UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021March 31, 2022
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 001-37411
TIMBER PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
| ||
Delaware | | 59-3843182 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
110 Allen Road, Suite 410
Basking Ridge, NJ 07920
(Address of principal executive offices and zip code)
(908) 636-7163
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |||
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $0.001 per share | | TMBR | | The NYSE American, LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ⌧ NO ◻
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ⌧ NO ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ||
Large Accelerated Filer ☐ | | Accelerated Filer ☐ |
Non-accelerated Filer ☒ | | Smaller Reporting Company ☒ |
Emerging growth company ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class of Common Stock |
| Outstanding Shares as of |
|
Common Stock, $0.001 par value |
|
| |
TIMBER PHARMACEUTICALS, INC. & SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 2021March 31, 2022
Table of Contents
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| | Page |
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3 | ||
| 3 | |
| 4 | |
| 5 | |
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| Notes to Condensed Consolidated Financial Statements (unaudited) |
|
Management’s Discussion and Analysis of the Results of Operations |
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38 | ||
38 | ||
38 | ||
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2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Timber Pharmaceuticals, Inc. & Subsidiaries
Condensed Consolidated Balance Sheets
| | | | | | | ||||||
| | | | | | |
| March 31, |
| December 31, | ||
|
| September 30, |
| December 31, | | 2022 | | 2021 | ||||
| | 2021 | | 2020 | | | (unaudited) | | | | ||
ASSETS |
| | (unaudited) |
| |
|
| | |
| |
|
Current assets |
| |
|
| |
|
| |
|
| |
|
Cash | | $ | 3,357,136 | | $ | 10,348,693 | | $ | 13,860,273 | | $ | 16,808,539 |
Other current assets | |
| 338,200 | |
| 377,290 | |
| 211,227 | |
| 310,238 |
Total current assets | |
| 3,695,336 | |
| 10,725,983 | |
| 14,071,500 | |
| 17,118,777 |
Deposits | |
| 127,534 | |
| 114,534 | |
| 127,534 | |
| 127,534 |
Property and equipment, net | | | 17,012 | | | — | | | 19,109 | | | 16,377 |
Right of use asset | |
| 712,902 | |
| 787,432 | |
| 562,236 | |
| 638,786 |
Total assets | | $ | 4,552,784 | | $ | 11,627,949 | | $ | 14,780,379 | | $ | 17,901,474 |
| |
|
| |
|
| |
|
| |
|
|
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | |
|
| |
|
| ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |
|
| |
|
| ||||||
Current liabilities | |
|
| |
|
| |
|
| |
|
|
Accounts payable | | $ | 1,042,290 | | $ | 395,049 | | $ | 818,811 | | $ | 953,349 |
Accrued expenses | |
| 659,865 | |
| 768,661 | |
| 633,296 | |
| 850,557 |
Lease liability, current portion | |
| 313,996 | |
| 217,651 | | | 346,580 | | | 332,817 |
Redeemable Series A preferred stock under redemption (Note 5) | |
| 2,109,600 | |
| 2,055,348 | ||||||
Total current liabilities | |
| 2,016,151 | |
| 1,381,361 | |
| 3,908,287 | |
| 4,192,071 |
Notes payable | |
| 37,772 | |
| 37,772 | ||||||
Note payable | |
| — | |
| 37,772 | ||||||
Lease liability | |
| 419,683 | |
| 579,455 | |
| 241,507 | |
| 331,152 |
Deferred tax liability | | | 37,842 | | | 37,842 | ||||||
Other liabilities | |
| 73,683 | |
| 73,683 | |
| 73,683 | |
| 73,683 |
Total liabilities | |
| 2,585,131 | |
| 2,110,113 | |
| 4,223,477 | |
| 4,634,678 |
| |
|
| |
|
| |
|
| |
|
|
Commitments and contingencies (Note 8) | |
|
| |
|
| ||||||
Commitments and contingencies (Note 7) | |
|
| |
|
| ||||||
| |
|
| |
|
| |
|
| |
|
|
Redeemable Series A convertible preferred stock, par value $0.001; 2,500 shares authorized; 1,819 shares issued and outstanding as of September 30, 2021 and December 31, 2020 | |
| 2,018,663 | |
| 1,909,805 | ||||||
| |
|
| |
|
| |
|
| |
|
|
Stockholders' (deficit) equity | |
|
| |
|
| ||||||
Common stock, par value $0.001; 450,000,000 shares authorized; 36,659,685 shares issued and outstanding as of September 30, 2021, and 27,132,420 shares issued and outstanding as of December 31, 2020 | |
| 36,660 | |
| 27,132 | ||||||
Stockholders' equity | |
|
| |
|
| ||||||
Common stock, par value $0.001; 450,000,000 shares authorized; 63,678,836 shares issued and outstanding as of March 31, 2022, and 63,619,140 shares issued and outstanding as of December 31, 2021 | |
| 64,216 | |
| 63,619 | ||||||
Additional paid-in capital | |
| 26,003,593 | |
| 25,826,295 | |
| 42,450,622 | |
| 42,087,719 |
Accumulated deficit | |
| (26,091,263) | |
| (18,245,396) | |
| (31,957,936) | |
| (28,884,542) |
Total stockholders' (deficit)equity | |
| (51,010) | |
| 7,608,031 | ||||||
Total liabilities, redeemable convertible preferred stock, and stockholders' (deficit) equity | | $ | 4,552,784 | | $ | 11,627,949 | ||||||
Total stockholders' equity | |
| 10,556,902 | |
| 13,266,796 | ||||||
Total liabilities and stockholders' equity | | $ | 14,780,379 | | $ | 17,901,474 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Timber Pharmaceuticals, Inc. & Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | |
|
| Three months ended September 30, |
| Nine months ended September 30, |
|
| Three months ended March 31, |
|
| ||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
|
| 2022 |
| 2021 |
|
| ||||||
| | | | | | | | | | | | | | | | | | | | | |
Grant revenue | | $ | 225,128 | | $ | 324,521 | | $ | 400,789 | | $ | 351,428 | | | $ | 83,177 | | $ | 40,734 | | |
Milestone revenue | | | 41,846 | | | — | | | 295,738 | | | — | | ||||||||
Total revenue | | | 266,974 | | | 324,521 | | | 696,527 | | | 351,428 | | | | 83,177 | | | 40,734 | | |
| |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| | |
Operating costs and expenses | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| | |
Research and development | |
| 1,974,193 | |
| 685,207 | |
| 4,623,811 | |
| 2,239,607 | | |
| 1,518,959 | |
| 849,518 | | |
Research and development - license acquired | |
| — | |
| — | |
| — | |
| 12,371,332 | | ||||||||
Transaction costs | |
| — | |
| — | |
| — | |
| 1,501,133 | | ||||||||
Selling, general and administrative | |
| 1,296,641 | |
| 1,233,849 | |
| 3,918,042 | |
| 2,745,728 | | |
| 1,702,395 | |
| 1,065,389 | | |
Total operating expenses | |
| 3,270,834 | |
| 1,919,056 | |
| 8,541,853 | |
| 18,857,800 | | |
| 3,221,354 | |
| 1,914,907 | | |
Loss from operations | |
| (3,003,860) | |
| (1,594,535) | |
| (7,845,326) | |
| (18,506,372) | | |
| (3,138,177) | |
| (1,874,173) | | |
| |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| | |
Other (expense) income | |
|
| |
|
| |
|
| |
|
| | ||||||||
Other income (expense) | |
|
| |
|
| | | |||||||||||||
Interest expense | |
| — | |
| — | |
| — | |
| (4,416,746) | | |
| (54,252) | |
| — | | |
Interest income | |
| — | |
| — | |
| — | |
| 816,655 | | ||||||||
Change in fair value of investment in BioPharmX | |
| — | |
| — | |
| — | |
| 559,805 | | ||||||||
Change in fair value of warrant liability | |
| — | |
| 4,423,833 | |
| — | |
| 5,607,293 | | ||||||||
Gain on foreign currency exchange | |
| (1,544) | |
| 7,197 | |
| (541) | |
| 11,651 | | ||||||||
Total other (expense) income | |
| (1,544) | |
| 4,431,030 | |
| (541) | |
| 2,578,658 | | ||||||||
Net (loss) income | | | (3,005,404) | | | 2,836,495 | | | (7,845,867) | | | (15,927,714) | | ||||||||
Accrued dividend on preferred stock units | |
| — | |
| — | |
| — | |
| (52,669) | | ||||||||
Other income | |
| 75,000 | |
| — | | | |||||||||||||
Forgiveness of PPP loan | |
| 37,772 | |
| — | | | |||||||||||||
Gain (loss) on foreign currency exchange | |
| 6,262 | |
| (87) | | | |||||||||||||
Total other income (expense) | |
| 64,783 | |
| (87) | | | |||||||||||||
Loss before provision for income taxes | | | (3,073,394) | | | (1,874,260) | | | |||||||||||||
Provision for income taxes | | | — | | | — | | | |||||||||||||
Net loss | | | (3,073,394) | | | (1,874,260) | | | |||||||||||||
Cumulative dividends on Series A preferred stock | |
| (36,685) | |
| (36,685) | |
| (108,858) | |
| (53,831) | | |
| — | |
| (35,887) | | |
Net (loss) income attributable to common stockholders | | $ | (3,042,089) | | $ | 2,799,810 | | $ | (7,954,725) | | $ | (16,034,214) | | ||||||||
Net loss attributable to common stockholders | | $ | (3,073,394) | | $ | (1,910,147) | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Basic net (loss) income per share attributable to common stockholders | | $ | (0.08) | | $ | 0.15 | | $ | (0.22) | | $ | (1.32) | | ||||||||
Diluted net (loss) income per share attributable to common stockholders | | $ | (0.08) | | $ | 0.14 | | $ | (0.22) | | $ | (1.32) | | ||||||||
| | | | | | | | | | | | | | ||||||||
Basic weighted average number of shares outstanding | |
| 36,659,685 | |
| 18,891,206 | |
| 35,873,780 | |
| 12,160,048 | | ||||||||
Diluted weighted average number of shares outstanding | |
| 36,659,685 | |
| 19,357,370 | |
| 35,873,780 | |
| 12,160,048 | | ||||||||
| | | | | | | | | | | | | | ||||||||
Basic and diluted net loss per share attributable to common stockholders | | $ | (0.05) | | $ | (0.05) | | | |||||||||||||
Basic and diluted weighted average number of shares outstanding | |
| 63,637,712 | |
| 35,079,143 | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Timber Pharmaceuticals, Inc. & Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
For the Three Months Ended September 30, 2021
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total | |
|
| Series A Preferred Stock |
| Common Stock |
| Additional |
| Accumulated |
| Stockholders' | |||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity (Deficit) | |||||
Balance at July 1, 2021 | | 1,819 | | $ | 1,981,978 | | 36,659,685 | | $ | 36,660 | | $ | 25,852,542 | | $ | (23,085,859) | | $ | 2,803,343 |
Accrued dividend Series A preferred stock |
| — |
| | 36,685 |
| — |
| | — |
| | (36,685) |
| | — |
| | (36,685) |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
| | 187,736 |
| | — |
| | 187,736 |
Net loss |
| — |
| | — |
| — |
| | — |
| | — |
| | (3,005,404) |
| | (3,005,404) |
Balance at September 30, 2021 |
| 1,819 | | $ | 2,018,663 |
| 36,659,685 |
| $ | 36,660 | | $ | 26,003,593 |
| $ | (26,091,263) | | $ | (51,010) |
For the Three Months Ended September 30, 2020March 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | |
| Total | ||
|
| Series A Preferred Stock |
| Common Stock | | Additional |
| Accumulated | | Stockholders' | |
| Series A Preferred Stock |
| Common Stock |
| Additional |
| Accumulated |
| Stockholders' | ||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount | | Paid-in Capital |
| Deficit |
| Deficit | |
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity (Deficit) | ||||||||||
Balance at July 1, 2020 | | 1,819 | | $ | 1,836,435 | | 11,843,258 | | $ | 11,843 | | $ | 17,904,088 | | $ | (21,909,137) | | $ | (3,993,206) | | |||||||||||||||||||
Issuance of common stock, net of costs | | — | | | — | | 5,773 | | | 6 | | | (6) | | | — | | | — | | |||||||||||||||||||
Accrued dividend Series A preferred stock | | — | | | (17,146) | | — | | | — | | | — | | | 17,146 | | | 17,146 | | |||||||||||||||||||
Balance at January 1, 2022 | | — | | $ | — | | 63,619,140 | | $ | 63,619 | | $ | 42,087,719 | | $ | (28,884,542) | | $ | 13,266,796 | ||||||||||||||||||||
Stock-based compensation |
| — |
| | — |
| — |
| | — | | | 95,525 |
| | — | | | 95,525 | |
| — |
| | — |
| — |
| | — |
| | 368,282 |
| | — |
| | 368,282 |
Net income |
| — |
| | — |
| — |
| | — | | | — |
| | 2,836,495 | | | 2,836,495 | | |||||||||||||||||||
Balance at September 30, 2020 |
| 1,819 | | $ | 1,819,289 |
| 11,849,031 |
| $ | 11,849 | | $ | 17,999,607 |
| $ | (19,055,496) | | $ | (1,044,040) | | |||||||||||||||||||
Exercise of VARs | | — | | | — | | 59,696 | | | 597 | | | (5,379) | | | — | | | (4,782) | ||||||||||||||||||||
Net loss |
| — |
| | — |
| — |
| | — |
| | — |
| | (3,073,394) |
| | (3,073,394) | ||||||||||||||||||||
Balance at March 31, 2022 |
| — | | $ | — |
| 63,678,836 |
| $ | 64,216 | | $ | 42,450,622 |
| $ | (31,957,936) | | $ | 10,556,902 |
5
Timber Pharmaceuticals, Inc. & Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
For the NineThree Months Ended September 30,March 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total | | | | | | | | | | | | | | | | |
| Total | ||
|
| Series A Preferred Stock |
| Common Stock |
| Additional |
| Accumulated |
| Stockholders' |
| Series A Preferred Stock |
| Common Stock |
| Additional |
| Accumulated |
| Stockholders' | ||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity (Deficit) |
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity (Deficit) | ||||||||||
Balance at January 1, 2021 | | 1,819 | | $ | 1,909,805 | | 27,132,420 | | $ | 27,132 | | $ | 25,826,295 | | $ | (18,245,396) | | $ | 7,608,031 | | 1,819 | | $ | 1,909,805 | | 27,132,420 | | $ | 27,132 | | $ | 25,826,295 | | $ | (18,245,396) | | $ | 7,608,031 |
Accrued dividend Series A preferred stock |
| — |
| | 108,858 |
| — |
| | — |
| | (108,858) |
| | — |
| | (108,858) |
| — |
| | 35,887 |
| — |
| | — |
| | (35,887) |
| | — |
| | (35,887) |
Exercise of Series A warrants |
| — |
| | — |
| 2,059,613 |
| | 2,060 |
| | (2,060) |
| | — |
| | — |
| — |
| | — |
| 2,059,613 |
| | 2,060 |
| | (2,060) |
| | — |
| | — |
Exercise of Series B warrants |
| — |
| | — |
| 7,467,652 |
| | 7,468 |
| | (7,468) |
| | — |
| | — |
| — |
| | — |
| 7,467,652 |
| | 7,468 |
| | (7,468) |
| | — |
| | — |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
| | 295,684 |
| | — |
| | 295,684 |
| — |
| | — |
| — |
| | — |
| | 58,515 |
| | — |
| | 58,515 |
Net loss |
| — |
| | — |
| — |
| | — |
| | — |
| | (7,845,867) |
| | (7,845,867) |
| — |
| | — |
| — |
| | — |
| | — |
| | (1,874,260) |
| | (1,874,260) |
Balance at September 30, 2021 |
| 1,819 | | $ | 2,018,663 |
| 36,659,685 |
| $ | 36,660 | | $ | 26,003,593 |
| $ | (26,091,263) | | $ | (51,010) | |||||||||||||||||||
Balance at March 31, 2021 |
| 1,819 | | $ | 1,945,692 |
| 36,659,685 |
| $ | 36,660 | | $ | 25,839,395 |
| $ | (20,119,656) | | $ | 5,756,399 |
6
Timber Pharmaceuticals, Inc. & Subsidiaries
Condensed Consolidated Statements of Members’ and Stockholders’ Deficit
(Unaudited)
For the Nine Months Ended September 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Member's | |
|
| Series A Preferred Stock |
| Preferred Units | | | Common Units | | | Common Stock |
| Additional |
| Accumulated |
| and Stockholder's | |||||||||||||||
|
| Shares |
| Amount |
| Units |
| Amount | |
| Units |
| Amount |
| | Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Deficit | |||||||
Balance at January 1, 2020 |
| — | | $ | — |
| 1,624,228 |
| $ | 1,624,228 | | | 10,000 |
| $ | 74,667 | | | — |
| $ | — | | $ | — |
| $ | (3,075,113) | | $ | (1,376,218) |
Issuance of common stock for acquisition of BioPharmX |
| — | |
| — |
| — |
| | — | | | — |
| | — | | | 1,367,326 |
| | 1,367 | |
| 8,366,665 |
| | — | |
| 8,368,032 |
Issuance of common stock and warrants, net of costs |
| — | |
| — |
| — |
| | — | | | — |
| | — | | | 4,185,981 |
| | 4,186 | |
| 17,495,814 |
| | — | |
| 17,500,000 |
Series A liability classified warrants |
| — | |
| — |
| — |
| | — | | | — |
| | — | | | — |
| | — | |
| (16,511,634) |
| | — | |
| (16,511,634) |
Bridge loan converted to equity | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | 5,000,000 | | | — | | | 5,000,000 |
Reclassification of bridge warrant | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | 3,423,204 | | | — | | | 3,423,204 |
Non-cash contribution from TardiMed | | — | | | — | | 142,392 | | | 142,392 | | | — | | | — | | | — | | | — | | | — | | | — | | | 142,392 |
Accrued preferred unit dividend | | — | | | — | | 52,669 | | | 52,669 | | | — | | | — | | | — | | | — | | | — | | | (52,669) | | | — |
