PALISADE BIO, INC. Statements in this Quarterly Report that are not strictly historical are forward-looking statements and include statements about products in development, our in-licensing/acquisition strategy, our out-licensing sales strategy, results and analyses of pre-clinical studies, clinical trials and studies, research and development expenses, cash expenditures, and alliances and partnerships, among other matters. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. Some of these factors are more fully discussed, as are other factors, in the Company's Form 8-K/A , as filed with theSEC , in our subsequent filings with theSEC as well as in the section of this Quarterly Report entitled "Risk Factors" and elsewhere herein. The Company does not undertake to update any of these forward-looking statements or announce the results of any revisions to these forward-looking statements except as required by law.Palisade Bio, Inc. recommends investors read this entire Quarterly Report on Form 10-Q, including the "Risk Factors" section, the condensed consolidated financial statements, and related notes. As used in this Quarterly Report, unless the context otherwise requires, the words "we," "us," "our," the "Company" and "Palisade" refers toPalisade Bio, Inc. and its subsidiary, post-Merger. Also, any reference to "common shares" or "common stock," refers to our$0.01 par value common stock. Any reference to "Series A Preferred Stock" or "Preferred Stock" refers to our Series A 4.5% Convertible Preferred Stock. Any reference to "Series C Preferred Stock" refers to the Series C Preferred Stock. Any reference to "Leading Biosciences, Inc." or "LBS" refers to the Company's operations prior to the completion of the Merger. The information contained herein is current as of the date of this Quarterly Report (June 30, 2021 ), unless another date is specified. OnApril 27, 2021 , in connection with the consummation of the Merger, the Company completed a 1-for 6 reverse stock split of its common stock. All shares and per share data in this report have been adjusted to reflect the reverse stock split. The Company prepares its interim financial statements in accordance withU.S. GAAP. Palisade's financials and results of operations for the three and six-month periods endedJune 30, 2021 are not necessarily indicative of its prospective financial condition and results of operations for the pending full fiscal year endingDecember 31, 2021 . The interim financial statements presented in this Quarterly Report as well as other information relating to Palisade contained in this Quarterly Report should be read in conjunction and together with the reports, statements and information filed by Palisade with theSEC . Our Management's Discussion and Analysis of Financial Condition and Results of Operations or MD&A is provided, in addition to the accompanying condensed consolidated financial statements and notes, to assist you in understanding our results of operations, financial condition and cash flows. The MD&A is organized as follows: ? Executive Overview - Discussion of our business and overall analysis of
financial and other items affecting Palisade in order to provide context for
the remainder of MD&A.
? Critical Accounting Policies - Accounting policies that Palisade believes
are important to understanding the assumptions and judgments incorporated in
Palisade's reported financial results and forecasts.
? Results of Operations - Analysis of Palisades financial results comparing
the three-and six-month periods ended June 30, 2021 to the comparable
periods of 2020.
? Liquidity and Capital Resources - An analysis of cash flows and discussion
of our financial condition and future liquidity needs.
Executive Overview
We are a clinical stage biopharmaceutical company focused on discovering,
developing, and commercializing innovative oral therapies that target serious
diseases associated with the breakdown of the mucosal barrier protecting the
gastrointestinal ("GI") tract. Our goal is to be an industry leader in
developing therapies to treat these diseases and to improve the lives of
patients suffering from such diseases.
Our approach is founded on the discovery that damage to the intestinal
epithelial barrier can result in the leakage of digestive enzymes from the GI
tract that can damage tissue and promote inflammation, causing a broad array of
acute and chronic conditions.
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Using our scientific and drug development expertise, we are developing a portfolio of oral product candidates to treat conditions driven by protease (intestinal enzymes) leakage through the intestinal epithelial barrier, including surgical complications and inflammatory conditions.
