PainReform(PRFX) - 2023 Q2 - Quarterly Report

Financial Statements This section presents the company's condensed balance sheets, statements of comprehensive loss, changes in shareholders' equity, and cash flows Condensed Balance Sheets The company's balance sheet as of June 30, 2023, shows a decrease in total assets and shareholders' equity compared to December 31, 2022, primarily driven by a reduction in current assets, particularly short-term deposits Condensed Balance Sheets (in thousands) | Metric | As of June 30, 2023 (in thousands) | As of December 31, 2022 (in thousands) | Change (2023 vs 2022) | | :-------------------------------- | :---------------------------------- | :----------------------------------- | :-------------------- | | Total assets | $8,316 | $12,328 | -$4,012 | | Total current assets | $8,278 | $12,284 | -$4,006 | | Cash and cash equivalents | $5,138 | $4,096 | +$1,042 | | Short term deposit | $1,014 | $6,085 | -$5,071 | | Total liabilities | $1,343 | $1,307 | +$36 | | Total shareholders' equity | $6,973 | $11,021 | -$4,048 | Condensed Statements of Comprehensive Loss For the six months ended June 30, 2023, the company experienced an increased net loss and comprehensive loss compared to the same period in 2022, primarily due to higher research and development expenses, partially offset by financial income Condensed Statements of Comprehensive Loss (in thousands) | Metric | For the Six Months Ended June 30, 2023 (in thousands) | For the Six Months Ended June 30, 2022 (in thousands) | Change (2023 vs 2022) | | :------------------------------------ | :-------------------------------------------------- | :-------------------------------------------------- | :-------------------- | | Research and development expenses | $(2,700) | $(1,423) | -$(1,277) | | General and administrative expenses | $(1,968) | $(2,094) | +$126 | | Operating loss | $(4,668) | $(3,517) | -$(1,151) | | Financial income, net | $179 | $- | +$179 | | Net loss and comprehensive loss | $(4,489) | $(3,517) | -$(972) | | Basic and diluted net loss per share | $(4.12) | $(3.25) | -$(0.87) | Condensed Statements of Changes in Shareholders' Equity Shareholders' equity decreased significantly from $11,021 thousand at January 1, 2023, to $6,973 thousand by June 30, 2023, primarily due to the net loss incurred during the period, partially offset by share-based compensation Condensed Statements of Changes in Shareholders' Equity (in thousands) | Metric | Balance as of January 1, 2023 (in thousands) | Balance as of June 30, 2023 (in thousands) | Change | | :------------------------------------ | :----------------------------------------- | :---------------------------------------- | :------- | | Total shareholders' equity | $11,021 | $6,973 | -$4,048 | | Accumulated deficit | $(32,519) | $(37,008) | -$(4,489) | | Additional paid-in capital | $43,446 | $43,887 | +$441 | | Share-based compensation to employees and directors (6 months ended June 30, 2023) | N/A | $441 | N/A | | Net loss and comprehensive loss (6 months ended June 30, 2023) | N/A | $(4,489) | N/A | - The number of issued and outstanding ordinary shares increased from 1,081,755 as of December 31, 2022, to 1,090,452 as of June 30, 2023, reflecting share issuance to service providers and adjustments from a reverse share split[3][7] Condensed Statements of Cash Flows For the six months ended June 30, 2023, the company significantly reduced its net cash used in operating activities compared to the prior year, while investing activities provided a substantial cash inflow, leading to an overall increase in cash and cash equivalents Condensed Statements of Cash Flows (in thousands) | Metric | For the Six Months Ended June 30, 2023 (in thousands) | For the Six Months Ended June 30, 2022 (in thousands) | Change (2023 vs 2022) | | :------------------------------------------ | :-------------------------------------------------- | :-------------------------------------------------- | :-------------------- | | Net cash used in operating activities | $(3,955) | $(2,699) | -$(1,256) | | Net cash provided by investing activities | $5,000 | $(3) | +$5,003 | | Change in cash, cash equivalents and restricted cash | $1,042 | $(2,702) | +$3,744 | | Cash, cash equivalents and restricted cash at end of period | $5,148 | $13,869 | -$8,721 | - The positive cash flow from investing activities in 2023 was primarily driven by proceeds from short-term deposits ($6,000 thousand), offsetting purchases of short-term deposits ($1,000 thousand)[9] Notes to Condensed Unaudited Financial Statements This section provides detailed notes explaining the company's financial statements, including significant accounting policies, going concern issues, and subsequent events NOTE 1: GENERAL PainReform Ltd. is a clinical-stage specialty pharmaceutical company focused on post-surgical pain relief. The company has incurred significant losses and negative cash flows, raising substantial doubt about its ability to continue as a going concern, necessitating further capital raising. Additionally, the second part of its Phase 3 clinical trial faces delays due to an FDA deficiency notice to its API supplier - The Company is a clinical stage