First Wave BioPharma(FWBI) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The unaudited statements detail the company's financial position, operating results, and cash flows as of March 31, 2020, noting a going concern uncertainty Consolidated Financial Statements The company reported a net loss of $5.26 million for Q1 2020, with total assets decreasing and liabilities increasing since year-end 2019 Consolidated Balance Sheets | Financial Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash | $1,630,007 | $175,796 | | Total Current Assets | $2,897,436 | $3,408,286 | | Total Assets | $8,184,312 | $8,902,880 | | Liabilities & Equity | | | | Total Current Liabilities | $5,143,189 | $4,285,636 | | Total Stockholders' Equity | $3,041,123 | $4,617,244 | | Total Liabilities and Stockholders' Equity | $8,184,312 | $8,902,880 | Consolidated Statements of Operations | Metric | Three Months Ended 03/31/20 | Three Months Ended 03/31/19 | | :--- | :--- | :--- | | Research and development expenses | $1,553,360 | $3,009,676 | | General and administrative expenses | $1,375,091 | $1,593,968 | | Loss from operations | ($2,928,451) | ($4,603,644) | | Interest expense | ($2,332,839) | ($57,111) | | Net loss | ($5,261,290) | ($4,660,755) | | Loss per share - basic and diluted | ($0.20) | ($0.26) | Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended 03/31/20 | Three Months Ended 03/31/19 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,291,280) | ($2,627,797) | | Net cash used in investing activities | ($4,340) | ($13,352) | | Net cash provided by financing activities | $2,756,254 | $1,967,142 | | Increase (decrease) in cash | $1,460,634 | ($674,007) | Note 1 - The Company and Basis of Presentation The company's focus on its lead candidate MS1819 is outlined, alongside substantial doubt about its going concern status due to significant losses - The company's lead drug candidate is MS1819, a yeast-derived recombinant lipase for treating exocrine pancreatic insufficiency (EPI)[24] - Two key clinical studies are underway for MS1819: the Phase 2b OPTION 2 monotherapy trial and a Phase 2 Combination Therapy trial, with completion expected in Q1 2021[27][29] - There is significant doubt about the Company's ability to continue as a going concern due to an accumulated deficit of $67.9 million and negative working capital of $2.2 million[33][34] Note 9 – Convertible Notes The company details its convertible debt financing, including the issuance of $6.9 million in Senior Convertible Promissory Notes and related interest expenses - In January 2020, the company fully repaid the remaining $450,000 principal and $104,153 in accrued interest on the ADEC Notes[82] - Between December 2019 and January 2020, the company issued an aggregate of $6.9 million in Senior Convertible Promissory Notes with a 9% annual interest rate[83][84][85] - For Q1 2020, the company recognized $2.21 million of interest expense related to the Promissory Notes, including significant non-cash amortization of debt discounts[94] Note 11 – Equity Recent equity activities include establishing a $15 million equity line of credit and issuing shares for services and to settle payables - In November 2019, the company entered into a purchase agreement with LPC for an equity line of credit of up to $15,000,000 over a 30-month period[105] - During Q1 2020, the company issued 150,000 shares of common stock to LPC, raising gross proceeds of $144,000[111] - In Q1 2020, the company issued 101,195 shares to consultants for services and 105,937 shares to Board members to settle accounts payable[112][113] Note 19 – Subsequent Events Post-quarter end, the company raised additional capital, received an R&D tax credit, and briefly utilized a PPP loan which was later returned - In April and May 2020, the company raised an additional $456,698 in gross proceeds under its LPC Purchase Agreement[168] - In May 2020, the company received approximately $721,000 for its 2019 refundable R&D tax credits from France[172] - The company received a CARES Act PPP loan of approximately $180,000 in April 2020 but returned the full amount in May 2020[173] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses clinical trial progress for MS1819, significant liquidity challenges, and provides an analysis of Q1 2020 operating results Overview The company is focused on developing its lead candidate MS1819 for EPI, with two key Phase 2 trials expected to complete in Q1 2021 - The company's primary focus is the development of its lead drug candidate, MS1819, for treating EPI in patients with cystic fibrosis and chronic pancreatitis[180] - The company expects to initiate the Phase 2b OPTION 2 Trial by the end of Q2 2020, with completion anticipated in Q1 2021[186][188] Liquidity and Capital Resources The company faces significant liquidity issues with a history of net losses, raising substantial doubt about its ability to continue as a going concern - The company has a history of net losses and negative cash flows, with an accumulated deficit of $67.9 million as of March 31, 2020[190] - Additional capital is required to fund ongoing operations and clinical trials, and the COVID-19 pandemic could negatively impact fundraising efforts[191] Continued Nasdaq Listing The company received a Nasdaq non-compliance notice for failing to maintain the minimum $1.00 bid price and has until September 2020 to regain compliance - The company received a notice from Nasdaq on March 23, 2020, for non-compliance with the minimum $1.00 bid price requirement[203] - To regain compliance, the stock's closing bid price must be at least $1.00 per share for 10 consecutive business days by September 21, 2020[205] Consolidated Results of Operations The company's Q1 2020 net loss increased to $5.26 million, driven by higher interest expense despite lower R&D and G&A costs Comparison of Q1 2020 and Q1 2019 | Expense Category | Q1 2020 | Q1 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Research & Development | $1,553,360 | $3,009,676 | ($1,456,316) | -48% | | General & Administrative | $1,375,091 | $1,593,968 | ($218,877) | -14% | | Interest Expense | $2,332,839 | $57,111 | $2,275,728 | +3985% | | Net Loss | ($5,261,290) | ($4,660,755) | ($600,535) | +13% | - The decrease in R&D spending was mainly due to lower direct clinical trial costs ($548,436) related to recruitment delays[211] - The significant increase in interest expense was due to the amortization of debt discount and accrued interest related to convertible debt issued in 2019[215] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company is a smaller reporting company - The company has indicated that quantitative and qualitative disclosures about market risks are not applicable[217] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[218] - No material changes were identified in the company's internal control over financial reporting during the quarter[219] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings during the period - There are no legal proceedings to report[222] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2019 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Annual Report on Form 10-K filed on March 30, 2020, were reported[223] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued common stock to consultants and board members for services and to settle accounts payable during the first quarter of 2020 - In Q1 2020, 101,195 shares of Common Stock were issued to consultants for services, valued at $87,105[224] - In Q1 2020, 105,937 shares of Common Stock were issued to outside Board members to settle accounts payable of $131,137[225] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[227] Item 5. Other Information The company reported no other information - There is no other information to report[229]