase 2 OPTION study for MS1819-SD in cystic fibrosis patients reached its enrollment target in June 2019, with topline results expected in Q3 2019[23] - On March 27, 2019, the company acquired all rights to MS1819-SD from Mayoly by entering into an Asset Purchase Agreement, which terminated the prior joint development agreement[26] - The financial statements were prepared with a 'going concern' uncertainty due to significant operating losses, negative working capital, and an accumulated deficit of approximately $57.2 million[35] - In February 2019, the company issued two Senior Convertible Notes for a total of $2,000,000 to ADEC Private Equity Investments, LLC[56] - Subsequent to the quarter end, in July 2019, the company completed an underwritten public offering with gross proceeds of $5.0 million[126] - On August 8, 2019, the company discovered it was a victim of a cyber-related fraud involving redirected vendor payments totaling approximately $400,000[129] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, clinical trial progress, and reliance on external funding, addressing the 'going concern' uncertainty Overview The company focuses on developing non-systemic biologics for gastrointestinal disorders, with its lead candidate MS1819-SD in Phase 2 clinical trials - The company's lead product candidate is MS1819-SD, a yeast-derived recombinant lipase for exocrine pancreatic insufficiency (EPI) associated with chronic pancreatitis (CP) and cystic fibrosis (CF)[133] - The Phase 2 OPTION study for MS1819-SD reached its enrollment target in June 2019, with topline results anticipated in the third quarter of 2019[134] - In July 2019, a Phase 2 trial was launched to investigate MS1819-SD in combination with standard porcine enzyme replacement therapy (PERT) for CF patients with severe EPI[135] Liquidity and Capital Resources The company faces substantial doubt about its ability to continue as a going concern due to recurring losses and insufficient cash to fund operations beyond 12 months - As of June 30, 2019, the company had cash of approximately $1,311,000 and an accumulated deficit of approximately $57,221,000[146] - Management believes current conditions raise substantial doubt about the company's ability to continue as a going concern and that current cash will not be sufficient to fund working capital requirements beyond the next 12 months[146][147] - The company has funded operations through its IPO, debt, and public offerings in May 2018, April 2019, May 2019, and July 2019[147] Consolidated Results of Operations Operating results show increased R&D and G&A expenses for the three and six months ended June 30, 2019, driven by clinical trials and administrative costs Comparison of Operating Expenses (unaudited) | Expense Category | Three Months Ended 06/30/19 ($) | Three Months Ended 06/30/18 ($) | Six Months Ended 06/30/19 ($) | Six Months Ended 06/30/18 ($) | | :--- | :--- | :--- | :--- | :--- | | Research & Development | $2,738,768 | $925,776 | $4,857,301 | $2,603,805 | | General & Administrative | $2,193,423 | $2,167,247 | $4,678,533 | $4,083,580 | | Interest Expense | $110,646 | $46,154 | $167,757 | $94,789 | - The increase in R&D expenses is primarily due to the startup of a research and development function in the U.S. and expenses for the OPTION study[153] - The increase in G&A expenses for the six-month period was primarily due to increases in non-cash stock compensation ($170,860), personnel compensation ($279,300), and investor relations ($136,946)[154] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company's current operations - Not applicable[157] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed is recorded, processed, summarized, and reported within the specified time periods[158] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[159] PART II. OTHER INFORMATION Legal Proceedings The company reports no current legal proceedings - None[162] Risk Factors No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018, have occurred - There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[163] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds for this period - None[164] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[165] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[166] Other Information The company reports no other information for this item - None[167] Exhibits This section lists the exhibits filed with the report, including underwriting agreements, selling agent agreements, and officer certifications - Lists filed exhibits, including an Underwriting Agreement with H.C. Wainwright & Co., Selling Agent Agreements with Alexander Capital, L.P., and various officer certifications[168]