Conversion of common units to common stock pursuant to BioPharmX acquisition | | — | | | — | | — | | | — | | | (10,000) | | | (74,667) | | | 6,295,724 | | | 6,296 | | | 68,371 | | | — | | | — |
Conversion of preferred units to Series A preferred stock pursuant to BioPharmX acquisition | | 1,819 | | | 1,819,289 | | (1,819,289) | | | (1,819,289) | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,819,289) |
Stock-based compensation | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | 157,187 | | | — | | | 157,187 |
Net loss |
| — | |
| — |
| — |
| | — | | | — |
| | — | | | — |
| | — | |
| — |
| | (15,927,714) | |
| (15,927,714) |
Balance at September 30, 2020 |
| 1,819 | | $ | 1,819,289 |
| — | | $ | — | | | — | | $ | — | | | 11,849,031 | | $ | 11,849 | | $ | 17,999,607 | | $ | (19,055,496) | | $ | (1,044,040) |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.statements
75
Timber Pharmaceuticals, Inc. & Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | ||||||
| | Nine months ended September 30, | | | | | | | ||||
| | 2021 | | 2020 | | Three months ended March 31, | ||||||
| | | | | | | | 2022 | | 2021 | ||
Cash flows from operating activities |
| |
|
| |
|
| |
|
| |
|
Net loss | | $ | (7,845,867) | | $ | (15,927,714) | | $ | (3,073,394) | | $ | (1,874,260) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
|
| |
|
| |
|
| |
|
|
Research and development-licenses acquired | |
| — | |
| 12,371,332 | ||||||
Non-cash contribution from TardiMed | |
| — | |
| 142,392 | ||||||
Stock-based compensation | |
| 295,684 | |
| 157,187 | |
| 368,282 | |
| 58,515 |
Change in fair value of warrant liability | |
| — | |
| (5,607,293) | ||||||
Change in fair value of investment in BioPharmX | |
| — | |
| (559,805) | ||||||
Amortization of loan discount | |
| — | |
| (775,000) | ||||||
Amortization of debt discount | |
| — | |
| 4,232,718 | ||||||
Amortization of right of use assets | |
| 197,339 | |
| 65,677 | |
| 76,550 | |
| 56,057 |
Depreciation | | | 791 | | | — | | | 787 | | | — |
Accrued interest on BioPharmX loan | |
| — | |
| (41,655) | ||||||
Accrued interest on bridge notes | |
| — | |
| 183,333 | ||||||
Forgiveness of PPP loan | | | (37,772) | | | — | ||||||
Non-cash Interest on redeemable Series A preferred stock | | | 54,252 | | | — | ||||||
Changes in assets and liabilities: | |
|
| |
|
| |
|
| |
|
|
Other current assets | |
| 39,090 | |
| (218,509) | |
| 99,011 | |
| 85,361 |
Deposits | | | (13,000) | | | — | | | — | | | (13,000) |
Accounts payable | |
| 647,241 | |
| (545,480) | |
| (134,538) | |
| 128,744 |
Accrued expenses | |
| (108,796) | |
| (17,537) | |
| (222,043) | |
| (236,288) |
Lease liability | |
| (186,236) | |
| (61,531) | |
| (75,882) | |
| (53,769) |
Net cash used in operating activities | |
| (6,973,754) | |
| (6,601,885) | |
| (2,944,747) | |
| (1,848,640) |
| |
|
| |
|
| |
|
| |
|
|
Cash flows from investing activities | |
| | | | | |
| | | | |
Cash acquired with acquisition of BioPharmX | |
| — | |
| 340,786 | ||||||
Loan to BioPharmX | |
| — | |
| (2,250,000) | ||||||
Purchase of property and equipment | | | (17,803) | | | — | | | (3,519) | | | — |
Purchase of research and development licenses - AFT Pharmaceuticals Limited | |
| — | |
| (750,000) | ||||||
Net cash used in investing activities | |
| (17,803) | |
| (2,659,214) | |
| (3,519) | |
| — |
| |
|
| |
|
| |
|
| |
|
|
Cash flows from financing activities | |
|
| |
|
| |
|
| |
|
|
Proceeds from PPP loan | |
| — | |
| 37,772 | ||||||
Proceeds from the issuance of common stock and warrants, net of issuance costs | |
| — | |
| 17,500,000 | ||||||
Proceeds from bridge notes payable | |
| — | |
| 3,700,000 | ||||||
Net cash provided by financing activities | |
| — | |
| 21,237,772 | |
| — | |
| — |
| |
|
| |
|
| |
|
| |
|
|
Net (decrease) increase in cash | |
| (6,991,557) | |
| 11,976,673 | ||||||
Net decrease in cash | |
| (2,948,266) | |
| (1,848,640) | ||||||
Cash, beginning of period | |
| 10,348,693 | |
| 57,073 | |
| 16,808,539 | |
| 10,348,693 |
| |
|
| |
|
| ||||||
Cash, end of period | | $ | 3,357,136 | | $ | 12,033,746 | | $ | 13,860,273 | | $ | 8,500,053 |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | ||||||
Cash paid for interest | | $ | — | | $ | 183,333 | ||||||
| | | | | | | ||||||
Non cash investing and financing activities: | |
|
| |
|
| ||||||
Issuance of common stock for acquisition of BioPharmX | | $ | — | | $ | 8,368,032 | ||||||
Conversion of preferred units to Series A preferred stock pursuant to BioPharmX acquisition | | $ | — | | $ | 1,819,289 | ||||||
Conversion of common units to common stock pursuant to BioPharmX acquisition | | $ | — | | $ | 74,667 | ||||||
Bridge loan converted to equity | | $ | — | | $ | 5,000,000 | ||||||
Reclassification of bridge warrant | | $ | — | | $ | 3,423,204 | ||||||
Series A liability classified warrants | | $ | — | | $ | 16,511,634 | ||||||
Non-cash investing and financing activities: | |
|
| |
|
| ||||||
Accrued Series A preferred stock dividend | | $ | 108,858 | | $ | — | | $ | — | | $ | 35,887 |
Cashless exercise of Series A warrants | | $ | 2,060 | | $ | — | | $ | — | | $ | 2,060 |
Cashless exercise of Series B warrants | | $ | 7,468 | | $ | — | | $ | — | | $ | 7,468 |
Cashless exercise of VARs | | $ | 60 | | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
86
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and description of business operations
Timber Pharmaceuticals, Inc., formerly known as BioPharmX Corporation (together with its subsidiaries Timber Pharmaceuticals Australia Pty Ltd., BioPharmX Inc. and Timber Pharmaceuticals LLC, the “Company” or “Timber”) is incorporated under the laws of the state of Delaware. Timber was founded in 2019 to develop treatments for unmet needs in medical dermatology. Timber has a particular focus on rare diseases or conditions of the skin for which there are no current treatments. Timber is initially targeting multiple indications in rare/orphan dermatology with no approved treatments.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Merger Agreement
On May 18, 2020, BioPharmX Corporation (“BioPharmX”) completed its business combination with Timber Pharmaceuticals LLC, a Delaware limited liability company (“Timber Sub”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020 (the “Merger Agreement”), by and among BioPharmX, Timber Sub and BITI Merger, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto made and entered into as of March 24, 2020 (the “First Amendment”) and Amendment No. 2 thereto made and entered into as of April 27, 2020 (the “Second Amendment”) (the Merger Agreement, as amended by the First Amendment and the Second Amendment, the “Amended Merger Agreement”), pursuant to which Merger Sub merged with and into Timber Sub, with Timber Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”). In connection with, and immediately prior to the completion of, the Merger, BioPharmX effected a reverse stock split of the Company’s common stock, par value $0.001 per share, (the “Common Stock”), at a ratio of 1-for-12 (the “Reverse Stock Split”). Immediately after completion of the Merger, BioPharmX changed its name to “Timber Pharmaceuticals, Inc.” and the officers and directors of Timber Sub became the officers and directors of the Company.
Under the terms of the Amended Merger Agreement, BioPharmX issued shares of Common Stockcommon stock to the holders of common units of Timber Sub. Immediately after the Merger, there were approximately 11,849,031 shares of Common Stockcommon stock outstanding (after the Reverse Stock Split). Pursuant to the terms of the Amended Merger Agreement, the former holders of common units of Timber Sub (including the Investors, as defined below, but excluding Value Appreciation Rights of Timber Sub (“VARs”), as defined below) owned in the aggregate approximately 88.5% of the outstanding Common Stock,common stock, with the Company’s stockholders immediately prior to the Merger owning approximately 11.5% of the outstanding Common Stock.common stock. The number of shares of Common Stockcommon stock issued to the holders of common units of Timber Sub for each common unit of Timber Sub outstanding immediately prior to the Merger was calculated using an exchange ratio of approximately 629.57 shares of Common Stockcommon stock for each Timber Sub unit. In addition, the 584 VARs that were outstanding immediately prior to Merger became denoted and payable in 367,670 shares of Common Stockcommon stock at the Effective Time of the Merger (the “Effective Time”). Further, the holder of the 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger received 1,819 shares of the newly created convertible Series A preferred stock (the “Series A Preferred Stock”) at the Effective Time.
Securities Purchase Agreement
On May 18, 2020, Timber and Timber Sub completed a private placement transaction (the “Pre-Merger Financing”) with the Investors pursuant to the Securities Purchase Agreement for an aggregate purchase price of approximately $25.0 million (comprised of (i) approximately $5 million credit with respect to the senior secured notes issued in connection with the bridge loan that certain of the Investors made to Timber Sub at the time of the execution of the Merger Agreement and (ii) approximately $20 million in cash from the Investors).
7
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Pursuant to the Pre-Merger Financing, (i) Timber Sub issued and sold to the Investors common units of Timber Sub which converted pursuant to the exchange ratio in the Merger into an aggregate of approximately 4,137,509 shares (the “Converted Shares”) of common stock; and (ii) the Company agreed to issue to each Investor, on the tenth trading day following the consummation of the Merger, (A) Series A Warrants representing the right to acquire shares of common stock (“Series A Warrants”) equal to 75% of the sum of (a) the number of Converted Shares issued to the Investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement, and (b) the number of shares of common stock underlying the Series B Warrants issued to the Investor (the “Series B Warrants”) and (B) the Series B Warrants. On June 2, 2020, pursuant to the terms of the Securities Purchase Agreement, the Company issued 8,384,764 Series A Warrants to purchase shares of common stock (“Series A Warrants”) and 7,042,175 Series B Warrants to purchase shares of common stock (“Series B Warrants”).
In addition, pursuant to the terms of the Securities Purchase Agreement, dated as of January 28, 2020 between Timber Sub and several of the Investors, the Company issued to such purchasers, on May 22, 2020, warrants to purchase 413,751 shares of common stock (the “Bridge Warrants”) which originally had an exercise price of $2.2362 per share. As a result of the November 2021 Offering (as defined below), the exercise price of the Bridge Warrants was adjusted to $0.31 per share.
Investor Warrants
Series A Warrants
The Series A Warrants have an exercise price of $1.16 per share, were exercisable upon issuance and will expire on the day following the later to occur of (i) June 2, 2025, and (ii) the date on which the Series A Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. As of March 31, 2022, the Series A Warrants are exercisable for 16,701,824 shares of common stock in the aggregate.
Pursuant to the Series A Warrants, the Company has agreed not to enter into, allow or be party to certain fundamental transactions, generally including any merger with or into another entity, sale of all or substantially all of the Company’s assets, tender offer or exchange offer, or reclassification of the common stock (a “Fundamental Transaction”) until May 1, 2021. Thereafter, upon any exercise of a Series A Warrant, the holder shall have the right to receive, for each share of common stock that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any limitation on the exercise of the Series A Warrant), the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of common stock for which the Series A Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of the Series A Warrant). For purposes of any such exercise, the determination of the exercise price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of common stock in such Fundamental Transaction, and the Company shall apportion the exercise price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of the Series A Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under the Series A Warrants, upon which the Series A Warrants shall become exercisable for shares of common stock, shares of the common stock of the Successor Entity or the consideration that would have been issuable to the holders had they exercised the Series A Warrants prior to such Fundamental Transaction, at the holders’ election. Additionally, at the request of a holder delivered before the 90th day after the consummation of a Fundamental Transaction, the Company must purchase such holder’s warrant for the value calculated using the Black-Scholes option pricing model as of the day immediately following the public announcement of the applicable Fundamental
8
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated.
If the Company fails to issue to a holder of Series A Warrants the number of shares of common stock to which such holder is entitled upon such holder’s exercise of the Series A Warrants, then the Company shall be obligated to pay the holder on each day while such failure is continuing an amount equal to 1.5% of the market value of the undelivered shares determined using a trading price of common stock selected by the holder while the failure is continuing and if the holder purchases shares of common stock in connection with such failure (“Series A Buy-In Shares”), then the Company must, at the holder’s discretion, reimburse the holder for the cost of such Series A Buy-In Shares or deliver the owed shares and reimburse the holder for the difference between the price such holder paid for the Series A Buy-In Shares and the market price of such shares, measured at any time of the holder’s choosing while the delivery failure was continuing.
Further, the Series A Warrants provide that, in the event that the Company does not have sufficient authorized shares to deliver in satisfaction of an exercise of a Series A Warrant, then unless the holder elects to void such attempted exercise, the holder may require the Company to pay an amount equal to the product of (i) the number of shares that the Company is unable to deliver and (ii) the highest volume-weighted average price of a share of common stock as quoted on the NYSE American during the period beginning on the date of such attempted exercise and ending on the date that the Company makes the applicable payment.
On November 19, 2020, the Company entered into waiver agreements with each of the holders of the Company’s Series A Warrants. Pursuant to the waiver agreements the holders agreed to waive certain provisions in the Warrants in order to allow for one immediate and final reset of the number of shares of common stock underlying the Warrants and the exercise price of the Series A Warrants, and permanently waive the provisions providing for future resets of the number of shares of common stock underlying the Warrants and the exercise price of the Series A Warrants (other than the anti-dilution protection provisions in the Series A Warrants providing for adjustments to the exercise price of the Series A Warrants upon a dilutive issuance). As a result, the exercise price of the Series A Warrants was set at $1.16 per share and the number of shares underlying all of the Series A Warrants was set at 20,178,214.
Series B Warrants
The Series B Warrants had an exercise price of $0.001 per share, were exercisable upon issuance and were exercised in full on March 4, 2021. The Series B Warrants were exercisable for 22,766,776 shares of common stock in the aggregate.
