| SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES | NOTE
3 – SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE
OF ESTIMATES Basis
of Presentation The
accompanying condensed consolidated financial statements are unaudited. The unaudited interim consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the
rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations,
although the Company believes that the disclosures made are adequate to make the information not misleading. These
interim consolidated financial statements for the three and nine months ended September 30, 2021 and 2020 are unaudited; however, in
the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly
the financial position, results of operations and cash flows of the Company for the periods presented. The results for the three and
nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021
or for any future period. All references to September 30, 2021 and 2020 financials in these footnotes refer to unaudited consolidated
financial statements as of those dates. These
unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements and the notes
thereto for the year ended December 31, 2020, included in the Company’s annual report on Form 10-K filed with the SEC on March
31, 2021. The
consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements at such date but
do not include all disclosures required by the accounting principles generally accepted in the United States of America. Principles
of Consolidation The
consolidated financial statements include the accounts of the parent company, Rebus Holdings, Inc., (fka Inspyr Therapeutics, Inc.) and
its wholly-owned subsidiary, Lewis & Clark Pharmaceuticals, Inc. All significant intercompany accounts and transactions have been
eliminated. Use
of Estimates The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Significant estimates include
the fair value of derivative instruments, stock-based compensation, recognition of clinical trial costs and other accrued liabilities.
Actual results may differ from those estimates. Research
and Development Research
and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for
pre-clinical research, toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs associated therewith. We
incurred research and development expenses of approximately $ 97,000 and $ 11,000 for the three months ended September 30,
2021 and 2020, respectively. We incurred research and development expenses of approximately $ 190,000 and $ 33,000 for the nine months ended September 30,
2021 and 2020, respectively. Cash
Equivalents For
purposes of the statements of cash flows, we consider all highly liquid debt instruments purchased with a maturity date of three months
or less to be cash equivalents. We maintain our cash in bank deposit accounts which, at times, may exceed applicable government mandate
insurance limits. We have not experienced any losses in our accounts. We did no t
have any cash equivalents at September 30, 2021 or December 31, 2020. Concentrations
of Credit Risk Financial
instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and
cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments
may exceed applicable government mandated insurance limits. Cash was $ 1.0 million and $ 0.4 million at September 30, 2021 and December
31, 2020, respectively. As of September 30, 2021 and December 31, 2020, there was no cash over the federally insured limit. Loss
per Share Basic
loss per share is calculated by dividing net loss and net loss attributable to common shareholders by the weighted average number of
common shares outstanding for the period. Basic and diluted loss per share are the same, in that any potential common stock equivalents
would have the effect of being anti-dilutive in the computation of net loss per share. The
following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding for
the three and nine months ended September 30, 2021 and 2020, as they would be anti-dilutive:
Schedule of Anti dilutive Securities Excluded from
Computation of Earnings Per Share
Three
and Nine Months
2021 2020
Shares underlying options outstanding 9 9
Shares underlying warrants outstanding 53 53
Shares underlying convertible preferred stock outstanding 95,250 3,739
95,312 3,801 Diluted
loss per share for the three and nine months ended September 30, 2021 and 2020 is calculated as follows:
Diluted loss per share
Three months Three months Nine months Nine months
September 30, September 30, September 30, September 30,
2021 2020 2021 2020
Net income attributable to common shareholders $ 6,125 $ 2,106 $ 2,646 $ 205
Income attributable to convertible instruments (6,612 ) (2,264 ) (4,131 ) (751 )
Expense attributable to convertible instruments 272 21 924 169
Diluted loss attributable to common shareholders $ (215 ) $ (137 ) $ (561 ) $ (377 )
Basic shares outstanding 7,612,241 181,774 6,740,889 94,764
Dilutive convertible instruments 30,924,532 7,048,792 14,187,583 7,048,792
Diluted shares outstanding 38,536,773 7,230,566 20,928,472 7,143,556
Diluted loss per share $ (0.01 ) $ (0.02 ) $ (0.03 ) $ (0.05 ) Derivative
Liability The
Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded
derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance
sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results
of operations during the period of change. The Company values its derivative liabilities using the Black-Scholes option valuation model.
The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability
in the statement of operations. Fair
Value of Financial Instruments Our
short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments with maturities
of one year or less when acquired. We believe that the fair values of our current assets and current liabilities approximate their reported
carrying amounts. The
derivative liabilities consist of our convertible notes and Series F preferred stock with variable conversion features. The Company uses
the Black-Scholes option-pricing model to value its derivative liabilities which incorporate the Company’s stock price, volatility,
U.S. risk-free interest rate, dividend rate, and estimated life. Fair
Value Measurements The
U.S. GAAP Valuation Hierarchy establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value.