specialty pharmaceutical company focused on the reformulation of established therapeutics, aiming to provide extended post-surgical pain relief without repeated dose administration and reduce opiate use[15] - The Company has incurred significant losses and negative cash flows from operations, with net losses of $4,489 thousand and $3,517 thousand for the six-month periods ended June 30, 2023 and 2022, respectively[11] - As of June 30, 2023, the accumulated deficit was $37,008 thousand, and the Company does not have sufficient resources to fund operations until the end of its Phase III study, raising substantial doubt about its ability to continue as a going concern[11][13] - Management plans to continue capital raising through equity, debt, or strategic partnerships, but there are no assurances of obtaining the necessary financing[14] - The second part of the Phase 3 trial for PRF-110 is expected to commence once the FDA resolves a deficiency notice issued to the Company's API supplier, which does not relate to the PRF-110 product itself[14] NOTE 2: UNAUDITED CONDENSED FINANCIAL STATEMENTS These unaudited condensed financial statements are prepared in accordance with U.S. GAAP, consistent with the annual report, but omit certain disclosures. They reflect management's necessary adjustments and are not indicative of future results. The company is exposed to foreign exchange risk due to Israeli operations and has retroactively applied a 1-for-10 reverse share split. Global market volatility from geopolitical tensions is also noted as a potential risk - The unaudited condensed financial statements are prepared in accordance with U.S. GAAP, consistent with the Company's 2022 Annual Report on Form 20-F, but certain information and disclosures normally included in annual financial statements have been omitted[17][18] - Operating results for the six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the full year or any other future period[20] - The Company is exposed to exchange rate risks between the New Israeli Shekel (NIS) and the U.S. dollar, which could materially affect financial results, although Israeli inflation did not have a material adverse effect during the periods presented[21] - In June 2023, the Company effected a 1-for-10 reverse share split, and all related share and per share data have been retroactively applied to the financial statements for all periods presented[21] - U.S. and global markets are experiencing volatility and disruption due to geopolitical tensions and the military conflict between Russia and Ukraine, which could affect the Company's business, financial condition, and operating results[21] NOTE 3: SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies applied in these unaudited condensed financial statements are consistent with those used in the Company's most recent annual financial statements - The significant accounting policies applied in the preparation of these unaudited condensed financial statements are consistent with those used in the Company's most recent annual financial statements in connection with its Annual Report on Form 20-F[22] NOTE 4: SHAREHOLDERS' EQUITY This note details the company's outstanding warrants and share-based compensation plans, including options granted to employees and directors. It also confirms the retroactive application of a 1-for-10 reverse share split to all share-related data Warrants and warrants units As of June 30, 2023, the company had 3,950,217 warrants outstanding with various issuance dates, exercise prices, and expiration dates, including IPO, PIPE, and underwriter warrants Warrants Outstanding as of June 30, 2023 | Type | Issuance Date | Number of warrants | Exercise price (**) | Exercisable through | | :-------------------------------- | :---------------- | :----------------- | :------------------ | :------------------ | | August 2019 warrants | August 22, 2019 | 205,268 | $67.2 () | August 22, 2024 | | December 2019 warrants | December 9, 2019 | 92,321 | $67.2 () | December 8, 2024 | | Warrants 2019 Convertible Notes to placement agent | December 9, 2019 | 55,785 | $67.2 (*) | December 8, 2024 | | Warrants to underwriters | September 3, 2020 | 125,000 | $100.0 | September 1, 2025 | | Warrants to underwriters | October 5, 2020 | 375,000 | $88.0 | September 3, 2025 | | IPO warrants | September 3, 2020 | 2,812,170 | $88.0 | September 3, 2025 | | PIPE warrants | March 11, 2021 | 232,500 | $46.0 | September 10, 2026 | | Warrants to PIPE placement agent | March 11, 2021 | 52,173 | $50.6 | March 8, 2026 | | TOTAL | | 3,950,217 | | | - All exercise prices have been retroactively adjusted to reflect a 1-for-10 reverse share split[24] Share-based compensation The company maintains two share option plans (2008 and 2019 Plans) for employees and directors. In June 2023, 54,000 options were granted to board members under the 2019 Plan at an exercise price of $5.89 per share, with a grant-date fair value of $3.20 per option 2008 Share Option Plan (Options Outstanding and Exercisable) | Metric | As of June 30, 2023 | As of December 31, 2022 | | :-------------------------------- | :------------------ | :-------------------- | | Options outstanding | 15,388 | 15,388 | | Weighted average exercise price | $2.40 | $2.40 | | Weighted average remaining contractual life | 0.75 years | 1.25 years | | Options exercisable | 15,388 | 15,388 | 2019 Share Option Plan (Options Outstanding and Exercisable) | Metric | As of June 30, 2023 | As of December 31, 2022 | | :-------------------------------- | :------------------ | :-------------------- | | Options outstanding | 187,994 | 133,994 | | Weighted average exercise price | $11.94 | $14.4 | | Weighted average remaining contractual life | 9.20 years | 9.39 years | | Options exercisable | 116,416 | 133,994 | - On June 8, 2023, shareholders approved the grant of 54,000 options to two current board members and the Chairman, each receiving 18,000 options at an exercise price of $5.89 per share. Fifty percent vested upon grant, with the remainder vesting quarterly over 36 months[27] - The grant-date fair value for the June 2023 options was $3.20 per option, based on an average expected term of 5.36 years, a risk-free interest rate of 3.85%, volatility of 90.43%, and zero dividend yield[27] - A 1-for-10 reverse share split was effected in June 2023, consolidating shares and retroactively adjusting all related share and per share data in the financial statements and notes for all periods presented[34] NOTE 5: LOSS PER SHARE Basic loss per share is calculated based on net loss and weighted average ordinary shares. For the periods ended June 30, 2023, and 2022, all outstanding share options, restricted shares, and warrants were anti-dilutive and thus excluded from the diluted loss per share calculation - Basic loss per share is computed by dividing the net loss by the weighted average number of Ordinary Shares and vested Ordinary Shares issuable for little or no further consideration outstanding during the period[30] - For the six months ended June 30, 2023, and 2022, all outstanding share options, restricted shares, and warrants were excluded from the calculation of diluted net loss per share because they were anti-dilutive[31] NOTE 6: COMMITMENTS AND CONTINGENCIES The company has agreements with Lotus Clinical Research for its Phase 3 trials of PRF-110, with updated milestone and subject payment terms. Clinical trial expenses are recognized as incurred, with prepaid amounts recorded. Additionally, the company issued shares to a consultant in February 2023 - The Company entered into Master Clinical Research Organization Agreements with Lotus Clinical Research for its planned Phase 3 trials of PRF-110, which commenced in March 2023[32] - The total milestone completion payment was updated to $5.6 million, and the payment for the actual number of evaluable subjects was updated to $8.6 million[32] - Clinical trial expenses are charged to research and development expenses as incurred. As of June 30, 2023, $1,962 thousand was accounted for as prepaid clinical trial expenses, and $2,042 thousand was recognized as clinical trial expenses during the six months ended June 2023[33][34] - In February 2023, the Company issued 8,697 Ordinary Shares to a consultant in connection with a second grant approved in May 2022[34] NOTE 7: FINANCIAL INCOME, NET For the six months ended June 30, 2023, the company reported net financial income of $179 thousand, primarily driven by interest income, a significant increase compared to the prior year Financial Income, Net (in thousands) | Metric | Six Months ended June 30, 2023 (in thousands) | Six Months ended June 30, 2022 (in thousands) | | :------------------------ | :------------------------------------------ | :------------------------------------------ | | Bank fees | $(8) | $(7) | | Interest income | $190 | $- | | Exchange rate differences | $(3) | $7 | | Total financial income, net | $179 | $- | NOTE 8: FINANCIAL INSTRUMENTS The carrying amounts of the company's cash equivalents, restricted cash, trade payables, and accrued expenses are considered to approximate their fair value due to their short-term nature - The carrying amount of cash equivalents, restricted cash, account payables, and accrued expenses approximate their fair value due to their short-term characteristics[36] NOTE 9: SUBSEQUENT EVENTS In July 2023, the company completed two registered direct offerings and concurrent private placements of warrants, raising approximately $4.2 million in gross proceeds and $3.6 million in net proceeds. These transactions involved the sale of ordinary shares and pre-funded warrants, which were fully exercised - On July 14, 2023, the Company sold 117,930 Ordinary Shares and pre-funded warrants for 183,300 Ordinary Shares in a registered direct offering and private placement, generating gross proceeds of approximately $2.7 million and net proceeds of $2.3 million[38] - On July 18, 2023, another registered direct offering and private placement resulted in the sale of 145,000 Ordinary Shares and pre-funded warrants for 21,666 Ordinary Shares, yielding gross proceeds of approximately $1.5 million and net proceeds of $1.3 million[38] - Both offerings included the issuance of unregistered warrants to purchase additional Ordinary Shares at an exercise price of $9.00 per share, and all pre-funded warrants were exercised in full[38]