On November 19, 2020, the Company entered into waiver agreements with each of the holders of the Company’s Series B Warrants. Pursuant to the waiver agreements the holders agreed to waive certain provisions in the Warrants in order to allow for one immediate and final reset of the number of shares of common stock underlying the Series B Warrants. As a result, the number of shares underlying all of the Series B Warrants was set at 22,766,776 and the exercise price remains at $0.001 per share.
The number of shares underlying a holder’s Series B Warrants was calculated using the existing formula set forth in the Series B Warrants and was reached by dividing the initial purchase price paid by the holder under the Purchase Agreement by a “Reset Price”, equal to the arithmetic average of the five (5) lowest Weighted Average Prices (as defined in the Warrants) of the common stock during the applicable “Reset Period,” in this case being the nine Trading Day (as defined in the Warrants) period ending on the Effective Date (but not less than the Reset Floor Price), and subtracting from such quotient the number of shares of common stock issued (or that were issuable) under the Purchase Agreement to the holder.
Bridge Warrants
The Bridge Warrants were issued on May 22, 2020, to the Bridge Investors, had an exercise price of $2.2362 per share, were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Bridge Warrants
9
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
are exercisable for 413,751 shares of common stock in the aggregate. As a result of the November 2021 Offering (as defined below), the exercise price of the Bridge Warrants was adjusted to $0.31 per share.
The Bridge Warrants provide that if Timber issues or sells or in accordance with the terms of the Bridge Warrants, is deemed to have issued or sold any shares of common stock for a price per share lower than the exercise price then in effect subject to certain limited exceptions, then the exercise price of the Bridge Warrants shall be reduced to such lower price per share.
Upon the consummation of a Fundamental Transaction by the Company, upon any exercise of a Bridge Warrant, the holder shall have the right to receive, for each share of common stock that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any limitation on the exercise of the Bridge Warrant), the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of common stock for which the Bridge Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of the Bridge Warrant). For purposes of any such exercise, the determination of the exercise price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of common stock in such Fundamental Transaction, and the Company shall apportion the exercise price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of the Bridge Warrant following such Fundamental Transaction. The Company shall cause any Successor Entity to assume in writing all of the obligations of the Company under the Bridge Warrants, upon which the Bridge Warrants shall become exercisable for shares of common stock, shares of the common stock of the Successor Entity or the consideration that would have been issuable to the holders had they exercised the Bridge Warrants prior to such Fundamental Transaction, at the holders’ election.
Additionally, at the request of a holder of a Bridge Warrant delivered before the 90th day after the consummation of a Fundamental Transaction, Timber or the successor entity must purchase such holder’s warrant for the value calculated using the Black-Scholes option pricing model as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated.
The Bridge Warrants also contain a “cashless exercise” feature that allows the holders to exercise the Bridge Warrants without making a cash payment in the event that there is no effective registration statement registering the shares issuable upon exercise of the Bridge Warrants. The Bridge Warrants are subject to a blocker provision which restricts the exercise of the Bridge Warrants if, as a result of such exercise, the holder, together with its affiliates and any other person whose beneficial ownership of common stock would be aggregated with the holder’s for purposes of Section 13(d) of the Exchange Act would beneficially own in excess of 4.99% or 9.99% of the outstanding shares of common stock (including the shares of common stock issuable upon such exercise), as such percentage ownership is determined in accordance with the terms of the Bridge Warrants.
November 2021 Offering
On November 2, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC (“H.C. Wainwright”), as representative of the several underwriters named in Schedule I thereto, relating to the public offering, issuance and sale of 21,325,000 shares of common stock and, to certain investors, pre-funded warrants to purchase shares of common stock and accompanying warrants to purchase shares of common stock (the “November 2021 Offering”). After giving effect to the sale of additional shares pursuant to the exercise of the option by H.C. Wainwright that closed on November 9, 2021, the total number of shares of common stock (or common stock
10
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
equivalents) sold by the Company in the offering was 26,953,125, together with warrants to purchase up to 26,953,125 shares of common stock (the “November Warrants”) issued at the closing on November 5, 2021, for total gross proceeds of $17.25 million before deducting underwriting discounts and commissions and other offering expenses, and net proceeds of approximately $15.8 million. As a result of the offering, the exercise price of the Bridge Warrants was adjusted to $0.31 per share.
Each share of common stock and pre-funded warrant to purchase 1 share of common stock was sold together with a November Warrant to purchase 1 share of common stock. All of the securities sold in the offering were sold by the Company. The public offering price of each share of common stock and accompanying November Warrant was $0.64 and $0.639 for each pre-funded warrant and accompanying November Warrant. The pre-funded warrants were immediately exercisable at a price of $0.001 per share of common stock and were exercised in full on November 5, 2021. The November Warrants were immediately exercisable at a price of $0.70 per share of common stock and expire five years from the date of issuance. NaN November Warrants have been exercised as of March 31, 2022, or December 31, 2021, respectively.
Liquidity and Capital Resources
The Company has no product revenues, incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. The Company had an accumulated deficit of approximately $26.1$32.0 million at September 30, 2021,March 31, 2022, a net loss of approximately $7.8$3.1 million, and approximately $7.0$2.9 million of net cash used in operating activities for the ninethree months ended September 30, 2021.March 31, 2022. As of September 30, 2021March 31, 2022, the Company had cash of approximately $3.4$13.9 million.
Going Concern
The Company has evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and the Company's current plans, which are subject to change, management believes that the Company's existing cash and cash equivalents as of September 30, 2021March 31, 2022 were sufficient only to satisfy our operating cash needs throughinto the endfourth quarter of 2021.2022. The Company received net proceeds of approximately $15.6 million (see Note 10) from an underwritten public offering subsequent to September 30, 2021 andCompany’s current cash on hand is currently evaluating the impact of the receipt of such funds on the length of time we will be able to satisfy our operating cash needs, but still are potentially not sufficient to satisfy our operating cash needs for the twelve months from the filing of this Quarterly Report on Form 10-Q.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
The Company’s future liquidity and capital funding requirements will depend on numerous factors, including:
● | its ability to raise additional funds to finance its operations, including its ability to access financing that may be unavailable due to contractual limitations under the Securities Purchase Agreement; |
● | the |
● | the outcome, timing and cost of meeting regulatory requirements established by the |
11
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
● | the emergence and effect of competing or complementary |
● | its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights; |
10
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
● | the cost and timing of completion of commercial-scale manufacturing |
● | the cost of establishing sales, marketing and distribution capabilities for its products in regions where it chooses to commercialize its products on its own; |
● | the initiation, progress, timing and results of the commercialization of its product candidates, if approved for commercial sale, if approved for commercial sale; |
● | its ability to retain its current employees and the need and ability to hire additional management and scientific and medical |
● | the terms and timing of any collaborative, licensing or other arrangements that it has or may establish. |
The Company will need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other commercial transaction for one or more of the Company's product candidates. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of the Company's existing stockholders.
The impact of the worldwide spread of a novel strain of coronavirus (“COVID-19”) has been unprecedented and unpredictable. Site activation andClinical trial activities, including patient enrollment have beencan be impacted at any time. The Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 pandemic inand the TMB-002 study, especially at our contracted test sites in Eastern Europe. Currently,actions implemented to combat the Company can confirm that recruitment has been finalized onvirus throughout the TMB-002 Phase 2b trial with a totalworld and its assessment of 120 consented (108 randomized) patients.
the impact of COVID-19 may change.
Note 2. Significant accounting policies
Basis of presentationPresentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10- Q10-Q and Article 8 of Regulation S-X of the SEC. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.
The results for the unaudited condensed consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 20212022 or for any future interim period. The unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements.
1112
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Use of estimatesEstimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to the valuations of warrants, and equity-based awards and member units.awards. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
Research and Development
Research and development costs, including in-process research and development acquired as part of an asset acquisition for which there is no alternative future use, are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Accrued Outsourcing Costs
Substantial portions of the Company’s preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively “CROs”). These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources a substantial portion of its clinical trial activities, utilizing external entities such as CROs, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical studies. For each clinical trial that the Company conducts, certain clinical trial costs are expensed immediately, while others are expensed over time based on the number of patients in the trial, the attrition rate at which patients leave the trial, and/or the period over which clinical investigators or CROs are expected to provide services. The Company’s estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.
Fair Value Measurement
The Company follows the accounting guidance in ASC 820 for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
13
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
As of March 31, 2022 and December 31, 2021, the recorded values of prepaid expenses, accounts payable and accrued expenses, approximate the fair values due to the short-term nature of the instruments.
Leases
The Company accounts for its leases under the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.
In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
Revenue Recognition
The Company has not yet generated any revenue from product sales. The Company’s source of revenue in 2022 and 2021 has been from grants. When grant funds are received after costs have been incurred, the Company records grant revenue upon the receipt of cash.
Warrants
The Company estimates the fair value of certain common stock warrants using a Black-Scholes option pricing model, and the assumptions used in calculating the fair value of such warrants represented management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The fair value of common stock warrants has been recorded in equity as additional paid-in-capital.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options. The Company expenses stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant-date fair value of the awards and actual forfeitures. The Company accounts for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. All stock-
14
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role at the Company.
Series A Preferred Stock
The Series A Preferred Stock under redemption is subject to certain limitations under Delaware law. Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price of $18.054. Each share of Series A Preferred Stock is redeemable for cash at the option of the holders, in whole or in part.
On November 23, 2021, the Company received a request for redemption by TardiMed for the Series A Preferred Stock. The Company’s Series A Preferred Stock, was redeemable at December 31, 2021 subject to certain limitations under Delaware law, and was recorded at the redemption value of $2.1 million. Interest is accrued on the unredeemed balance at 8%. The Company has asserted that such right to redemption is currently limited under Delaware corporate law. As a result of the request, the Series A Preferred Stock has been reclassified as a liability, Redeemable Series A Preferred Stock under redemption. The Series A Preferred Stock will continue to accrue dividends but as a liability and dividends will be recorded prospectively as non-cash interest expense in the Consolidated Statement of Operations until such time as the Series A Preferred Stock is redeemed (See Note 5).
Loss Per Share
Basic net income (loss) per share (“EPS”) of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
To calculate the basic EPS numerator, income available to common stockholders must be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not declared) from income from continuing operations and also from net income. If there is a loss from continuing operations or a net loss, the amount of the loss shall be increased by those preferred dividends. The outstanding Series A Preferred Stock has cumulative dividends, whether or not declared. Accordingly, the Company reduced the numerator for basic EPS by deducting/(increasing) the amount of cumulative preferred dividend from net income/(loss) in each period presented.presented prior to the Company’s Series A Preferred Stock becoming redeemable.
The basic and diluted net loss amounts are the same for the three and nine months ended September 30,March 31, 2022 and 2021, and for the nine months ended September 30, 2020,respectively, as a result of the net loss and anti-dilutive impact of the potentially dilutive securities. For the three months ended September 30, 2020, the Company recorded net income and therefore, earnings per share was calculated using the treasury stock method. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options, value appreciation rights, and warrants. Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.
1215
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods presented below:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | ||||||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | ||||||
Basic and diluted loss per share: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net (loss) income | | $ | (3,005,404) | | $ | 2,836,495 | | $ | (7,845,867) | | $ | (15,927,714) | | $ | (3,073,394) | | $ | (1,874,260) |
Accrued dividend on preferred stock units | |
| — | |
| — | |
| — | |
| (52,669) | ||||||
Cumulative dividends on Series A preferred stock | |
| (36,685) | |
| (36,685) | |
| (108,858) | |
| (53,831) | |
| — | |
| (35,887) |
Net (loss) income attributable to common stockholders | | $ | (3,042,089) | | $ | 2,799,810 | | $ | (7,954,725) | | $ | (16,034,214) | | $ | (3,073,394) | | $ | (1,910,147) |
| | | | | | | | | | | | | | | | | | |
Basic weighted average number of shares outstanding | |
| 36,659,685 | |
| 18,891,206 | |
| 35,873,780 | |
| 12,160,048 | ||||||
Add: Series A convertible preferred stock | | | — | | | 100,775 | | | — | | | — | ||||||
Add: Value appreciation rights | | | — | | | 365,389 | | | — | | | — | ||||||
Diluted weighted average number of shares outstanding | |
| 36,659,685 | |
| 19,357,370 | |
| 35,873,780 | |
| 12,160,048 | ||||||
Basic and diluted weighted average number of shares outstanding | |
| 63,637,712 | |
| 35,079,143 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Basic net (loss) income per share attributable to common stockholders | | $ | (0.08) | | $ | 0.15 | | $ | (0.22) | | $ | (1.32) | ||||||
Diluted net (loss) income per share attributable to common stockholders | | $ | (0.08) | | $ | 0.14 | | $ | (0.22) | | $ | (1.32) | ||||||
| | | | | | | | | | | | | ||||||
Basic and Diluted net (loss) per share attributable to common stockholders | | $ | (0.05) | | $ | (0.05) |
Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share for the ninethree months ended September 30,March 31, 2022 and 2021, and 2020,respectively, because their inclusion would be anti-dilutive are as follows (unaudited):
| | | | | | | | |
| | September 30, | | March 31, | ||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 |
Series A warrants |
| 16,701,824 |
| 8,384,764 |
| 16,701,824 |
| 16,701,824 |
Bridge warrants |
| 413,751 |
| 413,751 |
| 413,751 |
| 413,751 |
Value appreciation rights |
| 367,670 |
| 333,044 |
| 227,277 |
| 367,671 |
Options to purchase common stock |
| 2,657,640 |
| 232,996 |
| 2,657,640 |
| 184,456 |
Series A preferred stock |
| 100,753 |
| 100,753 | ||||
Series A preferred stock (if converted) |
| 116,849 |
| 100,753 | ||||
Legacy stock options |
| 15,781 |
| 97,870 |
| 15,781 |
| 15,781 |
Legacy warrants |
| 213,992 |
| 220,030 |
| 211,770 |
| 219,928 |
Warrants issued in the November 2021 Financing | | 26,953,125 | | — | ||||
|
| 20,471,411 |
| 9,783,208 |
| 47,298,017 |
| 18,004,164 |
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more-likely than not that some or all of the deferred tax assets will not be realized.
The Company also follows the provisions of accounting for uncertainty in income taxes which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition. In accordance with this guidance, tax positions must meet a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of tax position.
The Company’s policy is to account for income tax related interest and penalties in income tax expense in the accompanying consolidated statements of operations.
Recent accounting pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 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,
16
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company is currently evaluatingadopted ASU 2020-06 as of January 1, 2022 and adoption did not have a material the impact this ASU will have on its condensed consolidatedCompany’s financial statements andor related disclosures.
13
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The adoption ofCompany adopted ASU 2021-04 isas of January 1, 2022 and adoption did not expected to have a material impact on the Company’s financial statements or disclosures.
Note 3. Acquisition of BioPharmX
As described in Note 1, on May 18, 2020, the Company completed its acquisition of BioPharmX in accordance with the terms of the Merger Agreement. The acquisition was accounted for as an asset acquisition/reverse merger.
Pursuant to the Merger Agreement, following the Merger, the Timber Sub members, including the investors funding the $20 million investment and the bridge investors, owned approximately 88.5% of the outstanding common stock of BioPharmX, and the BioPharmX stockholders own approximately 11.5% of the outstanding common stock as of the date of the merger. The cost of the BioPharmX acquisition, which represents the consideration transferred to BioPharmX stockholders in the BioPharmX acquisition, of $12.4 million consists of the following:
| | | |
Number of shares of the combined company owned by BioPharmX stockholders | | | 1,367,326 |
Multiplied by the fair value per share of BioPharmX common stock | | $ | 6.12 |
Total estimated fair value of common stock | |
| 8,368,033 |
Add: net liabilities acquired | |
| (2,833,453) |
Add: investment in BioPharmX | |
| (1,169,846) |
Total consideration - recorded as research and development acquired | | $ | 12,371,332 |
The total cost of the BioPharmX acquisition was allocated to the net liabilities acquired as follows:
| | | |
Cash and cash equivalents |
| $ | 340,786 |
Other current assets | |
| 2,027 |
Deposits | |
| 114,534 |
ROU asset | |
| 904,370 |
Accounts payable | |
| (610,882) |
Credit cards | |
| 760 |
Accrued expenses | |
| (148,999) |
Note - short term | |
| (2,456,614) |
Operating lease liability - short term | |
| (259,712) |
Other long term liabilities | |
| (73,682) |
Operating lease liability - long term | |
| (646,041) |
Net liabilities acquired | | $ | (2,833,453) |
14
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4.3. Purchases of Assets
Acquisition of Intellectual Property Rights from Patagonia Pharmaceuticals LLC (“Patagonia”)
On February 28, 2019, the Company acquired the intellectual property rights to a topical formulation of isotretinoin for the treatment of congenital ichthyosis and identified as TMB-001, formerly PAT-001, from Patagonia (the “TMB-001 Acquisition”).