[[Image Removed: intestine.jpg]]
Our pipeline of product candidates is illustrated in this chart:
[[Image Removed: pipeline.jpg]]
* Commercial right to LB1148 in
Our lead therapeutic candidate, LB1148, is a novel oral liquid formulation of
the well-characterized digestive enzyme inhibitor, tranexamic acid, intended to
inhibit digestive enzyme activity and preserve gut integrity during intestinal
stress, such as results from reduced blood flow to the intestine, infections,
and surgery. Peer reviewed publications of third-party research suggest that
digestive enzyme leakage from the GI tract drives GI and organ dysfunction
following these events.
We are initially developing LB1148 to be administered to patients prior to major
surgeries that risk disrupting the intestinal mucosal barrier. As announced in
March of 2020, a randomized, double-blind, parallel, placebo-controlled Phase 2
investigator-sponsored clinical trial of LB1148 in 120 patients undergoing
coronary artery bypass grafting and/or heart valve replacement surgery requiring
cardiopulmonary bypass was completed. Patients were randomized to receive LB1148
or placebo in conjunction with surgery. The trial's primary endpoint was time to
return of bowel function. Secondary endpoints include Intensive Care Unit
("ICU") length of stay, hospital length of stay, organ function changes,
inflammatory response and glucose control. LB1148 provided an approximately 30%
improvement in the time to normal bowel function following cardiovascular ("CV")
surgery (p<0.001) compared to placebo. The treatment group also had an average
1.1-day shorter length of stay in the ICU and an average 1.1-day shorter
hospital stay. Generally, treatment with LB1148 was well tolerated. Adverse
events ("AEs") were similar between the treatment groups and not considered
unexpected for the subject population. None of the AEs or serious adverse events
("SAEs") reported were considered drug-related by the sponsor-investigator. One
of the primary factors in discharging patients from the hospital following
surgery is the return of bowel function. LB1148 has been granted Fast Track
designation from the "FDA" for the treatment of postoperative GI dysfunction
(which may present as feeding intolerance, ileus, necrotizing enterocolitis
("NEC"), etc.) associated with gut hypoperfusion injury in pediatric patients
who have undergone congenital heart disease repair surgery.
The Company and our co-development partner Newsoara announced positive topline Phase 2 clinical trial data that LB1148 had a statistically significant (p=0.0008) effect in accelerating the return of bowel function in patients undergoing elective bowel resection surgery.
Results from the study include:
? A 1.1-day improvement in GI recovery in patients receiving LB1148 vs placebo.
The median time to return of bowel function was 2.77 days in patients treated
with LB1148 and 3.83 days in those receiving placebo (hazard ratio = 1.886; p
= 0.0008).
? The difference between groups increased at the 3rd quartile (75th percentile),
with LB1148 (3.4 days) demonstrating a 1.5-day faster recovery of bowel
function compared to placebo (4.9 days).
? LB1148 was well tolerated with only 10.9% and 4.8% of patients in the LB1148
group and placebo group, respectively, experiencing a drug-related adverse
event.
? The most common drug-related adverse events were GI disorders (LB1148 4.7% vs.
placebo 3.2%).
? No drug-related serious adverse events occurred in the trial.
Full results from this study are expected to be reported at an upcoming
surgical-focused medical conference. Based on the beneficial clinical outcomes
and good safety profile observed to date in phase 2 trials in both CV surgery
and GI surgery, Palisade Bio and Newsoara plan to advance LB1148 to pivotal
Phase 3 clinical trials for accelerating the return of bowel function for major
surgical indications. We are also currently conducting a randomized,
double-blind, placebo-controlled, proof-of-concept Phase 2 clinical trial of
LB1148 in patients undergoing elective bowel resection surgery in the Unites
States. This trial will evaluate return of bowel function following surgery and
whether patients treated with LB1148 also experience fewer postoperative
intra-abdominal adhesions. We are planning to initiate a Phase 2/3 clinical
trial of LB1148 in neonatal patients undergoing CV surgery to correct congenital
heart defects. We anticipate that this clinical trial will enroll 100 patients,
with an initial data readout from the first ten patients.