This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs
that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full
term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities
at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input
that is significant to the fair value measurement. The
Company has recorded a derivative liability for its convertible notes and preferred stock with variable conversion features as of September
30, 2021 and 2020. The tables below summarize the fair values of our financial liabilities as of September 30, 2021 and December 31,
2020 (in thousands):
Schedule of fair values of financial liabilities
Fair Value at Fair Value Measurement Using
2021 Level 1 Level 2 Level 3
Convertible notes $ 542 — — $ 542
Preferred stock 1,416 — — 1,416
Derivative liability $ 1,958 $ — $ — $ 1,958
Fair Value at Fair Value Measurement Using
2020 Level 1 Level 2 Level 3
Convertible notes $ 2,705 — — $ 2,705
Preferred stock 4,123 — — 4,123
Derivative liability $ 6,828 $ — $ — $ 6,828 The
reconciliation of the derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows
(in thousands):
Schedule of derivative liability measured at fair
value on a recurring basis using unobservable inputs (Level 3)
Nine Months ended
2021 2020
Balance at beginning of period $ 6,828 $ 1,785
Additions to derivative instruments 1,354 167
Reclassification on conversion (3,223 ) (766 )
Gain on change in fair value of derivative liability (3,001 ) (353 )
Balance at end of period $ 1,958 $ 833 Recent
Accounting Pronouncements With
the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards
Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the nine months ended September 30, 2021 that are of significance
or potential significance to the Company. In
December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions,
eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating
income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires
an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period
that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes
on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes
the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax
law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The adoption
of this standard did not have a material impact on the Company’s consolidated financial statements. | NOTE
3 – SUMMARY OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES Principles
of Consolidation The
consolidated financial statements include the accounts of the parent company, Inspyr Therapeutics, Inc., and its wholly-owned subsidiary,
Lewis & Clark Pharmaceuticals, Inc. All significant intercompany accounts and transactions have been eliminated. Reverse
Stock Split and Increase in Authorized Shares On
September 1, 2021, the Board of Directors approved a one-for-seventy-five (1-for-75) reverse stock split of the Company’s Common
Stock (“Reverse Stock Split”). The Reverse Stock Split became effective with the Secretary of State of Delaware as of 4:59
p.m. Eastern Time on October 5, 2021, and the Company began trading on a post Reverse Stock Split basis at the market open on October
12, 2021. As a result of the Reverse Stock Split, each of the holders of the Company’s Common Stock received one (1) new share
of Common Stock for every seventy-five (75) shares such shareholder held immediately prior. No fractional shares were issued as
a result of the Reverse Stock Split. Any fractional shares that would have otherwise resulted from the Reverse Stock Split will be rounded
up to the next whole number of shares. The Reverse Stock Split also affected the Company’s outstanding stock options, warrants
and other exercisable or convertible instruments and resulted in the shares underlying such instruments being reduced and the exercise
price being increased proportionately to the Reverse Stock Split ratio. On
June 10, 2020, the Company’s Board of Directors approved a one-for-thirty (1-for-30) reverse stock split of the Company’s
common stock On
September 17, 2019, the Company’s Board of Directors approved a one-for-twenty five (1-for-25) reverse stock split of the Company’s
common stock. In furtherance of the Reverse Stock Split, the Company has filed an amended and restated certificate of incorporation with
the Secretary of State of Delaware to effect the Reverse Stock Split effective as of 5:00 p.m. Eastern Time on September 30, 2019 (“Effective
Time”). Accordingly, at the Effective Time, each of the Company’s common stock shareholders received one new share of common
stock for every twenty-five shares such shareholder held immediately prior to the Effective Time. The Reverse Stock Split will also affected
the Company’s outstanding stock options, warrants and other exercisable or convertible instruments and resulted in the shares underlying
such instruments being reduced and the exercise/conversion price being increased proportionately to the Reverse Stock Split ratio. All
share and per share data has been retroactively adjusted in the accompanying consolidated financial statements and footnotes for all
periods presented to reflect the effects of the October 5, 2021, June 26, 2020 and September 30, 2019 amendments. Pursuant
to a joint written consent of the board of directors and a majority of the voting power of the Company’s stockholders, the Company’s
shareholders approved amending and restated the Company’s Certificate of Incorporation to (i) increase the Company’s authorized
Common Stock from 150,000,000 shares to 1,000,000,000 increase or decrease (but
not below the number of shares of such class outstanding) the number of authorized shares of the class of Common Stock or Preferred Stock
by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Company irrespective
of the provisions of Section 242(b)(2) of the Delaware General Corporation Law. The
Company filed the Amended and Restated Certificate of Incorporation with Delaware’s Secretary of State reflecting the foregoing
changes with an effective date and time of November 27, 2020. Use
of Estimates The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Significant estimates include
the fair value of derivative instruments, stock-based compensation, recognition of clinical trial costs and other accrued liabilities.