Upon closing of the TMB-001 Acquisition, the Company paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-001, with the first being $4.0 million for the initiation of a Phase 3 pivotal trial, as agreed with the FDA.FDA and defined as the first patient enrolled in such trial for the product. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits. The Company is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable at March 31, 2022, and 0 milestone payments have been accrued at September 30, 2021March 31, 2022 and December 31, 2020.2021. Management anticipates that the first $4.0 million milestone payment will likely become payable during the second quarter of 2022 now that the FDA’s 30-day review period following the submission of the Phase 3 protocol elapsed on May 9, 2022, without comment.
On June 26, 2019 the Company acquired the intellectual property rights to a locally administered formulation of Sitaxsentan for the treatment of cutaneous fibrosis and/or pigmentation disorders, and identified as TMB-003, formerly PAT-S03, from Patagonia (the “TMB-003 Acquisition”).
Upon closing of the TMB-003 Acquisition, the Company paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of $250,000 upon the opening of an IND with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits. The Company
17
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and 0 milestone payments have been accrued at September 30, 2021March 31, 2022 and December 31, 2020.2021, respectively.
On January 12, 2021, the Company announced that the U.S. Food and Drug AdministrationFDA has granted orphan drug designation to TMB-003.
Acquisition of License from AFT Pharmaceuticals Limited (“AFT”)
On July 5, 2019, the Company and AFT entered into a license agreement which provides the Company with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize the Pascomer product in the United States, Canada and Mexico and (2) a co-exclusive license to develop the Pascomer product in this territory. Concurrently, the Company granted to AFT an exclusive license to commercialize the Pascomer product outside of the Company’s territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of the Company’s territory (the “AFT License Agreement”).
The development of the Pascomer product is being conducted pursuant to a written development plan, written by AFT and approved by the joint steering committee, which is reviewed on at least an annual basis. AFT shall perform clinical trials of the Pascomer product in the specified territory and shall perform all CMC (chemistry, manufacturing and controls) and related activities to support regulatory approval. The Company is responsible for all expenses incurred by AFT during the term of the AFT License Agreement and shall equally share all costs and expenses with AFT, incurred by AFT for development and marketing work performed in furtherance of regulatory approval and commercialization worldwide, outside of the specified territory. The Company is entitled to receive a significant percentage50% of the economics (royalties and milestones) in any licensing transaction that AFT executes outside of North America, Australia, New Zealand, and Southeast Asia. In March 2021 the Company announced that its development partner, AFT Pharmaceuticals Limited has signed an exclusive license and supply agreement with Desitin Arzneimittel GmbH (“Desitin”) for Pascomer® (TMB-002 topical rapamycin)Pascomer for the treatment of facial angiofibromas (FA) associated with Tuberous Sclerosis Complextuberous sclerosis complex (TSC) in
15
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Europe. The Company received €250,000 related to an upfront milestone payment paid to AFT by Desitin during the quarter ended September 30, 2021 and has recorded approximately $0.3 million in these financial statements.
Pursuant to the AFT License Agreement, the Company was obligated to reimburse AFT for previously spent development costs, subject to certain limitations, and to pay a one-time, irrevocable, and non-creditable upfront payment to AFT, payable in scheduled installments. The Company paid $0.25 million in October 2019 and the remaining $0.75 millioninstallments which was paid during the year ended December 31,in 2020.
AFT is entitled to up to $25.5 million of cash milestone payments relating toif TMB-002 achieves certain regulatory and commercial achievementsmilestones, with the first payment of $1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the AFT License.trial’s primary clinical endpoints. In addition, AFT is entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones are not yet considered probable, and 0 milestone payments have been accrued at September 30, 2021March 31, 2022 and December 31, 2020.2021, respectively.
Note 5.4. Accrued Expenses
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company’s accrued expenses consisted of the following:
| | | | | | | | | | | | |
|
| September 30, |
| December 31, |
| March 31, |
| December 31, | ||||
| | 2021 | | 2020 | | 2022 | | 2021 | ||||
Research and development | | $ | 40,045 | | $ | 158,911 | | $ | 135,640 | | $ | 77,118 |
Professional fees | |
| 157,109 | |
| 142,599 | |
| 293,969 | |
| 210,343 |
Personnel expenses | |
| 462,711 | |
| 438,722 | |
| 184,489 | |
| 502,180 |
Other | |
| — | |
| 28,429 | |
| 19,198 | |
| 60,916 |
Total | | $ | 659,865 | | $ | 768,661 | | $ | 633,296 | | $ | 850,557 |
Note 6. Temporary Equity, and Members’ and Stockholder’s Equity (Deficit)
The Company entered into a Merger Agreement with BioPharmX and effective May 18, 2020, the Company converted its common and preferred units into shares of common and preferred stock.
Common Stock
On May 18, 2020, pursuant to the Merger Agreement (see Note 1), 1,367,326 shares of common stock were issued for the acquisition of BioPharmX, with a fair value of approximately $8.4 million or $6.12 per share.
On May 18, 2020, pursuant to the Merger Agreement, 4,185,981 shares of common stock were issued to the investors in the $20 million private placement financing (see Note 1), with aggregate net proceeds received totaling $17.5 million) and to settle the $5 million Bridge Notes.
1618
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5. Stockholder’s Equity
The Company entered into a Merger Agreement with BioPharmX and effective May 18, 2020, the Company converted its common and preferred units into shares of common and preferred stock (see Note 1).
Series B Warrants
During the ninethree months ended September 30,March 31, 2021, the remaining Series B Warrants outstanding totaling 7,474,033 were exercised on a cashless basis, and the Company issued 7,467,652 shares of its common stock.
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Shares | | Weighted | | Aggregate | | Shares | | Weighted | | Aggregate | ||||
| | Underlying | | Average | | Intrinsic | | Underlying | | Average | | Intrinsic | ||||
|
| Options |
| Exercise Price |
| Value |
| Warrants |
| Exercise Price |
| Value | ||||
Outstanding as of December 31, 2020 |
| 7,474,033 | | $ | 0.001 |
| $ | 7,474 | ||||||||
Outstanding as of January 1, 2020 |
| 7,474,033 | | $ | 0.001 |
| $ | 7,474 | ||||||||
Exercised |
| (7,474,033) | | $ | 0.001 |
|
| — |
| (7,474,033) | | $ | 0.001 |
|
| — |
Outstanding and exercisable as of September 30, 2021 |
| — | | $ | — |
| $ | — | ||||||||
Outstanding and exercisable as of March 31, 2021 |
| — | | $ | — |
| $ | — |
Series A Warrants
During the ninethree months ended September 30,March 31, 2021, 3,476,390 Series A Warrants were exercised on a cashless basis, and the Company issued 2,059,613 shares of its common stock. The following is a summary of Series A Warrants outstanding as of September 30, 2021:March 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted | | | | | | | | | | Weighted | | | |
| | | | | | | Average | | | | | | | | | | Average | | | |
| | Shares | | Weighted | | Remaining | | Aggregate | | Shares | | Weighted | | Remaining | | Aggregate | ||||
| | Underlying | | Average | | Contractual | | Intrinsic | | Underlying | | Average | | Contractual | | Intrinsic | ||||
|
| Options |
| Exercise Price |
| Term (Years) |
| Value |
| Warrants |
| Exercise Price |
| Term (Years) |
| Value | ||||
Outstanding as of December 31, 2020 |
| 20,178,214 | | $ | 1.16 |
| 4.4 | | $ | — | ||||||||||
Exercised |
| (3,476,390) | | $ | 1.16 |
| — | |
| — | ||||||||||
Outstanding and exercisable as of September 30, 2021 |
| 16,701,824 | | $ | 1.16 |
| 3.7 | | $ | — | ||||||||||
Outstanding as of December 31, 2021 |
| 20,178,214 | | $ | 1.16 |
| 3.4 | |
| — | ||||||||||
Outstanding and exercisable as of March 31, 2022 |
| 20,178,214 | | $ | 1.16 |
| 3.2 | | $ | — |
Bridge Warrants
The following table summarizes the Company'sCompany’s Bridge Warrants for the ninethree months ended September 30, 2021:March 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted | | | | | | | | | | Weighted | | | |
| | | | | | | Average | | | | | | | | | | Average | | | |
| | Shares | | Weighted | | Remaining | | Aggregate | | Shares | | Weighted | | Remaining | | Aggregate | ||||
| | Underlying | | Average | | Contractual | | Intrinsic | | Underlying | | Average | | Contractual | | Intrinsic | ||||
|
| Options |
| Exercise Price |
| Term (Years) |
| Value |
| Warrants |
| Exercise Price |
| Term (Years) |
| Value | ||||
Outstanding as of December 31, 2020 |
| 413,751 | | $ | 2.24 |
| 4.4 | | $ | — | ||||||||||
Outstanding and exercisable as of September 30, 2021 |
| 413,751 | | $ | 2.24 |
| 3.6 | | $ | — | ||||||||||
Outstanding as of December 31, 2021 |
| 413,751 | | $ | 0.31 |
| 3.4 | | $ | — | ||||||||||
Outstanding and exercisable as of March 31, 2022 |
| 413,751 | | $ | 0.31 |
| 3.1 | | $ | — |
November 2021 Warrants
NaN warrants have been exercised as of March 31, 2022, or December 31, 2021 (See Note 1).
The following table summarizes the Company’s November Warrants for the three months ended March 31, 2022:
19
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | | | | Average | | | |
| | Shares | | Weighted | | Remaining | | Aggregate | ||
| | Underlying | | Average | | Contractual | | Intrinsic | ||
|
| Warrants |
| Exercise Price |
| Term (Years) |
| Value | ||
Outstanding as of December 31, 2021 |
| 26,953,125 | | $ | 0.70 |
| 4.8 | | $ | — |
Outstanding and exercisable as of March 31, 2022 |
| 26,953,125 | | $ | 0.70 |
| 4.6 | | $ | — |
Redeemable Series A Convertible Preferred Stock
In connection with the Merger, on May 18, 2020, the Company filed a Certificate of Designation of Preferences, Rights and Limitations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware designatingthat became effective immediately.
Pursuant to the Certificate of Designations, the Company designated 2,500 shares of the Company’s previously undesignated preferred stock as Series A Preferred (the “Series A Preferred Stock”), and issued to the holder of 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger, 1,819 shares of the newly created Series A Preferred Stock. The shares of Series A Preferred Stock have no voting rights. The holders of the Series A Preferred Stock are entitled to cumulative dividends from andan after the date of issuance at a per annum of 8 percent (8.00%) of the stated value. Dividends will be payable as and if declared by the Board of Directors of the Company (the “Board”) out of amounts legally available therefore or upon a liquidation or redemption. Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock
17
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(subject (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price, ofor $18.054. Holders of the Series A Preferred Stock are entitled to a liquidation preference in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company. In addition, upon a Change of Control, the Series A Preferred Stock isshall be redeemable for cash at the option of the holders, in whole or in part.
As a Change of Control has occurred,May 18, 2020, pursuant to the Merger Agreement, the holder of 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger, received 1,819 shares of newly created convertible Series A Preferred Stock. The Company’s Series A Preferred Stock, is currentlyas to which the holder has demanded redemption, was redeemable at September 30,December 31, 2021, at the option of the holder and has been recorded at the redemption value of $2.0million. Redemption is subject to certain limitations under Delaware law, so that the Company’s ability to payand was recorded at the redemption price to such holdervalue of approximately $2.1 million at March 31, 2022 and December 31, 2021, respectively. Interest is limited. The following table summarizesaccrued on the Company’sunredeemed balance at 8% annually.
On November 23, 2021, the Company received a request for redemption by TardiMed for the Series A preferred stock forPreferred Stock. The Company has asserted that such right to redemption is currently limited under Delaware corporate law. As a result of the ninerequest, the convertible Series A Preferred Stock was reclassified as a liability, Redeemable Series A Preferred Stock under redemption. The Series A Preferred Stock will continue to accrue dividends but as a liability, the dividends will be recorded prospectively as non-cash interest expense in the Condensed Consolidated Statement of Operations until such time as the Series A Preferred Stock is redeemed. The Company recognized non-cash interest expense of $52,452 during the three months ended September 30, 2021:March 31, 2022 and dividends of $35,887 during the three months ended March 31, 2021. As result of the reclassification interest is now recorded in the Consolidated Statement of Operations rather than additional-paid-in-capital.
| | | | | |
| | Series A Preferred Stock | |||
|
| Shares |
| Amount | |
Total temporary equity as of December 31, 2020 |
| 1,819 |
| $ | 1,909,805 |
Cumulative dividends on Series A Preferred Stock | | — | | | 108,858 |
Total temporary equity as of September 30, 2021 |
| 1,819 | | $ | 2,018,663 |
20
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7.6. Equity-based compensation
On May 18, 2020, the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) became effective, and the 2020 Plan reserved a total of 970,833 shares of common stock for issuance. The 2020 Plan provides for options to purchase shares of common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, incentive bonus awards, other stock-based awards and other cash-based awards. Options granted generally vest over a period of three years and have a maximum term of ten years from the date of grant. On April 20, 2021, the Board of Directors of the Company approved an amendment increasing the number of shares available for issuance under the 2020 Plan from 2,056,130 to 4,668,319, which was approved by the Company'sCompany’s stockholders on July 1, 2021. In accordance with the “evergreen” provision in the 2020 Plan, an additional 2,544,765 shares of common stock were automatically made available for issuance on the first day of 2022, which represents 4% of the number of shares of common stock outstanding on December 31, 2021. As of September 30, 2021, 4,668,319March 31, 2022, 7,213,084 shares of common stock were reserved for issuance under the 2020 Plan.Plan and there are 4,642,817 shares available for issuance at March 31. 2022.
Furthermore, as a result of the Merger, the Company assumed the TardiMed 2019 Equity Incentive Plan (the “2019 Plan”) from Timber Sub. The 2019 Plan permits the granting of incentive units (the “Incentive Units”). The maximum aggregate Incentive Units that may be subject to awards and issued under the Plan is 699,454. At September 30, 2021 and DecemberMarch 31, 2020,2022, Incentive Units outstanding under the 2019 Plan were 367,670227,275 units for each periodand 359,486 units as of December 31, 2021, all comprised of VARs.
During the three and nine months ended September 30,March 31, 2022 and 2021, and 2020respectively, equity-based compensation expenses were as follows (unaudited):follows:
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | ||||||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | |
| 2022 |
| 2021 | ||||||
General and administrative value appreciation right awards | | $ | 8,621 | | $ | 14,165 | | $ | 34,089 | | $ | 59,273 | | | $ | (10,754) | | $ | 13,221 |
Research and development value appreciation right awards | | | 555 | | | 2,266 | | | 1,647 | | | (953) | | | | — | | | 543 |
General and administrative stock options | | | 21,650 | | | — | | | 21,650 | | | — | | | | 335,779 | | | 44,751 |
Research and development stock options | | | 156,910 | | | 79,094 | | | 238,298 | | | 98,867 | | | | 43,257 | | | — |
| | $ | 187,736 | | $ | 95,525 | | $ | 295,684 | | $ | 157,187 | | | $ | 368,282 | | $ | 58,515 |
Value Appreciation Rights
In 2019 the Company granted equity-based awards similar to stock options under the 2019 Plan as VARs. The VARs have an exercise price, a vesting period and an expiration date, in addition to other terms similar to typical equity option grant terms.
1821
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Value Appreciation Rights
In 2019 the Company granted equity-based awards similar to stock options under the 2019 Plan as VARs. The VARs have an exercise price, a vesting period and an expiration date, in addition to other terms similar to typical equity option grant terms.