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Beyond our lead product candidate, we are continuing to develop additional
therapeutic candidates. We believe that protease-based therapeutics hold promise
in meeting a number of unmet needs resulting from chronic protease leak, beyond
our initial therapeutic focus on GI-related pathology triggered by major
surgeries.
con
Contingent Value Right
Immediately prior to the closing of the Merger, we issued each share of our
common stock held by our stockholders of record, one contingent value right
("CVR"). Each CVR entitles the holder of such right (the "CVR Holder") to
receive their pro-rata share of 80% of the net proceeds (subject to certain
conditions), if any, derived from the sale or licensing of all or any part of
the intellectual property owned, licensed or controlled by us immediately prior
to the closing of the Merger (the "Legacy Technology") provided however that CVR
Holders will only be entitled to receive such net proceeds if the sale or
licensing of such Legacy Technology occurs on or before the 18-month anniversary
of such closing ("Legacy Monetization"). Additionally, pursuant to the terms of
the CVR agreement, CVR Holders are only entitled to participate in their
pro-rata share of net proceeds which we receive during the 48-month period
following the closing of the Merger.
As of August 19, 2021 , we have engaged a financial advisor to assist in the
Legacy Monetization. It is still too early in the process to determine if we
will be successful in the sale or licensing of any of the Legacy Technology. In
the event we are not able to sell or license the Legacy Technology, or the
consideration received is not sufficient, CVR Holders may not receive any
proceeds from their CVRs and the CVRs may expire valueless.
Critical Accounting Policies
Palisade's unaudited condensed consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP"). The preparation of these financial statements requires
Palisade to make estimates, judgments and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities as of the date of the balance sheet and the reported amounts of
expenses during the reporting period. Palisade's estimates are based on its
historical trends and other factors that it believes 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 readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Palisade's significant accounting policies are described in more detail in Note
2-Summary of Significant Accounting Policies and in the notes to its unaudited
condensed consolidated financial statements included elsewhere herein and
highlight the significant accounting policies used in the preparation of the
consolidated financial statements. However, Palisade believes that the following
accounting policies are the most critical for fully understanding and evaluating
our financial condition and results of operations:
Stock-based compensation
Stock-based compensation expense represents the cost of the grant date fair
value of equity awards recognized over the requisite service period of the
awards (usually the vesting period) on a straight-line basis. We estimate the
fair value of stock option awards using the Black-Scholes option pricing model
and recognize forfeitures as they occur. The Black-Scholes option pricing model
requires the use of subjective assumptions, including the risk-free interest
rate, the expected stock price volatility, the expected term of stock options,
the expected dividend yield and the fair value of the underlying common stock on
the date of grant. Changes in the assumptions can materially affect the fair
value and ultimately how much stock-based compensation expense is recognized.
These inputs are subjective and generally require judgment to develop. Due to
the lack of an adequate history of a public market for the trading of our common
stock and a lack of adequate company-specific historical and implied volatility
data, we have based our estimate of expected volatility on the historical
volatility of a group of similar companies that are publicly traded. For these
analyses, we have selected companies with comparable characteristics to ours,
including enterprise value, risk profiles, and position within the industry, and
with historical share price information sufficient to meet the expected life of
the stock-based awards. We compute the historical volatility data using the
daily close prices for the selected companies' shares during the equivalent
period of the calculated expected term of our stock-based awards. We will
continue to apply this process until a sufficient amount of historical
information regarding the volatility of our common stock price becomes
available. We have estimated the expected life of our employee stock options
using the "simplified" method, whereby the expected life equals the average of
the vesting term and the original contractual term of the option. The risk-free
interest rates for periods within the expected life of the option are based on
the yields of zero-coupon U.S. treasury securities. See Note 9 of the Notes to
the Unaudited Condensed Consolidated Financial Statements for additional
information and specific assumptions used in applying the Black-Scholes option
pricing model to determine the estimated fair value of our stock options granted
in the year ended December 31, 2020 , and the six months ended June 30, 2021 .
Stock-based compensation totaled approximately $2.0 million for the year ended
December 31, 2020 , and $1.1 million for the six months ended June 30, 2021 .