Actual results may differ from those estimates. Research
and Development Research
and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for
toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs. We
incurred research and development expenses of $ 0.02 0.04 Cash
Equivalents For
purposes of the statements of cash flows, we consider all highly liquid debt instruments purchased with a maturity date of three months
or less to be cash equivalents. We maintain our cash in bank deposit accounts which, at times, may exceed applicable government mandate
insurance limits. We have not experienced any losses in our accounts. We did no Restricted
Cash Restricted
cash consisted of funds held in trust for the Company. The use of these funds was restricted to: (i) the payment of professional fees
in connection with bringing the Company’s filings current, and (ii) the payment of vendors associated with the issuance and trading
of the Company’s securities, such as transfer agent fees and fees payable to the OTCQB and FINRA. There were no Concentrations
of Credit Risk Financial
instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and
cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments
may exceed applicable government mandated insurance limits. Cash and restricted cash was $0.4 million and $0.02 million at December 31,
2020 and 2019, respectively. As of December 31, 2020 and 2019, there was no cash over the federally insured limit. Intangible
Assets Intangible
assets consist of licensed technology, patents, and patent applications (see Note 5). The assets associated with licensed technology
are recorded at cost and are being amortized on the straight line basis over their estimated useful lives of twelve to seventeen years. Office
and Lab Equipment Equipment
is stated at cost less accumulated depreciation. Depreciation is calculated on the straight line basis over the estimated useful lives
of the assets of three to seven years. Expenditures for repair and maintenance which do not materially extend the useful lives of property
and equipment are charged to expense. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation
are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the
carrying value of its equipment for impairment. Depreciation
expense was approximately $ 0 2,000 Loss
per Share Basic
loss per share is calculated by dividing net loss and net loss attributable to common shareholders by the weighted average number of
common shares outstanding for the period. Basic and diluted loss per share are the same, in that any potential common stock equivalents
would have the effect of being anti-dilutive in the computation of net loss per share. The
following potentially dilutive securities have been excluded from the computations of weighted average shares outstanding as of December
31, 2020 and 2019, as they would be anti-dilutive:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
Year
Ended December
31,
2020 2019
Shares
underlying options outstanding 16 28
Shares
underlying warrants outstanding 53 65
Shares
underlying convertible notes outstanding 6,949,870 284,943
Shares
underlying convertible preferred stock outstanding 9,995,250 3,517
16,945,189 288,553 Derivative
Liability The
Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded
derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance
sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results
of operations during the period of change. The Company values its derivative liabilities using the Black-Scholes option valuation model.
The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability
in the statement of operations. Fair
Value of Financial Instruments Our
short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments with maturities
of one year or less when acquired. We believe that the fair values of our current assets and current liabilities approximate their reported
carrying amounts. The
derivative liabilities consist of our convertible notes and Series F preferred stock with variable conversion features. The Company uses
the Black-Scholes option-pricing model to value its derivative liabilities which incorporate the Company’s stock price, volatility,
U.S. risk-free interest rate, dividend rate, and estimated life. Fair
Value Measurements The
U.S. GAAP Valuation Hierarchy establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value.
This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs
that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full
term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities
at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input
that is significant to the fair value measurement. The
Company has recorded a derivative liability for its convertible notes and preferred stock with variable conversion features as of December
31, 2020 and 2019. The tables below summarize the fair values of our financial liabilities as of December 31, 2020 and 2019 (in thousands):
Schedule of fair values of financial liabilities
Fair
Value at Fair
Value Measurement Using
2020 Level 1 Level 2 Level 3
Convertible notes $ 2,705 — — $ 2,705
Preferred
stock 4,123 — — 4,123
Derivative
liability $ 6,828 $ — $ — $ 6,828
Fair
Value at Fair
Value Measurement Using
2019 Level 1 Level 2 Level 3
Derivative
liability – convertible notes $ 1,785 $ — $ — $ 1,785 The
reconciliation of the derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows
(in thousands):
Schedule of derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3)
Year
ended December
31,
2020 2019
Balance
at beginning of year $ 1,785 $ 2,134
Additions
to derivative instruments 2,465 243
Reclassification
on conversion (1,268 ) (265 )
Loss
(gain) on change in fair value of derivative liability 3,846 (327 )
Balance
at end of year $ 6,828 $ 1,785 Income
Taxes Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation
allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities
during the period in which the related temporary difference becomes deductible. Stock-Based
Compensation We
account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based
method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the
shorter of the service period or the vesting period of the stock-based compensation. This guidance establishes standards for the accounting
for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments
or that may be settled by the issuance of those equity instruments. The Company estimates the fair value of each stock option at the
grant date by using the Black-Scholes option pricing model. Determining the fair value of stock-based compensation at the grant date
under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The
assumptions used in calculating the fair value of stock-based compensation represent the Company’s best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. Through
December 31, 2018 we used the fair value method for equity instruments granted to non-employees and used the Black-Scholes model for
measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at
which the performance of the services is completed (measurement date) and is recognized over the vesting periods. On
January 1, 2019, the Company adopted ASU 2018-07, which substantially aligns stock-based compensation for employees and non-employees
and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718. The Company
used the modified prospective method of adoption. There was no cumulative effect of the adoption of ASC 718. Recent
Accounting Pronouncements With
the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards
Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the year ended December 31, 2020 that are of significance
or potential significance to the Company. In
December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions,
eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating
income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires
an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period
that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes
on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes
the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax
law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We do
not expect that the adoption of this standard will have a material impact on the Company’s consolidated financial statements. |