During the three and nine months ended September 30, 2021March 31, 2022 there were 0 grants of VARs, 52,884 VARs were forfeited, and 79,326 VARs were exercised. There were 0 grants, forfeituresor forfeitures of VARs.VARs exercised during the three months ended March 31, 2021. The following is a summary of VARs outstanding as of September 30, 2021:March 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
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| | |
| | |
| Weighted |
| |
| | |
| | |
| Weighted |
| | | | | | | | | | Average | | | | | | | | | | Average |
| | | | Weighted | | | | | Remaining | | | | Weighted | | | | | Remaining | ||
| | | | Average | | Total Intrinsic | | Contractual Life | | | | Average | | Total Intrinsic | | Contractual Life | ||||
| | Number of Units | | Exercise Price | | Value | | (in years) | | Number of Units | | Exercise Price | | Value | | (in years) | ||||
Outstanding as of December 31, 2020 |
| 367,670 | | $ | 0.01 | | $ | 269,502 |
| 8.4 | ||||||||||
Outstanding as of September 30, 2021 |
| 367,670 | | $ | 0.01 | | $ | 330,903 | | 7.6 | ||||||||||
Outstanding as of December 31, 2021 |
| 359,487 | | $ | 0.01 | | $ | 136,038 | | 7.6 | ||||||||||
Exercised | | (79,326) | | $ | 0.01 | | | | | - | ||||||||||
Forfeited | | (52,884) | | $ | 0.01 | | | | | - | ||||||||||
Outstanding as of March 31, 2022 | | 227,277 | | $ | 0.01 | | $ | 85,228 | | 7.3 | ||||||||||
| | | | | | | | | | | | | | | | | | | | |
Value appreciation right awards vested and exercisable at September 30, 2021 | | 156,134 | | $ | 0.01 | | $ | 140,520 | | 7.6 | ||||||||||
Value appreciation right awards vested and exercisable at March 31, 2022 | | 101,991 | | $ | 0.01 | | $ | 38,246 | | 7.3 |
As of September 30, 2021,March 31, 2022, the unrecognized compensation costs were approximately $0.1$0.03 million, which will be recognized over an estimated weighted-average amortization period of 0.70.3 years.
Stock Options
The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option-pricing model. The Company was historically a private company and lacked company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Additionally, due to an insufficient history with respect to stock option activity and post-vesting cancellations, the expected term assumption for employee grants is based on a permitted simplified method, which is based on the vesting period and contractual term for each tranche of awards. The mid-point between the weighted-average vesting term and the expiration date is used as the expected term under this method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The Company granted 2,473,184 options to purchase common stock during the three and nine months ended September 30, 2021. The Company did not0t grant stock options during the threethree-month periods ended March 31, 2022 and nine months ended September 30, 2020. The following was used in determining the fair value of stock options granted during the three and nine months ended September 30, 2021.2021, respectively.
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The following is a summary of the options outstanding as of March 31, 2022:
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | | | | Average | | | |
| | Shares | | Weighted | | Remaining | | Aggregate | ||
| | Underlying | | Average | | Contractual | | Intrinsic | ||
|
| Options |
| Exercise Price |
| Term (Years) |
| Value | ||
Outstanding at December 31, 2021 | | 2,696,473 | | $ | 1.09 | | 9.6 | | | — |
Forfeited | | (38,833) | | | 2.87 | | - | | | |
Outstanding at March 31, 2022 |
| 2,657,640 | | $ | 1.06 |
| 9.3 | | $ | — |
| | | | | | | | | | |
Exercisable at March 31, 2022 | | 408,675 | | $ | 1.31 | | 9.2 | | $ | — |
1922
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the three and nine months ended September 30, 2021 the Company granted 2,473,184 options to purchase common stock to its executive officers, non-employee directors and employees. The options vest over a period of 2-4 years. The following is a summary of the options outstanding as of September 30, 2021:
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | | | | Average | | | |
| | Shares | | Weighted | | Remaining | | Aggregate | ||
| | Underlying | | Average | | Contractual | | Intrinsic | ||
|
| Options |
| Exercise Price |
| Term (Years) |
| Value | ||
Outstanding as of December 31, 2020 |
| 184,456 | | $ | 2.87 |
| 9.4 | | $ | — |
Granted | | 2,473,184 | | | 0.96 | | 9.9 | | $ | 25,925 |
Outstanding as of September 30, 2021 |
| 2,657,640 | | $ | 1.10 |
| 9.8 | | $ | 25,925 |
| | | | | | | | | | |
Exercisable at September 30, 2021 |
| 88,685 | | $ | 2.49 |
| 8.9 | | $ | — |
In accordance with the "evergreen" provision in the 2020 Plan, an additional 1,085,297 shares of common stock were automatically made available for issuance on the first day of 2021, which represents 4% of the number of shares of common stock outstanding on December 31, 2020.
As of September 30, 2021,March 31, 2022, the unrecognized compensation costs related to stock options were approximately $1.4$0.7 million, which will be recognized over an estimated weighted-average amortization period of 0.61.06 years.
As part of the Merger, the Company assumed the following legacy stock options and warrants:
| | | | | | | | | | | | | | | | | | | | |
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| | |
| Weighted |
| | |
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| | |
| Weighted |
| | |
| | Shares | | | | | Average | | | | | Shares | | | | | Average | | | |
| | Underlying | | Weighted | | Remaining | | Aggregate | | Underlying | | Weighted | | Remaining | | Aggregate | ||||
| | Options and | | Average | | Contractual | | Intrinsic | | Options and | | Average | | Contractual | | Intrinsic | ||||
| | Warrants | | Exercise Price | | Term (Years) | | Value | | Warrants | | Exercise Price | | Term (Years) | | Value | ||||
Legacy BioPharmX options - December 31, 2020 |
| 15,781 | | $ | 75.27 |
| 2.3 | | $ | — | ||||||||||
Legacy BioPharmX options - September 30, 2021 |
| 15,781 | | $ | 75.27 |
| 1.6 | | $ | — | ||||||||||
Legacy BioPharmX options - March 31, 2022 |
| 15,781 | | $ | 75.27 |
| 1.1 | | $ | — | ||||||||||
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Legacy BioPharmX warrants - December 31, 2020 |
| 219,928 | | $ | 164.09 |
| 2.5 | | $ | — | ||||||||||
Legacy BioPharmX warrants - December 31, 2021 |
| 219,928 | | $ | 87.21 |
| 1.8 | | $ | — | ||||||||||
Expired |
| (5,936) | | $ | 358.78 |
| — | | | — |
| (2,222) | | $ | 225.00 |
| — | | | — |
Legacy BioPharmX warrants - September 30, 2021 |
| 213,992 | | $ | 87.21 |
| 2.0 | | $ | — | ||||||||||
Legacy BioPharmX warrants - March 31, 2022 |
| 217,706 | | $ | 85.77 |
| 1.5 | | $ | — | ||||||||||
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Note 8.7. Commitments and contingencies
Leases
On March 10, 2021, the Company entered into a lease agreement with SIG 110 LLC with respect to a 3,127 square foot office space at 110 Allen Road, Suite 401, Basking Ridge, New Jersey. Pursuant to the terms of the lease agreement, the initial term is for twenty-four (24) months expiring on March 10, 2023. The initial base rent is $4,690.50 per month for the first twelve (12) months and $6,514.58 for the remaining twelve (12) months. During the ninethree months ended September 30,March 31, 2021, in connection with the lease, the Company paid a security deposit of $13,000, which is included in deposits on the accompanying condensed consolidated balance sheet as of September 30, 2021.March 31, 2022.
In connection with the Merger of BioPharmX, the Company acquired a lease and corresponding sublease for the BioPharmX facility in San Jose, California. The sublease is to be used for general office and research laboratory purposes, has an effective date of February 1, 2020, and has a lease term of 4 years which expires on December 30, 2023. The lease expense is significantly reduced by the payments received in connection with the sublease.
The components of lease expense were as follows:
| | | | | | | |
| | Three months ended | | Three Months Ended | | ||
| | | March 31, 2022 | | | March 31, 2021 | |
Operating leases: | | |
|
| | | |
Operating lease cost | | $ | 99,142 | | $ | 86,130 | |
Variable lease cost | |
| 18,425 | |
| 25,392 | |
Operating lease expense | | $ | 117,567 | | $ | 111,522 | |
Lease income - sub lease | |
| (106,761) | |
| (103,307) | |
Net rent expense | | $ | 10,806 | | $ | 8,215 | |
2023
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
has an effective date of February 1, 2020, and has a lease term of 4 years which expires on December 30, 2023. The lease expense is significantly reduced by the payments received in connection with the sublease.
The components of lease expense were as follows:
| | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||
| | September 30, 2021 | | ||||
Operating leases: | | |
|
| | | |
Operating lease cost | | $ | 99,142 | | $ | 284,415 | |
Variable lease cost | |
| 24,948 | |
| 77,099 | |
Operating lease expense | | $ | 124,090 | | $ | 361,514 | |
Lease income - sub lease | |
| (106,435) | |
| (317,998) | |
Net rent expense | | $ | 17,655 | | $ | 43,516 | |
Other information:
| | | | | | | | | | | | | | | | |
|
| Three Months Ended | | | | Nine Months Ended |
| Three Months Ended | | | | Three Months Ended | ||||
| | September 30, 2021 | | | March 31, 2022 | | | | March 31, 2021 | | ||||||
Operating cash flows - operating leases | | $ | 94,736 | | | $ | 273,313 | | | $ | 98,448 | | | $ | 83,842 | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | — | | | $ | 122,809 | | | $ | — | | | $ | 122,809 | |
Weighted-average remaining lease term – operating leases | |
| 2.1 | | |
| 2.1 | | |
| 1.6 | | |
| 2.6 | |
Weighted-average discount rate – operating leases | |
| 14.1 | % | |
| 14.1 | % | |
| 14.2 | % | |
| 14.0 | % |
As of September 30, 2021,March 31, 2022, future minimum payments for the leaseleases are as follows:
| | | | | | |
|
| Operating |
| Operating | ||
| | Leases | | Leases | ||
Remaining Months in Year Ended December 31, 2021 | | $ | 94,735 | |||
Year Ended December 31, 2022 | | | 406,506 | | $ | 308,058 |
Year Ended December 31, 2023 | |
| 357,599 | | | 357,599 |
Total | | $ | 858,840 | | $ | 665,657 |
Less present value discount | |
| (125,160) | |
| (77,570) |
Operating lease liabilities | | $ | 733,680 | | $ | 588,087 |
Litigation
From time to time, theThe Company is involved in routine litigation that arises in the ordinary course of business. The companynot currently a party to any legal or governmental regulatory proceedings, nor is notmanagement aware of any pending significantor threatened legal or government regulatory proceedings proposed to whichbe initiated against the Company is a party, for which management believes the ultimate outcomethat would have a material adverse effect on the Company’s business, financial position.condition or operating results.
From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assess its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict; therefore, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.
Note 9.8. Related party transactionsParty Transactions
Patagonia
Patagonia is a private, family-owned company founded in 2013 to address the medical needs of people with rare and serious dermatological conditions. On February 28, 2019 and June 26, 2019, the Company acquired the TMB-001 and TMB-003 licenses from Patagonia (see Note 43 for the payment terms and more details), respectively. The former Chief Operating Officer, Executive Vice-President and Secretary of the Company who currently serves on the Company’s Board of Directors is also the President of Patagonia. As of March 31, 2022, and December 31, 2021, Patagonia owns 45 shares of the Company's common stock.
On March 4, 2022, Zachary Rome stepped down from his positions as the Chief Operating Officer and Executive Vice-President of the Company. As a result of his resignation, Mr. Rome (i) was entitled to 79,326 shares of common stock underlying vested VARs, or $22,528, at the Company’s election, and (ii) forfeited 52,884 VARs. Mr. Rome continues to
2124
Timber Pharmaceuticals, Inc. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Officer, Executive Vice-President and Secretaryserve on the Company’s Board of Directors. On March 4, 2022, Mr. Rome received 59,696 shares of common stock net upon exercise of the Company is also the President of Patagonia. On February 27, 2019, the Company issued 1,000 founder common units to Patagonia for $10. As of December 31, 2019, Patagonia held 1,000 common units which represented 10% of the total voting units outstanding. During the year ended December 31, 2020, the 1,000 common units were converted to 629,572 shares of the Company's common stock in connection with its merger with BioPharmX (See Note 3). As of September 30, 2021 and December 31, 2020, Patagonia owns 45 shares of the Company's common stock.VARs after tax withholding.
TardiMed
The former Chairman of the Board of the Company is a Managing Member of TardiMed. The former Chief Operating Officer, Executive Vice President and Secretary andwho currently serves on the Company’s Board of Directors is a partner at TardiMed. Our Chief Financial Officer, Treasurer and Executive Vice President of the Company are partnerswas also a former partner of TardiMed. As of September 30, 2021,March 31, 2022, TardiMed holds 3,109,067 shares of common stock, which represents 8.4%approximately 4.9% of the total voting shares outstanding. During the year ended December 31, 2020, TardiMed contributed an additional $0.1 million in exchange for 142,392 preferred units. In connection with the Merger Agreement, these preferred units and dividends have converted into 1,819 shares of Series A preferred stock. The Company had no reimbursements to TardiMed in the three-month period ended March 31, 2022, and reimbursed TardiMed $80,066 and $364,274$37,201 for management fees and reimbursed expenses for the nine monthin three-month period ended September 30, 2021 and 2020, respectively.March 31, 2021. As of March 31, 2022, TardiMed holds 1,819 shares of Series A Preferred Stock (see Note 5).
Note 10.9. Subsequent Events
The Company has evaluated its subsequent events from March 31, 2022, through the date these consolidated financial statements were issued and has determined that there are no subsequent events requiring disclosure in these consolidated financial statements other than the items noted below.
The Company disbursed approximately $2.225 million for the start of its Phase 3ASCEND study evaluating TMB-001 in CI in April 2022.
On November 2, 2021,April 4, 2022, Nobelpharma America LLC (“Nobelpharma”) announced that the U.S. Food and Drug Administration (FDA) has approved HYFTOR™ (sirolimus topical gel) 0.2% as the first topical treatment indicated for facial angiofibroma associated with tuberous sclerosis complex in adults and children six (6) years of age or older. Nobelpharma’s formulation has orphan drug status for this indication. As the Company’s product TMB-002, a topical rapamycin cream, is intended for treatment of the same indication, the Company announced it had entered into an underwriting agreementdoes not intend to proceed with H.C. Wainwright & Co., LLC, as representativea pivotal Phase 3 clinical trial of TMB-002 in facial angiofibromas at this time, but instead may evaluate potential strategic opportunities for the asset in markets outside of the several underwriters named in Schedule I thereto (the “Representative”), relating to the public offering, issuance and sale of 21,325,000 shares of its common stock and, to certain investors, pre-funded warrants to purchase 2,112,500 shares of common stock, and accompanying warrants to purchase up to an aggregate of 23,437,500 shares of its common stock. Each share of common stock and pre-funded warrant to purchase 1 share of common stock was sold together with a warrant to purchase 1 share of common stock. All of the securities sold in the offering were sold by the Company. The public offering price of each share of common stock and accompanying common warrant was $0.64 and $0.639 for each pre-funded warrant and accompanying common warrant. The pre-funded warrants were immediately exercisable at a price of $0.001 per share of common stock and were exercised in full on November 5, 2021. The warrants are immediately exercisable at a price of $0.70 per share of common stock and expire five years from the date of issuance.
H.C. Wainwright & Co., LLC also exercised its over-allotment option, pursuant to the underwriting agreement, to purchase an additional 3,515,625 shares of common stock and 3,515,625 warrants to purchase common stock at the public offering price per share and per warrant less the underwriters’ discounts and commissions. After giving effect to the sale of 3,515,625 additional shares pursuant to the exercise of the option that closed on November 9, 2021, the total number of shares of common stock (or common stock equivalents) sold by the Company in the offering increased to 26,953,125, together with warrants to purchase up to 26,953,125 shares of common stock issued at the closing on November 5, 2021, for total gross proceeds of $17.25 million before deducting underwriting discounts and commissions andU.S. and/or other offering expenses, and net proceeds of approximately $15.6 million. As a result of the offering, the exercise price of the Bridge Warrants was adjusted to $0.33 per share.indications.
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Item 2. Financial Information.