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Fair Value of Financial Instruments
The Company's financial instruments consist principally of cash equivalents, accounts receivable, restricted cash, accounts payable, accrued liabilities, debt and derivative liabilities. The carrying amounts of financial instruments such as cash equivalents, accounts receivable, restricted cash, accounts payable, and accrued liabilities approximate their related fair values due to the short-term nature of these instruments. The carrying value of the Company's current and non-current debt approximates its fair value due to the market rate of interest. The Company's derivative financial instruments are carried at fair value based on unobservable market inputs. None of the Company's non-financial assets or liabilities are recorded at fair value on a non-recurring basis.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates its financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company values its derivatives using the Black-Scholes option-pricing model or other acceptable valuation models, includingMonte-Carlo simulations. Derivative instruments are valued at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities, is re-assessed at the end of each reporting period. The Company reviews the terms of debt instruments, equity instruments and other financing arrangements to determine whether there are embedded derivative features, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Additionally, in connection with the issuance of financing instruments, the Company may issue freestanding options and warrants, including options or warrants to non-employees in exchange for consulting or other services performed. The Company accounts for its common stock warrants and tranche liability in accordance with Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging ("ASC 815"). Based upon the provisions of ASC 815, the Company accounts for common stock warrants as liabilities if the warrant requires net cash settlement or gives the holder the option of net cash settlement or it fails the equity classification criteria. The Company accounts for common stock warrants as equity if the contract requires physical settlement or net physical settlement or if the Company has the option of physical settlement or net physical settlement and the warrants meet the requirements to be classified as equity. Common stock warrants classified as liabilities are initially recorded at fair value and remeasured at fair value each balance sheet date with the offset adjustments recorded in change in fair value of warrant liability within the condensed statements of operations. Common stock warrants classified as equity are initially measured at fair value on the grant date and are not subsequently remeasured.
We are required to make estimates of our accrued expenses resulting from our obligations under contracts with CROs, clinical sites, manufacturers, vendors and consultants, in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. We reflect research and development expenses in our financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress our study as measured by the timing of various aspects of the study or related activities. In accruing for these activities, we obtain information from various sources and estimate level of effort or expense allocated to each period. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. Common Stock Fair Value Prior to becoming a publicly traded company, Palisade was required to periodically estimate the fair value of common stock when issuing stock options and computing its estimated stock-based compensation expense. The fair value of common stock was determined on a periodic basis, with the assistance of an independent third-party valuation expert. The assumptions underlying these valuations represented management's best estimates, which involved inherent uncertainties and the application of significant levels of management judgment. The fair value of the common stock underlying Palisade's stock options was estimated at each grant date. Palisade's board of directors intended all options granted with an exercise price per share no less than the estimated fair value per share of common stock underlying those options on the date of grant. In order to determine the fair value, Palisade considered, among other things, contemporaneous valuations of Palisade's Common Stock, Palisade's business, financial condition and results of operations, including related industry trends affecting its operations; the likelihood of achieving a liquidity event, such as an initial public offering or sale, given prevailing market conditions; the lack of marketability of Palisade's common stock (pre-Merger); the market performance of comparable publicly traded companies; andU.S. and global economic and capital market conditions.
Recently Adopted Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements for the
quarter ended
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RESULTS OF OPERATIONS
Revenue
Palisade generated no revenues from the sale of its proposed therapies for any of the periods presented.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the clinical development of Palisade's lead product candidate LB1148, which include:
· expenses under agreements with third-party contract research organizations, investigative clinical trial sites that conduct research and development activities on Palisade's behalf, and consultants;
· costs related to develop and manufacture preclinical study and clinical trial material;
· salaries and employee-related costs, including stock-based compensation;
· costs incurred under Palisade's third-party licensing agreements; and
· laboratory and vendor expenses related to the execution of preclinical and clinical trials.
