The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those which are not within our control.





Background of Our Company

We are a pharmaceutical development company that is seeking to discover, develop and ultimately commercialize innovative therapeutics for patients with certain cancers and non-cancerous proliferation disorders. We also have explored and expect to continue to explore acquiring or licensing other innovative pre-clinical and clinical stage therapeutics addressing unmet needs and orphan indications for the treatment of cancer and other diseases.

Our current primary focus is on the development of therapies initially for BCCNS, prostate and lung cancers in the United States utilizing Itraconazole, in a patent-protected formulation. We previously conducted a positive Phase 2b study of SUBA-Itraconazole for the treatment of Basal Cell Carcinoma Nevus Syndrome, and Mayne Pharma assumed control of the clinical and regulatory development of this formulation for this indication in December 2018 as described elsewhere in this Report.

We were founded under the name "Commonwealth Biotechnologies, Inc." in Virginia in 1992, and completed an initial public offering in October 1997. CBI previously provided, on a contract basis, specialized life sciences services to the pharmaceutical and biotechnology sector. On January 20, 2011, CBI filed a voluntary petition for bankruptcy. We recommenced our current operations in August 2013 as a Delaware corporation following the emergence of CBI from its voluntary bankruptcy proceedings.

Critical Accounting Policies and Estimates





Estimates

The preparation of financial statements 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 revenues and expenses during the period. Actual results could differ from those estimates.





Revenue Recognition

We currently have no ongoing source of revenues. Any miscellaneous income is recognized when earned. Deferred revenue represents cash received for royalties in advance of being earned. Such payments are reflected as deferred revenue until recognized under our revenue recognition policy. Deferred revenue would be classified as current if management believes we will be able to recognize the deferred amount as revenue within twelve months of the balance sheet date. Deferred revenue will be recognized when the product is sold, and the royalty is earned. Since all deferred revenue on our balance sheet is related to the BCCNS product, which is yet to be approved by FDA, we have determined that 100% of the advances of the royalty received by Mayne Pharma should be classified as non-current.





Legal Settlement

Legal settlement income includes a legal settlement awarded to and received by the Company in accordance with a Settlement Agreement, along with various other items, including legal costs incurred relating to the litigation and forgiveness of certain balances due to the Defendants.





Cash and Cash Equivalents

We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At times, the Company may maintain cash balances in bank accounts in excess of Federal Deposit Insurance Corporation insured amounts of $250,000.





40

Research and Development Expenses

Research and development costs are expensed in the period in which they are incurred and include the expenses paid to third parties who conduct research and development activities on our behalf as well as purchased in-process research and development.





Stock-Based Compensation

We account for stock-based awards to employees and non-employees using Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718 - Accounting for Share-Based Payments, which provides for the use of the fair value based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation. Fair values of RSUs issued are determined based predominantly on the trading price of the common stock on the date of grant. Fair value of each common stock option is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatility is based on historical volatility of a peer group's common stock and other factors estimated over the expected term of the options. The expected term of the options granted is derived using the "simplified method" which computes expected term as the average of the sum of the vesting term plus the contract term. The risk-free rate is based on the U.S. Treasury yield.





Income taxes

Deferred tax assets and liabilities are recognized for future tax consequences attributed to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that are expected to apply to the differences in the periods that they are expected to reverse. We have evaluated the guidance relating to accounting for uncertainty in income taxes and determined that we had no uncertain income tax positions that could have a significant effect on the consolidated financial statements for the years ended December 31, 2022 or 2021. Deferred tax assets consist primarily of in-process research and development, net operating loss carryforward, and share-based compensation. We recorded a 100% valuation allowance against the deferred tax assets as we have determined such amounts will not be currently realizable.





Results of Operations

For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Research and Development Expenses. We recognized $6,150 and $4,905 in research and development expenses during the years ended December 31, 2022 and 2021, respectively. The expenses are primarily patent expenses.

General and Administrative Expenses. We recognized approximately $0.7 million and $0.3 million in general and administrative expenses during the years ended December 31, 2022 and 2021, respectively. The increase of approximately $0.4 million was due primarily to the increase in overhead costs incurred as a result of the governance and management transitions related to litigation that resolved during the year.

Gain on loan forgiveness. We recognized $0.04 million in gain on loan forgiveness during the year ended December 31, 2021 related to the forgiveness of the Paycheck Protection Program loan under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). There was no such amount recognized during the year ended December 31, 2022.

Gain on legal settlement. We recognized $12.6 million and $0 in gain on legal settlement during the years ended December 31, 2022 and 2021, respectively. The gain in 2022 was related to a legal settlement awarded to the Company as a result of the resolution of litigation, along with various other items stipulated within the Settlement Agreement, including legal costs incurred relating to the litigation and forgiveness of certain balances previously owed to the defendants.

Gain on forgiveness of legal fees. We recognized $0.2 million and $0 in gain on forgiveness of legal fees during the years ended December 31, 2022 and 2021, respectively. The gain in 2022 was related to the forgiveness of accumulated legal fees owed to external legal counsel.

Interest expense. We recognized approximately $23,000 and $15,000 in interest expense during the years ended December 31, 2022 and 2021, respectively. The increase of approximately $8,000 was due to additional interest incurred on the Mayne Term Debt Facility as a result of the increase in the outstanding balance during the year.

Income tax expense. We recognized $0.05 million and $0 in income tax expense during the years ended December 31, 2022 and 2021, respectively. The increase of approximately $0.05 million in 2022 was due to the state and federal income taxes owed as a result of the taxable income generated from the legal settlement awarded to the Company.

Liquidity and Capital Resources

We are presently developing and conducting our business plan and are exploring the potential acquisition or license of additional product candidates. Our current cash on hand, approximately $12 million on December 31, 2022, is insufficient to develop our business plan as currently anticipated or to acquire or license additional product candidates. Based on our current operational plan and budget, we expect that we will have sufficient cash to manage our business and continue to pursue clinical trials and acquire other drug development opportunities, as needed. As we determine capital requirements for those opportunities, we will consider raising additional capital in the public market.

Contractual Obligations and Commercial Commitments

There are no non-cancellable contractual obligations as of December 31, 2022.

© Edgar Online, source Glimpses