Management’s Discussion and Analysis of the Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly those under “Risk Factors.” Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
| our lack of operating history and history of operating losses; |
| our current and future capital requirements and our ability to satisfy our capital needs, including our ability to access financing that may be unavailable due to contractual limitations under the Securities Purchase Agreement (as defined below); |
| the dilutive effect of our outstanding convertible |
| our ability to successfully complete required clinical trials of our products and obtain approval from the U.S. Food and Drug Administration |
| the potential impact of outbreaks of communicable diseases, including the |
| the outcome, costs and timing of clinical trial results for |
| our ability to maintain or protect the validity of our patents and other intellectual property; |
| the volatility of the price of our common stock; |
| our ability to retain key executives; |
| our ability to internally develop new inventions and intellectual property; |
● | acceptance of our products in our industry; |
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| the accuracy of our estimates regarding expenses and capital requirements; and |
| our ability to adequately support growth. |
Trademarks
This Quarterly Report on Form 10-Q includes trademarks, service marks, and trade names owned by us or other companies. All trademarks, service marks, and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
ADDITIONAL NOTES
● | Timber Pharmaceuticals, Inc. and its consolidated subsidiaries are referred to herein as “Timber,” the “Company,” “we,” “us,” and “our,” unless the context indicates otherwise. |
● | Amounts and percentages throughout this Quarterly Report on Form 10-Q may reflect rounding adjustments and consequently totals may not appear to sum. |
Overview
Timber Pharmaceuticals, Inc. (“Timber”, the “Company”, “we”, “us”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of treatments for orphan dermatologic diseases. Our investigational therapies have proven mechanisms-of-action backed by decades of clinical experience and well-established CMC (chemistry, manufacturing and control) and safety profiles. We are initially focused on developing non-systemic treatments for rare dermatologic diseases including congenital ichthyosis (“CI”), facial angiofibromas (“FAs”) in tuberous sclerosis complex (“TSC”), and other sclerotic skin diseases. Our lead mid to late-stage programs are TMB-001 TMB-002 and TMB-003.TMB-002. TMB-003 is our earliest stage program.
TMB-001
TMB-001, a patented topical formulation of isotretinoin is currently being evaluated in ausing our patented IPEG™ delivery system, completed its Phase 2b clinical trial (the CONTROL study) in the fourth quarter of 2021, for the treatment of moderate to severe subtypes of congenital ichthyosis (“CI”),CI, a group of rare genetic keratinization disorders that lead to dry, thickened, and scaling skin. This study demonstrated a clinically meaningful reduction in targeted and overall severity of CI along with a favorable safety profile. A prior Phase 1/2 study involving 19 patients with CI demonstrated safety and a signal of preliminary efficacy of TMB-001, as well as minimal systemic absorption. In 2018, the FDA awarded us the first tranche of a $1.5 million grant in the amount of $500,000 to support clinical trials evaluating TMB-001 through its Orphan Products Grant program. In March 2020 and March 2021, the FDA awarded us the second and third tranches of the grant, respectively, each in the amount of $500,000.absorption
On July 1, 2020, we announced that all 11 sites across the United States and Australia in the Phase 2b CONTROL study evaluating TMB-001 in patients with moderate to severe CI were enrolling patients. As of December 31, 2020, all sites participating in a Phase 2b clinical trial evaluating TMB-001 were opened and enrolling patients. On May 31, 2021, we completed patient enrollment in the Phase 2b clinical trial with 34 patients randomized. On October 7, 2021, we announced top line data from the TMB-001completion of our Phase 2b trial.trial in CI. The data demonstratedPhase 2b CONTROL study was a randomized, double-blind, vehicle-controlled study designed to assess the efficacy and safety of two concentrations of TMB-001 (0.05% and 0.1% isotretinoin) for the treatment of two distinct subtypes of moderate-to-severe CI (X-linked recessive and lamellar ichthyosis) in patients (n=33) three years old or older. Subjects applied TMB-001 twice daily for 12 weeks. The primary endpoint was the reduction of targeted ichthyosis severity, determined by a 50 percent or greater reduction in targetedthe validated Visual Index for Ichthyosis Severity (“VIIS”) scaling score (or VIIS-50), a clinically meaningful change. Secondary endpoints included reduction in overall ichthyosis severity, as measured by a two-point improvement using the (IGA) scale, also considered to be a clinically relevant improvement. The study was not designed or powered for statistical analysis of the endpoints and overall severitywas intended to provide information for future development.
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Top-line results including descriptive statistics are described below:
● | In the per protocol |
● | In the |
● | In the PP population, 100 percent (nominal |
● | In the ITT population, 55 percent (nominal |
● | TMB-001 was generally well tolerated with a similar incidence of adverse events (AEs) across treatment groups. The most frequent AEs were local adverse effects common for such topical treatments. There were no treatment-related serious adverse events (SAE). |
On December 15, 2020,February 3, 2022, we announced the successful completion of an End-of-Phase 2 meeting with the FDA that resulted in a clear path to progress to a pivotal Phase 3 study for TMB-001. The clinical development program for TMB-001 includes a Phase 3 study with an efficacy arm and a maximum use pharmacokinetic arm as well as a smaller bridging study required to bridge to the oral reference product. Based on FDA feedback at the End-of-Phase 2 meeting, we intend to initiate a pivotal Phase 3 study of TMB-001 in the second quarter of 2022.
On March 25, 2022, we announced a late-breaking presentation of a sub-analysis of the Company’s Phase 2b CONTROL study that evaluated TMB-001 was made by a third party at the American Academy of Dermatology 2022 Annual Meeting. The sub-type analysis found that TMB-001 0.05% demonstrated a substantially greater proportion of patients achieving VIIS-50 and ≥2-grade IGA improvement compared with vehicle regardless of subtype. Among enrolled patients (TMB-001 0.05% [n=11], 0.1% [n=10], and vehicle [n=12]), 55% had autosomal recessive CI lamellar ichthyosis (ARCI-LI) and 45% % X-linked recessive ichthyosis (XLRI) subtypes.
On April 7, 2022, we received a notice of allowance from the USPTOKorean Intellectual Property Office for a Company patent application covering TMB-001 (U.S. Patent Application No.: 15/772,456) and the application subsequently issued on February 10, 2021 as US 10,933,018.(Application Number: 10-2018-7014948). Additional patents are pending for TMB-001 in several other countries.
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On April 28, 2021,2022, we announced that the Japanese Patent Office had decidedFDA granted Fast Track designation to grant a patent (No. 2018542677)TMB-001 for TMB-001.
On May 18, 2021, we received notice that the Australian Patent Office had decided to grant a patent (No. 2016346203) for TMB-001.treatment of XLRI and ARCI-LI.
TMB-002
TMB-002, a proprietary topical formulation of rapamycin, is currently being evaluated in a Phase 2b clinical trial for the treatment of FAs in TSC, a multisystem genetic disorder resulting in the growth of hamartomas in multiple organs. TSC results from dysregulation in the mTOR pathway, and as a topical mTOR inhibitor, TMB-002, marketed under the brand name Pascomer, may address FAs in TSC without the level of systemic absorption of an oral agent.
As of April 30, 2021, all sites participating in a Phase 2b clinical trial evaluating TMB-002 were opened and are currently enrolling patients. Site activation and patient enrollment and data collection have been impacted by the COVID-19 pandemic in the larger and longer TMB-002 study, especially at our contracted test sites in Eastern Europe. Currently, we can confirm that2022, recruitment has been finalized on the TMB-002 Phase 2b trial with a total of 114 consented (108 randomized) patients. We expect to reviewreceive top line results from this trial in the third quarter of 2022.
On March 17, 2021, we announced that AFT Pharmaceuticals Limited (“AFT”), one of our development partners,partner for TMB-002, entered into a license and supply agreement with Desitin Arzneimittel GmbH (“Desitin”) for Pascomer® (TMB-002 topical rapamycin)Pascomer for the treatment
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of FAs associated with TSC in Europe. Pursuant to the AFT Licensingour licensing and Development Agreement,development agreement, we are entitled to receive a significant percentage50% of the economics (royalties and milestones) in any licensing transaction that AFT executes outside of North America, Australia, New Zealand, and Southeast Asia.
On April 4, 2022, Nobelpharma America LLC (“Nobelpharma”) announced that the FDA has approved HYFTOR™ (sirolimus topical gel) 0.2% as the first topical treatment indicated for FAs associated with TSC in adults and children six (6) years of age or older. The current transaction with Desitin is includedapproval of this program in the scope of this provisionUnited States and as suchthe protection granted under the Orphan Drug Act represent a major shift in the third quartercommercial opportunity and environment for TMB-002. As TMB-002 is intended for treatment of 2021 the Company has received €250,000 relatedsame indication, we do not intend to an upfront milestone payment paid toproceed with a pivotal Phase 3 clinical trial of TMB-002 in FAs at this time. After we receive the results of the Phase 2b trial, we will evaluate our strategic options regarding the program including looking at potential opportunities for commercialization in North America, outside of the United States where treatment for FAs remain a high unmet need. Based on the existing agreement in place with our partner, AFT, by Desitin duringwe still can earn 50% of the quarter ended September 30, 2021economics (royalties and has recorded approximately $0.3 millionmilestones) outside of North America, Australia, New Zealand, and Southeast Asia if TMB-002 is approved for sale and sold in these financial statements.those regions.
TMB-003
The product in its earliest stage product in our pipeline is TMB-003, a proprietary formulation of Sitaxsentan, a new chemical entity in the U.S., which is a selective endothelin-A receptor antagonist. It is currently in preclinical development as a locally applied formulation for the treatment of fibrotic and sclerotic skin disorders, such as scleroderma,diseases. The two disease areas under consideration include Lichen Sclerosis a rare chronic disease of vulvae and perianal areas, and Localized Scleroderma, a chromic connective tissue disorder characterized by abnormal thickening of the skin.disease that also affects other organ systems.
On January 12, 2021, we announced that the FDA has granted orphan drug designation for TMB-003, our locally delivered formulation of Sitaxsentan, for the treatment of systemic sclerosis.Systemic Sclerosis. We are planning to pursueconsidering pursuing additional orphan drug designations in other indications.
indications in the future.
BPX-01 and BPX-04
Pursuant toIn connection with the Merger Agreement, BPX-01 (Topical Minocycline, 2%merger with BioPharmX Corporation (“BioPharmX”) and BPX-04 (Topical Minocycline, 1%) were added to our portfolio. BPX-01 and BPX-04 are assets currently in development for acne vulgaris and papulopustular rosacea, respectively. On July 22,on May 18, 2020, we announced that we had received notice from the European Patent Office that it intends to grant a patent for the Company’s topical composition of pharmaceutical tetracycline (including minocycline) for dermatological use (European Patent Application No. 16714168.8) and the application subsequently issued on December 16, 2020 as EP 3273940. Patents coveringacquired the BPX-01 and BPX-04 assets have previously been granted inassets. BPX-01 is a Phase 3 ready topical minocycline for the United States, Japan, South Africa, and Australia.treatment of inflammatory lesions of acne vulgaris. BPX-04 is a Phase 3 ready topical minocycline for the treatment of papulopustular rosacea. We are currently evaluating our strategic options regardingseeking to monetize these assets.
assets through a license, co-development, or sale. On September 15, 2020, we announced that we had received a notice of allowance from the U.S. Patent and Trademark Office (USPTO) for a Company patent application covering BPX-01 and BPX-04 our pharmaceutical tetracycline (including minocycline) compositions for dermatological use (U.S. Patent Application No.: 16/514,459) and the application subsequently issued on January 5, 2021, as US 10,881,672.
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The Merger, Reverse Stock Split, and Name Change
On May 18, 2020, weBioPharmX completed ourits business combination with Timber Pharmaceuticals LLC, (a Delaware limited liability company (“Timber Sub”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020
“as amended,(the “Merger Agreement”), by and among Timber,BioPharmX, Timber Sub and BITI Merger, Sub Inc., a Delaware corporation and wholly-owned subsidiary of Timberthe Company (“Merger Sub”) (as, as amended by Amendment No. 1 thereto made and entered into as of March 24, 2020 (the “First Amendment”) and Amendment No. 2 thereto made and entered into as of April 27, 2020 (the “Second Amendment”) (the Merger Agreement, as amended by the “MergerFirst Amendment and the Second Amendment, the “Amended Merger Agreement”), pursuant to which Merger Sub merged with and into Timber Sub, with Timber Sub surviving as a wholly ownedwholly-owned subsidiary of Timberthe Company (the “Merger”).
In connection with, and immediately prior to the completion of, the Merger, weBioPharmX effected a reverse stock split of ourthe Company’s common stock, par value $0.001 per share, at a ratio of 1-for-12 (the “Reverse Stock Split”). Immediately after completion of the Merger, BioPharmX changed its name to “Timber Pharmaceuticals, Inc.” and the officers and directors of Timber Sub became the officers and directors of the Company.
Under the terms of the Amended Merger Agreement, after considering the Reverse Stock Split, weBioPharmX issued shares of common stock to the holders of common units of Timber Sub’s unitholders atSub. Immediately after the Merger, there were approximately 11,849,031 shares of common stock
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outstanding (after the Reverse Stock Split). Pursuant to the terms of the Amended Merger Agreement, the former holders of common units of Timber Sub (including the Investors, as defined below, but excluding Value Appreciation Rights of Timber Sub (“VARs”), as defined below) owned in the aggregate approximately 88.5% of the outstanding common stock, with the Company’s stockholders immediately prior to the Merger owning approximately 11.5% of the outstanding common stock. The number of shares of common stock issued to the holders of common units of Timber Sub for each common unit of Timber Sub outstanding immediately prior to the Merger was calculated using an exchange rateratio of approximately 629.57 shares of common stock for each Timber Sub unit. In addition, the 584 VARs that were outstanding immediately prior to Merger became denoted and payable in 367,670 shares of common unitstock at the Effective Time of the Merger (the “Effective Time”). Further, the holder of the 1,819,289 preferred units of Timber Sub outstanding immediately prior to the Merger. In connection withMerger received 1,819 shares of the Merger, we changed our name from “BioPharmX Corporation” to “Timber Pharmaceuticals, Inc.,” andnewly created convertible Series A preferred stock (the “Series A Preferred Stock”) at the business conducted by the Company became the business conducted by Timber Sub.Effective Time.
Private Placement of Common Stock and Warrants
On May 18, 2020, Timber and Timber Sub completed a private placement transaction (the “Pre-Merger Financing”)In connection with the Investors pursuant to the Securities PurchaseMerger Agreement, datedon March 27, 2020, (as amended, theTimber Sub and BioPharmX entered into a securities purchase agreement (the “Securities Purchase Agreement”) for an aggregate purchase price of approximately $25.0 million (comprised of (i) approximately $5 million credit, with respectcertain accredited investors (the “Investors”) pursuant to the senior secured notes issued in connection with the bridge loan that certain of the Investors made to Timber Sub at the time of the execution of the Merger Agreement and (ii) approximately $20 million in cash from the Investors).
Pursuant to the Pre-Merger Financing, (i)which, among other things, Timber Sub issued and sold to the Investors common unitsshares of Timber Sub which converted pursuantunits immediately prior to the exchange ratio inMerger and BioPharmX issued to the Merger into an aggregateInvestors warrants to purchase shares of approximately 4,137,509 shares (the “Converted Shares”) ofBioPharmX common stock; and (ii) the Company agreed to issue to each Investor,stock on the tenth trading day following the consummation of the Merger (A)(the “Investor Warrants”) in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) a $5 million credit with respect to the Bridge Notes and (y) $20 million in cash from the Investors) (the “Purchase Price”). We issued to the Investors 8,384,764 Series A Warrants representing the right to acquirepurchase shares of common stock equal(“Series A Warrants”) and 7,042,175 Series B Warrants to 75%purchase shares of the sumcommon stock (“Series B Warrants”). The Series A Warrants have a 5-year term and an exercise price of (a) the number of Converted Shares issued$2.7953, subject to the Investor, without giving effect to any limitation on delivery contained in the Securities Purchase Agreement, and (b) the number of shares and exercise price being reset based on our stock price after the Merger. The Series A Warrants were initially exercisable into 8,384,764 shares of common stock underlyingissued to the Investors, subject to certain adjustments. The Series B Warrants issued tohad an exercise price per share of $0.001, were exercisable upon issuance and were initially convertible into 7,042,175 shares of common stock in the Investor (the “Series B Warrants”) and (B) the Series B Warrants. On June 2, 2020, pursuant to the terms of the Securities Purchase Agreement, the Company issued the Series A Warrants and the Series B Warrants.aggregate.