Palisade's direct research and development expenses are tracked by product
candidate and consist primarily of external costs, such as fees paid under
third-party license agreements and to outside consultants, contract research
organizations ("CROs"), clinical site, contract manufacturing organizations
("CMOs") and research laboratories in connection with its preclinical
development, process development, manufacturing and clinical development
activities. Palisade does not allocate employee costs and costs associated with
its discovery efforts, laboratory supplies and facilities, including other
indirect costs, to specific product candidates because these costs are deployed
across multiple programs and, as such, are not separately classified. Palisade
primarily uses internal resources to conduct its research as well as for
managing its preclinical development, process development, manufacturing and
clinical development activities.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, insurance costs, facility costs and professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. Personnel-related costs consist of salaries and benefits. We expect our general and administrative expenses will increase substantially as we: (i) incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing andSEC requirements; director and officer insurance premiums; and investor relations costs, (ii) hire additional personnel, and (iii) protect our intellectual property. Going Concern The Company's management has evaluated whether there is substantial doubt about the Company's ability to continue as a going concern and has determined that substantial doubt existed as of the date of the end of the period covered by this Quarterly Report on Form 10-Q (the "Form 10-Q"). This determination was based on the following factors: (i) the Company's available cash as of the date of this filing will not be sufficient to fund its anticipated level of operations for the next 12 months; (ii) the Company will require additional financing by the first quarter of 2022 to continue at its expected level of operations; and (iii) if the Company fails to obtain the needed capital, it will be forced to delay, scale back, or eliminate some or all of its development activities or perhaps cease operations. In the opinion of management, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern as of the date of the end of the period covered by this Form 10-Q and for one year from the issuance of the unaudited condensed consolidated financial statements. COVID-19 The COVID-19 pandemic has resulted in quarantines, restrictions on travel and other business and economic disruptions. Palisade has evaluated the impact of the pandemic on its business operations and plans, including but not limited to the impact on access to capital, planned and ongoing clinical trials, cash management and our investment policies regarding cash as well as the long-term effects in the medical and drug development fields. 30
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Table of Contents Results of Operations
Comparison of the three months ended
Operating Expenses
The following table summarizes our results of operations for the three months
ended
Three Months Ended
June 30, Increase (Decrease)
2021 2020 $ %
Operating expenses
Research and development expenses $ 314 $ 650 (336 ) -52 %
In-process research and development 30,117 - 30,117 100 %
General and administrative expenses 2,427 1,191 1,236 104 %
Total operating expenses $ 32,858 $ 1,841 $ 31,017 1685 %
Loss from operations (32,858 ) (1,841 ) (31,017 )
Other income (expense):
Change in fair value of warrant liability 5,133 - 5,133 100 %
Change in fair value of share liability 73 - 73 100 %
Interest expense (655 ) (11 ) (644 ) 5855 %
Other income 16 1 15 1500 %
Loss on issuance of equity (1,881 ) - (1,881 ) 100 %
Issuance costs of warrants (1,574 ) - (1,574 ) 100 %
Total other income (expense) 1,112 (10 ) 1,122 -11220 %
Net loss $ (31,746 ) $ (1,851 ) $ (29,895 ) 1615 %
Research and Development Expenses
The decrease of approximately$0.3 million or 52% in research and development expenses was primarily attributable to (i) a$0.2 million decrease in clinical trial activities due to higher trailing enrollment in the prior period before the COVID-19 pandemic and (ii) a general decrease of approximately$0.2 million in personnel related costs and stock-based compensation. These decreases were offset by an increase of$0.1 million related to consultant and other costs required to support our research and development activities.
In-process research and development
In-process research and development expense increased$30.1 million in the three month period endedJune 30, 2021 , compared to the comparable prior period, as a result of the Merger.