In addition, pursuant to the terms of the Securities Purchase Agreement, dated as of January 28, 2020 between Timber Sub and several of the Investors, the Company issued to such purchasers, on May 22, 2020, we issued to the Investors warrants to purchase 413,751 shares of our common stock (the “Bridge Warrants”) which havehad an exercise price of $0.33$2.2362 per share, subjectwhich was revised to full ratchet anti-dilution and adjustment if shares are sold for$0.31 per share as a price less than the exercise priceresult of the warrants.November 2021 offering.
Pursuant to the Waiver AgreementsOn November 19, 2020, we entered into a Warrant Waiver Agreement with each of the Selling Stockholders on November 19, 2020, (A)warrant holders which modified the terms of the original agreement and eliminated further resets. The aggregate number of Series A Warrants issued was fixed at 20,178,214 and the warrant exercise price was fixed at $1.16. The aggregate number of Series B Warrants was fixed at 22,766,777. The exercise price of the Series AB Warrants was definitively setremained unchanged.
In addition, certain restrictions contained in the Warrant Agreement and Securities Purchase Agreement were modified including restrictions on our ability to issue additional equity securities in connection with a financing and our ability to complete a fundamental transaction. Subject to certain restrictions detailed in the Warrant Waiver Agreement, we are now able to complete an equity financing or a fundamental transaction at $1.16 per share, (B)any time after April 30, 2021. However, we remain restricted with respect to conducting variable rate transactions until May 18, 2023.
Further, in connection with the numberWarrant Waiver Agreement we agreed to immediately register 11,383,389 shares of shares underlying all of the Series A Warrants was definitively set at 20,178,214 and (C) the number of shares underlying allcommon stock issuable upon exercise of the Series B Warrants was definitively set at 22,766,776.Warrants. The warrant holders have additional demand registration rights as described in the Warrant Waiver Agreement. As of March 4, 2021, allthe Series B Warrants had beenwere exercised in full. As of December 31, 2021, 16,701,824 shares of common stock remain issuable upon exercise of the Series A Warrants.
Corporate History
We have a limited operating history as the Company was formed on February 26, 2019. Since inception, Timber’s operations have focused on establishing its intellectual property portfolio, including acquiring rights to the proprietary formulations of isotretinoin, rapamycin and Sitaxsentan, as described above, organizing and staffing the Company, business planning, raising capital, and conducting clinical trials. Since inception, we have financed our operations with net proceeds totaling a net of $34.5 million through capital contributions.
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Since inception,November 2021 Offering
On November 2, 2021, we have incurred significant operating losses. Forentered into an underwriting agreement with H.C. Wainwright & Co., LLC, as representative of the nine months ended September 30,several underwriters named in Schedule I thereto, relating to the public offering, issuance and sale of shares of our common stock and, to certain investors, pre-funded warrants to purchase shares of common stock, and accompanying warrants to purchase shares of our common stock. After giving effect to the sale of additional shares pursuant to the exercise of the option by H.C. Wainwright & Co., LLC that closed on November 9, 2021, ourthe total number of shares of common stock (or common stock equivalents) sold by us in the offering was 26,953,125, together with warrants to purchase up to 26,953,125 shares of common stock issued at the closing on November 5, 2021, for total gross proceeds of $17.25 million before deducting underwriting discounts and commissions and other offering expenses, and net loss was $7.8proceeds of approximately $15.8 million. As a result of September 30, 2021, we had an accumulated deficitthe offering, the exercise price of $26.1 million. We expectthe Bridge Warrants was adjusted to continue$0.31 per share.
Each share of common stock and pre-funded warrant to incur significant expensespurchase one share of common stock was sold together with a warrant to purchase one share of common stock. All the securities sold in the offering were sold by us. The public offering price of each share of common stock and operating lossesaccompanying common warrant was $0.64 and $0.639 for each pre-funded warrant and accompanying common warrant. The pre-funded warrants were immediately exercisable at a price of $0.001 per share of common stock and were exercised in full on November 5, 2021. The warrants were immediately exercisable at a price of $0.70 per share of common stock and expire five years from the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we continue to develop the pipelinedate of programs.issuance.
Asset Purchase Agreements with Patagonia Pharmaceuticals LLC (“Patagonia”)
On February 28, 2019, we acquired the intellectual property rights for a topical formulation of isotretinoin for the treatment of CI and identified as TMB-001, formerly PAT-001 including the IPEGTM brand, from Patagonia (the “TMB-001 Acquisition”). Zachary Rome, a member of our Board of Directors and our former Executive Vice-President and Chief Operating Officer serves as President of Patagonia and also maintains an ownership interest therein.
Under the terms of the TMB-001 Acquisition, we paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of the TMB-001 Acquisition, with the first being $4.0 million from the initiation of a Phase 3 pivotal trial, as agreed with the FDA.FDA and defined as the first patient enrolled in such trial for the product. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits for the program licensed. We are responsible for all development activities under the license. The potential regulatory and commercial milestones arewere not yet probable at March 31, 2022, and no milestone payments have been accrued at September 30, 2021March 31, 2022 and December 31, 2020.2021. Management anticipates that the first $4.0 million milestone payment will likely become payable during the second quarter of 2022 now that the FDA’s 30-day review period following the submission of the Phase 3 protocol elapsed on May 9, 2022 without comment.
On June 26, 2019, we acquired the intellectual property rights for a locally administered formulation of Sitaxsentan for the treatment of cutaneous fibrosis and/or pigmentation disorders, and identified as TMB-003, formerly PAT-S03, from Patagonia (the “TMB-003 Acquisition”).
Upon closing of the TMB-003 Acquisition, we paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments subject to adjustments relating to certain regulatory and commercial achievements of the TMB-003, License, with the first being a one-time payment of $250,000 upon the opening of an INDinvestigational new drug application (“IND”) with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits for the program licensed. We are responsible for all development activities under the license. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2021March 31, 2022 and December 31, 2020.2021.
Acquisition of License from AFT Pharmaceuticals Limited (“AFT”)
On July 5, 2019, we entered into a license agreement with AFT which provides us with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize the Pascomer® productPascomer in the United States, Canada and
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Mexico and (2)(ii) a co-exclusive license to develop the Pascomer product in this territory. Concurrently, we granted to AFT an exclusive license to commercialize the Pascomer product outside of its territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of its territory (the “AFT License Agreement”).
The AFT License Agreement also provides for the formation of a joint steering committee to oversee, coordinate and review recommendations and approve decisions inwith respect ofto the matters related to the development and commercialization of the Pascomer, product, in which both the Company and AFT have the right to appoint two members. The committee is currently comprised of three members. We have final decision-making authority on all matters relating to the commercialization of the Pascomer product in the specified territory and on all matters related to the development (and regulatory approval) of the Pascomer, product, with certain exceptions.
The development of the Pascomer product is being conducted pursuant to a written development plan, written by AFT and approved by the joint steering committee, which is reviewed on at least an annual basis. AFT shall perform clinical trials of the Pascomer product in the specified territory and shall perform all CMC (chemistry, manufacturing and controls) and related activities to support regulatory approval. We are responsible for all expenses incurred by AFT during the term of the AFT License Agreement and shall equally share all costs and expenses with AFT, incurred by AFT for development and marketing work performed in furtherance of regulatory approval and commercialization worldwide, outside of the specified territory. We are also entitled to receive a significant percentage50% of the economics (royalties and milestones) in
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any licensing transaction that AFT executes outside of North America, Australia, New Zealand, and Southeast Asia. In March 2021 the Company announced that its development partner, AFT Pharmaceuticals Limited has signed an exclusive license and supply agreement with Desitin Arzneimittel GmbH (“Desitin”) for Pascomer® (TMB-002 topical rapamycin) for the treatment of facial angiofibromas (FA) associated with Tuberous Sclerosis Complex (TSC) in Europe. The Company received €250,000 related to an upfront milestone payment paid to AFT by Desitin during the quarter ended September 30, 2021 and has recorded approximately $0.3 million in these financial statements.
Upon closing of the AFT License Agreement, we were obligated to reimburse AFT for previously spent development costs, subject to certain limitations and were obligated to pay a one-time, irrevocable and non-creditable upfront payment to AFT, payable in scheduled installments. AFT is entitled to up to $25.5 million of cash milestone payments relating toif TMB-002 achieves certain regulatory and commercial achievementsmilestones, with the first payment of $1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the AFT License.trial’s primary clinical endpoints. In addition, AFT is entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones arewere not yet considered probable, and no milestone payments have been accrued at September 30, 2021March 31, 2022, and December 31, 2020.2021.
Corporate History
We have a limited operating history as the Company was formed on February 26, 2019. Since inception, our operations have focused on establishing its intellectual property portfolio, including acquiring rights to the proprietary formulations of isotretinoin, rapamycin and Sitaxsentan, as described above, organizing and staffing the Company, business planning, raising capital, and conducting clinical trials. Over the past two years. we have financed our operations with gross proceeds totaling $42.3 million through capital contributions.
Since inception, we have incurred significant operating losses. For the quarter ended March 31, 2022, our net loss was approximately $3.1 million. As of March 31, 2022, we had an accumulated deficit of approximately $32.0 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we continue to develop the pipeline of programs.
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Results of Operations
Comparison of the Three Months Ended September 30,March 31, 2022, and 2021 and 2020
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | | | | | Three Months Ended March 31, | | | | | | | ||||||||
|
| 2021 |
| 2020 |
| Change $ |
| Change % |
|
| 2022 |
| 2021 |
| Change $ |
| Change % |
| ||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Grant revenue | | $ | 225,128 | | $ | 324,521 | | $ | (99,393) |
| (31) | % | | $ | 83,177 | | $ | 40,734 | | $ | 42,443 |
| 104 | % |
Milestone revenue | | | 41,846 | | | — | | | 41,846 | | N/A | | ||||||||||||
Total revenue | | | 266,974 | | | 324,521 | | | (57,547) | | N/A | | | | 83,177 | | | 40,734 | | | 42,443 | | 104 | % |
Research and development | |
| 1,974,193 | |
| 685,207 | |
| 1,288,986 |
| 188 | % | |
| 1,518,959 | |
| 849,518 | |
| 669,441 |
| 79 | % |
Selling, general and administrative | |
| 1,296,641 | |
| 1,233,849 | |
| 62,792 |
| 5 | % | |
| 1,702,395 | |
| 1,065,389 | |
| 637,006 |
| 60 | % |
Loss from operations | |
| (3,003,860) | |
| (1,594,535) | |
| (1,409,325) |
| 88 | % | |
| (3,138,177) | |
| (1,874,173) | |
| (1,264,004) |
| 67 | % |
Change in fair value of warrant liability | |
| — | |
| 4,423,833 | |
| (4,423,833) |
| (100) | % | ||||||||||||
Interest expense | | | (54,252) | | | — | | | (54,252) | | N/A | | ||||||||||||
Other income | | | 75,000 | | | — | | | 75,000 | | N/A | | ||||||||||||
Forgiveness of PPP loan | |
| 37,772 | |
| — | |
| 37,772 |
| N/A | | ||||||||||||
Gain (loss) on foreign currency exchange | |
| (1,544) | |
| 7,197 | |
| (8,741) |
| (121) | % | |
| 6,262 | |
| (87) | |
| 6,349 |
| (7,298) | % |
Net loss | |
| (3,005,404) | |
| 2,836,495 | |
| (5,841,899) |
| (206) | % | ||||||||||||
Net (loss) income before provision for income taxes | |
| (3,073,394) | |
| (1,874,260) | |
| (1,199,134) |
| 64 | % | ||||||||||||
Provision for income taxes | | | — | | | — | | | — | | N/A | | ||||||||||||
Net (loss) income | | | (3,073,394) | | | (1,874,260) | | | (1,199,134) | | 64 | % | ||||||||||||
Cumulative dividends on Series A preferred stock | |
| (36,685) | |
| (36,685) | |
| — |
| — | % | |
| — | |
| (35,887) | |
| 35,887 |
| (100) | % |
Net loss attributable to common stockholders | | $ | (3,042,089) | | $ | 2,799,810 | | $ | (5,841,899) |
| (209) | % | ||||||||||||
Net (loss) income attributable to common stockholders | | $ | (3,073,394) | | $ | (1,910,147) | | $ | (1,163,247) |
| 61 | % |
Grant and milestone revenue
During the three months ended September 30, 2021 and 2020, we recognized revenue of $266,974 and $324,521, respectively. The revenue consisted of reimbursements received from the FDA as a result of achieving certain clinical milestones in the development of TMB-001 and from milestone for a licensing agreement with AFT.Revenue
In September 2018, Patagonia was awarded a $1.5 million grant (the “Grant”) from the FDA as part of the Orphan Products Clinical Trials Grants Program of the Office of Orphan Products Development. The Grant funds arewere made available in three annual installments of $500,000 per year, which commenced in September 2018. The Grant was transferred to Timberus pursuant to itsthe TMB-001 Acquisition Agreement with Patagonia in February 2019. A six-month no cost extension was granted to Timber in September 2019In March 2020 and ended in February 2020. DuringMarch 2021, the course of each year for whichFDA awarded us the Grant was active, the Company submitted its allowable expensessecond and is reimbursed up to the maximum amount of each installment.
Pursuant to the AFT Licensing and Development Agreement, we are entitled to receive a significant percentagethird tranches of the economics (royalties and milestones) in any licensing transaction that AFT executes outside of North America, Australia, New Zealand, and Southeast Asia. The current transaction with Desitin is included in the scope of this provision and as such in the third quarter of 2021 the Company has received €250,000 related to an upfront milestone payment paid to AFT by Desitin during the quarter ended September 30, 2021 and has recorded approximately $0.3 million in these financial statements.
28
Operating costs and expenses
Research and development expensegrant, respectively.
During the three months ended September 30,March 31, 2022 and 2021, we recognized revenue of $83,177 and 2020,$40,734, respectively from the Grant.
Operating Costs and Expenses
Research and Development Expense
During the three months ended March 31, 2022 and 2021, research and development expenses were $2.0$1.5 and $0.7$0.8 million, respectively. ResearchThe increase in research and development expenses of $0.7 million are primarily related to costs incurred related to our Phase 2b clinical trial of TMB-001 and TMB-002, such as CRO direct and pass-through expenses. The expenses are expected to continue to significantly increase in 2022 as a result of the Phase 3 trial for TMB-001.
Research and development costs are expensed as incurred. Costs for certain activities, such as preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to itus by Timber’sour vendors and collaborators.
General and administrative expenseAdministrative Expense
During the three months ended September 30, 2021,March 31, 2022, general and administrative expense was $1.3$1.7 million compared to $1.2$1.1 million for the three months ended September 30, 2020.March 31, 2021. The increase in general and administrative expenses of approximately $0.1$0.6 million was due to increased overhead expenses.
Other income (expense)
Change in fair valueprofessional fees of warrant liability
During the three months ended September 30, 2021$0.2 million, increased payroll of $0.1 million and 2020, respectively, other income was zero and $4.4increased stock compensation expense of $0.3 million. For the three months ended September 30, 2020, other income primarily consisted of $4.4 million for the change in fair value of our warrant liability.
Income Taxes
The Company did not record tax expense for the three-months ended September 30, 2021 due to the Company’s loss position and full valuation allowance. The Company did not record tax expense for the three-months ended September 30, 2020 as the Company was a non-taxable flow-through entity for US federal income tax purposes through May 18, 2020 and the Company’s loss position and full valuation allowance through September 30, 2020.
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Comparison ofOther Income (Expense)
During the Nine Months Ended September 30, 2021 and 2020
| | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | | | | | | ||||
|
| 2021 |
| 2020 |
| Change $ |
| Change % |
| | |||
| | | | | | | | | | | | | |
Grant revenue | | $ | 400,789 | | $ | 351,428 | | $ | 49,361 |
| 14 | % | |
Milestone revenue | | | 295,738 | | | — | | | 295,738 | | N/A | | |
Total revenue | | | 696,527 | | | 351,428 | | | 345,099 | | 98 | | |
Research and development | |
| 4,623,811 | |
| 2,239,607 | |
| 2,384,204 |
| 106 | % | |
Research and development - license acquired | |
| — | |
| 12,371,332 | |
| (12,371,332) |
| (100) | % | |
Transaction costs | |
| — | |
| 1,501,133 | |
| (1,501,133) |
| (100) | % | |
Selling, general and administrative | |
| 3,918,042 | |
| 2,745,728 | |
| 1,172,314 |
| 43 | % | |
Loss from operations | |
| (7,845,326) | |
| (18,506,372) | |
| 10,661,046 |
| (58) | % | |
Interest expense | |
| — | |
| (4,416,746) | |
| 4,416,746 |
| (100) | % | |
Interest income | |
| — | |
| 816,655 | |
| (816,655) |
| (100) | % | |
Change in fair value of investment in BioPharmX | |
| — | |
| 559,805 | |
| (559,805) |
| (100) | % | |
Change in fair value of warrant liability | |
| — | |
| 5,607,293 | |
| (5,607,293) |
| (100) | % | |
Gain (loss) on foreign currency exchange | |
| (541) | |
| 11,651 | |
| (12,192) |
| (105) | % | |
Net loss | |
| (7,845,867) | |
| (15,927,714) | |
| 8,081,847 |
| (51) | % | |
Accrued dividend on preferred stock units | |
| — | |
| (52,669) | |
| 52,669 |
| (100) | % | |
Cumulative dividends on Series A preferred stock | |
| (108,858) | |
| (53,831) | |
| (55,027) |
| N/A | | |
Net loss attributable to common stockholders | | $ | (7,954,725) | | $ | (16,034,214) | | $ | 8,079,489 |
| (50) | % | |
Grant and milestone revenue
For the ninethree months ended September 30, 2021, revenueMarch 31, 2022, other income (expense) included interest expense of $0.05 million related to the Redeemable Series A Preferred Stock under redemption, a gain on the forgiveness of our PPP loan of approximately $0.04 million and other income of approximately $0.08 million for fees received from a third party for their access to review certain agreements related to BPX-01 and BPX-04. There was approximately $696,527 compared to $351,428 revenuede-minimis other income (expense) for the ninethree months ended September 30, 2020. RevenueMarch 31, 2021.
Income Taxes
We did not record tax expense for the nine monthsthree-months ended September 30,March 31, 2022 and 2021, consisted of reimbursements received from the FDA as a result of achieving certain clinical milestones in the development of TMB-001 and from milestone for a licensing agreement with AFT. In September 2018, Patagonia was awarded a $1.5 million grant (the “Grant”) from the FDA as part of the Orphan Products Clinical Trials Grants Program of the Office of Orphan Products Development. The Grant funds are available in three annual installments of $500,000 per year, which commenced in September 2018. The Grant was transferred to Timber pursuant to its TMB-001 Acquisition Agreement with Patagonia in February 2019. A six-month no cost extension was granted to Timber in September 2019 and ended in February 2020. During the course of each year for which the Grant is active, the Company submits its allowable expenses and is reimbursed up to the maximum amount of each installment. The Company received €250,000 related to an upfront milestone payment paid to AFT by Desitin during the nine months ended September 30, 2021 and has recorded approximately $0.3 million in these financial statements.
Operating costs and expenses
Research and development expense
For the nine months ended September 30, 2021, research and development expenses were $4.6 million compared to $2.2 million for the nine months ended September 30, 2020. The increase of $2.4 million is primarily related to increased costs incurred relatedrespectively, due to our Phase 2b clinical trial of TMB-001loss position and TMB-002, such as CRO direct and pass through expenses.
Research and development costs are expensed as incurred. Costs for certain activities, such as preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to it by Timber’s vendors and collaborators.
Research and development expense- license acquired
For the nine months ended September 30, 2021, the research and development expense – license acquired was zero compared to $12.4 million as of September 30, 2020, primarily related to our acquisition of BioPharmX.
30
Transaction Costs
For the nine months ended September 30, 2021, transaction costs were zero compared to $1.5 million as of September 30, 2020, consisting of legal and professional fees related to our acquisition of BioPharmX.
General and administrative expense
For the nine months ended September 30, 2021, general and administrative expense were $3.9 million compared to $2.7 million for the nine months ended September 30, 2020. The increase in general and administrative expenses of approximately $1.2 million was due to increased legal and professional fees of $0.1 million, increased personnel and related costs of $0.5 million due to increased headcount, and other overhead expenses of $0.6 million.
full valuation allowance.
Liquidity and Capital Resources
Since inception, Timber haswe have not generated revenue from product sales and has incurred net losses and negative cash flows from its operations. At September 30, 2021,March 31, 2022, we had working capital of approximately $1.7$10.2 million, which included cash of $3.4approximately $13.9 million. We reported a net loss of $7.8approximately $3.1 million during the ninethree months ended September 30, 2021.March 31, 2022.
Cash Flows for the NineThree Months Ended September 30,March 31, 2022 and 2021 and 2020
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Three Months Ended March 31, | ||||||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
| | | | | | | | | | | | |
Cash provided by (used in) continuing operations: |
| |
|
| |
|
| |
|
| |
|
Operating activities | | $ | (6,973,754) | | $ | (6,601,885) | | $ | (2,944,747) | | $ | (1,848,640) |
Investing activities | |
| (17,803) | |
| (2,659,214) | |
| (3,519) | |
| — |
Financing activities | |
| — | |
| 21,237,772 | |
| — | |
| — |
Net increase in cash and cash equivalents | | $ | (6,991,557) | | $ | 11,976,673 | ||||||
Net decrease in cash and cash equivalents | | $ | (2,948,266) | | $ | (1,848,640) |
Operating Activities
For the ninethree months ended September 30 2021,March 31 2022, net cash used in operating activities was $7.0$2.9 million, which primarily consisted of our net loss of $7.8$3.1 million, adjusted for non-cash expenses of $0.3approximately $0.4 million of stock-based compensation expense offset by the change in assets and liabilities of $0.3 million, which is primarily due an increasedecrease in accounts payable of $0.6$0.1 million and offset by a decrease in accrued expenses of $0.1$0.2 million and a decrease in the lease liability of $0.2$0.1 million.
For the ninethree months ended September 30, 2020,March 31, 2021, net cash used in operating activities was $6.6$1.9 million, which primarily consisted of our net loss of $15.9approximately $1.9 million adjusted for non-cash expenses of $14.4 million primarily consisting of, $12.4 million of research and development – licenses acquired, $4.2 million of amortization expense related to the Bridge Notes, $0.2 million of accrued interest on the Bridge Notes, offset by $1.2 million for the change in fair value of our warrant liability, $0.8 million for the amortization of our loan discount, and $0.6 million for the change in fair value of our investment in BioPharmX. The change in assets and liabilities of $0.8$0.1 million, which is primarily due to increasesan increase in prepaid insuranceaccounts payable of $0.2$0.1 million and a decrease in accounts payable, accrued expenses and other liabilities of $0.6$0.2 million.
Investing Activities
For the ninethree months ended September 30, 2021,March 31, 2022, net cash used in investing activities was de minimis spending related to property and equipment.
For the nine months ended September 30, 2020, net There were no cash flows used in investing activities for the three months ended March 31, 2021.
Financing Activities
For the three months ended March 31, 2022, and 2021, net cash provided by financing activities was approximately $2.7 million which primarily consisted of our loan to BioPharmX of $2.3 million and our payment of $0.7 million for research and development licenses, offset by the cash acquired with our acquisition of BioPharmX of $0.3 million.zero.
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Financing Activities
For the nine months Ended September 30, 2021, net cash provided by financing activities was zero.
For the nine months ended September 30, 2020, net cash provided by financing activities was approximately $21.2 million, which consisted of the net proceeds received from the issuance of common stock related to our financing of $17.5 million and the proceeds received from our Bridge Notes of $3.7 million.
Funding requirementsRequirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of our pipeline of programs.programs and begin a Phase 3 trial. As a result, we expect to continue to incur significant expenses and increasing operating losses and negative cash flows for the foreseeable future. Furthermore, following the completion of the Merger, we have been incurring additionalexpect to continue to incur costs as a public company. Accordingly, we will need to obtain additional funding. If we are unable to raise capital or otherwise obtain funding when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
As discussed above, Timber Sub and BioPharmX entered into the Securities Purchase Agreement pursuant to which, among other things, we issued the Investor Warrants to the Investors in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) a $5 million credit with respect to the Bridge Notes and (y) $20 million in cash from the Investors).
In addition, onOn July 17, 2020, we entered into an Amended and Restated Registration Rights Agreement (as amended, the “Registration Rights Agreement”) with the Investors. Pursuant to the Registration Rights Agreement, we agreed to provide certain demand registration rights to the Investors relating to the registration of the shares underlying the Investor Warrants and the Bridge Warrants. In connection with the entry into the Registration Rights Agreement and pursuant to the Securities Purchase Agreement, we were restricted from various financing activities until August 16, 2022. On November 19, 2020 we entered into Waiver Agreementswaiver agreements with the investors revising the restriction date to April 30, 2021.2021, except with respect to variable rate transactions. We remain restricted with respect to conducting variable rate transactions until May 18, 2023.
Further,On July 5, 2019, we entered into the Company hasAFT License Agreement which provides us with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize Pascomer in the United States, Canada and Mexico and (ii) a co-exclusive license to develop Pascomer in this territory. Concurrently, we granted to AFT an exclusive license to commercialize Pascomer outside of its territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of its territory.
Upon closing of the AFT License Agreement, we were obligated to reimburse AFT for previously spent development costs, subject to certain limitations and were obligated to pay a one-time, irrevocable and non-creditable upfront payment to AFT, payable in scheduled installments. AFT is entitled to up to $25.5 million of cash milestone payments if TMB-002 achieves certain regulatory and commercial milestones, with the first payment of $1.0 million upon the successful completion of a Phase 2b trial defined as the achievement of the trial’s primary clinical endpoints. In addition, AFT is entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones were not yet considered probable, and no milestone payments have been accrued at March 31, 2022 or December 31, 2021, respectively. We expect to receive top line results from this trial in the third quarter of 2022.
We have a class of Series A Preferred Stock which is currently subjectas to redemption at any time in whole or in part at the request ofwhich the holder TardiMed.TardiMed has demanded redemption. The redemption price is equal to approximately $2.0$2.1 million in the aggregate, at March 31, 2022 and December 31, 2021, respectively including accumulated and unpaid dividendsinterest which accrueaccrues compounded at the rate of 8% per annum. Redemption is subject to certain limitations under Delaware corporate law sodue to our current financial condition. As a result of the call for redemption, the Series A Preferred Stock was reclassified as a liability at December 31, 2021. Dividends continue to accrue and will be recorded as non-cash interest expense in the Statement of Operations rather than to additional-paid-in-capital in 2022.
In addition, under the terms of the TMB-001 Acquisition, we paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of the TMB-001 Acquisition, with the first being $4.0 million from the initiation of a Phase 3 pivotal trial, as agreed with the FDA,and defined as the first patient enrolled in such trial for the product. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits for the program licensed. We are responsible for all development activities under the license. The potential regulatory and commercial milestones were not yet considered probable at March 31, 2022, and December 31, 2021, respectively, and no milestone payments have been accrued at March 31, 2022 or December 31, 2021, respectively. Management anticipates that our ability to pay the redemption price to TardiMed is and may be limited.first $4.0 million milestone payment will likely become payable during the second quarter of 2022, now that the FDA’s 30-day review period following the submission of the Phase 3 protocol elapsed on May 9, 2022, without comment.
35
We have evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q10-Q. Based on such evaluation and the Company’sour current plans, which are subject to change, management believes that the Company’sour existing cash and cash equivalents as of September 30, 2021 were sufficientMarch 31, 2022 only to satisfy our operating cash needs through the end of 2021. The Company received net proceeds of approximately $15.6 million from an underwritten public offering subsequent to September 30, 2021 and is currently evaluating the impact of the receipt of such funds on the length of time we will be able to satisfy our operating cash needs but still are potentially not sufficient to satisfy our operating cash needs forinto the twelve months after the filingfourth quarter of this Quarterly Report on Form 10-Q.2022.
The Company’sOur future liquidity and capital funding requirements will depend on numerous factors, including:
● | our ability to raise additional funds to finance our operations, |
32
● | the outcome, costs and timing of clinical trial results for our current or future product candidates, including the timing, progress, costs and results of our planned Phase 3 clinical trial of TMB-001 for the treatment of CI as well as our ongoing Phase 2b clinical trial of TMB-002 for the treatment of |
● | the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities; |
● | the emergence and effect of competing or complementary |
● | our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights; |
● | the |
● | the cost of establishing sales, marketing and distribution capabilities for our products in regions where we choose to commercialize our products on our |
● | the initiation, progress, timing and results of the commercialization of our product candidates, if approved for commercial sale; |
● |
our ability to retain our current employees and the need and ability to hire additional management and scientific and medical |
● | the terms and timing of any collaborative, licensing or other arrangements that we have or may establish. |
We will need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other commercial transaction for one or more of our product candidates. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of our existing stockholders.
As discussed above, theThe impact of the worldwide spread of COVID-19 has been unprecedented and unpredictable. Site activation andClinical trial activities, including patient enrollment have recently beencan be impacted byat any time. We are continuing to assess the COVID-19 pandemic in the larger and longer TMB-002 study, especially ateffect on our contracted test sites in Eastern Europe. Currently, we can confirm that recruitment has been finalized on the TMB-002 Phase 2b trial with a total of 114 consented (108 randomized) patients. We expect to review top line results from this trial in the third quarter of 2022.
Off-balance sheet arrangements
Timber does not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Timber does not engage in off-balance sheet financing arrangements. In addition, Timber does not engage in trading activities involving non-exchange traded contracts.operations by
3336
Timber therefore believe that Timber is not materially exposedmonitoring the spread of COVID-19 and the actions implemented to any financing, liquidity, market or credit risk that could arise if it had engaged in these relationships.combat the virus throughout the world and our assessment of the impact of COVID-19 may change.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financials statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reporting periods. On an ongoing basis, we evaluate our estimates and adjustments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our latest Annual report Form 10-K.
Recently Used and Adopted Accounting Pronouncements
See Note 2 to our financial statements included in Part I, Item 1 of this Form 10-Q for discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market RiskRisk.
N/A.Not applicable.
Item 4. Controls and ProceduresProcedures.
Evaluation of disclosure controlsDisclosure Controls and procedures.Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15 (e) or 15d-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed in periodic reports filed with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’sour management, including itsthe Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13(a)-15(e) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2021.March 31, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal period ended September 30, 2021,March 31, 2022, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings.
We are not currently a party to any legal or governmental regulatory proceedings, nor is our management aware of any litigationpending or threatened legal or government regulatory proceedings proposed to be initiated against us that we believe couldwould have a material adverse effect on our business, financial positioncondition or resultsoperating results.
From time to time, we could become involved in disputes and various litigation matters that arise in the normal course of operations. Therebusiness. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, we review the status of significant matters, if any exist, and assess our potential financial exposure. If the potential loss from any claim or legal claim is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or bodyconsidered probable and the amount can be estimated, we accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict; therefore, accruals are based on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending or, to the knowledge of our executive officers, threatened against or affecting our Company or our officers or directors in their capacities as such.claims and litigation. .
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Item 1A. Risk FactorsFactors.
As a smaller reporting company, we are not required to provide the information required by this item.
There have been no material changes in or additions to the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our Quarterly Report on Form 10-Q for the period ended March 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the period covered by this report, we have not issued any unregistered securities. We have not furnished information under this item as such information previously has been included in our Annual Report on Form 10-K.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosure.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
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Exhibit |
| Description | |
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31.1* | | ||
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31.2* | | ||
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32.1** | | ||
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32.2** | | ||
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101.INS* | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. | |
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
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101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101). |
*Filed herewith.
**The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Timber Pharmaceuticals, Inc. | ||
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Date: | By: | /s/ John Koconis | |
| John Koconis | ||
| Chief Executive Officer and Chairman of the Board of Directors | ||
| (Principal Executive Officer) | ||
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Date: | By:/s/ Joseph Lucchese | | |
| Joseph Lucchese | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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