General and Administrative Expenses
General and administrative expenses during the three months endedJune 30, 2021 , increased approximately$1.2 million or 104% when compared to the three months endedJune 30, 2020 . This increase is related to: (i)$0.5 million in personnel-related compensation including stock-based compensation and (ii)$0.7 million increase in other general and administrative expenses associated with operating as a public company. Other income (expense) Other income, net increased by$1.1 million for the three months endedJune 30, 2021 as compared to the three month period endedJune 30, 2020 . The increase was primarily due (i) a reduction in the fair value of warrant liabilities of$5.1 million , and (ii) a$0.1 million reduction in the fair value of share liability. These increases were offset by a decrease of (i) a$0.6 million in interest expense primarily related to the non-cash debt discount accretion related to the pre-merger senior secured debt financing that was accelerated when this debt was converted to equity at the close of the Merger, (ii) a$1.9 million loss on the issuance of LBS Series 1 Preferred Stock due to fair value of the liability classified warrants being in excess of the equity proceeds, and (iii)$1.6 million of equity issuance costs allocated to the warrant liability. 31
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Comparison of the six months ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended
June 30, Increase (Decrease)
2021 2020 $ %
Operating expenses
Research and development expenses $ 1,006 $ 1,902 (896 ) -47 %
In-process research and development 30,117 - 30,117 100 %
General and administrative expenses 3,688 2,334 1,354 58 %
Total operating expenses $ 34,811 $ 4,236 $ 30,575 722 %
Loss from operations (34,811 ) (4,236 ) (30,575 )
Other income (expense):
Gain on forgiveness of PPP loan 279 - 279 100 %
Loss on issuance of secured debt (686) - (686) -100 %
Change in fair value of warrant liability 5,175 - 5,175 100 %
Change in fair value of share liability 73 - 73 100 %
Interest expense (2,367 ) (11 ) (2,355 ) 21418 %
Other income 16 12 4 33 %
Loss on issuance of equity (1,881 ) - (1,881 ) 100 %
Issuance costs of warrants (1,574 ) - (1,574 ) 100 %
Total other income (expense) (965 ) 1 (966 ) -966 %
Net loss $ (35,776 ) $ (4,235 ) $ (31,541 ) 745 %
Research and Development Expenses
The decrease of approximately$0.9 million or 47% in research and development expenses was primarily attributable to (i)$1.0 million decrease in clinical trial activities due to higher trailing enrollment in the prior period before the COVID-19 pandemic as well as decreased liquidity. This decrease was offset by an increase of$0.1 million related to consultant and other costs required to support our research and development activities.
In-process research and development
In-process research and development expense increased$30.1 million in the six month period endedJune 30, 2021 , compared to the comparable prior period, as a result of the Merger.
General and Administrative Expenses
General and administrative expenses increased approximately$1.3 million or 58%. This increase is related to: (i)$0.8 million in personnel-related compensation including stock-based compensation and (ii) a$0.6 million increase in other general and administrative expenses associated with operating as a public company. 32
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Table of Contents Other income (expense) Other income, net increased by$1.0 million for the six months endedJune 30, 2021 as compared to the six month period endedJune 30, 2020 . The increase was primarily due (i) a$0.3 million gain on the forgiveness of the Company's PPP loan, (ii) a reduction in the fair value of warrant liabilities of$5.2 million , and (ii) a$0.1 million reduction in the fair value of share liability. These increases were offset by (i) a$2.4 million decrease in interest expense is mostly due to the non-cash debt discount accretion related to the pre-merger senior secured debt financing that was accelerated when this debt was converted to equity at the close of the Merger; (ii) a$1.9 million loss on the issuance of LBS Series 1 Preferred Stock due to fair value of the liability classified warrants being in excess of the equity proceeds, (iii)$1.6 million of equity issuance costs allocated to the warrant liability and (iv)$0.7 million loss recorded on the issuance of secured debt in connection with the discount given for the pre-Merger senior secured debt. Liquidity and Capital Resources Financial Condition Since Palisade's inception, it has financed its operations through the sales of its securities, issuance of long-term debt, the exercise of investor warrants, and to a lesser degree from grants and research contracts as well as the licensing of its intellectual property to third parties. Management expects the Company to incur substantial operating losses for the foreseeable future in order to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. The Company will need to raise additional capital through a combination of equity offerings, debt financings, collaborations, and other similar arrangements. The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. The Company's ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the pandemic. If the disruption persists and deepens, the Company could experience an inability to access additional capital. In addition, the Company is restricted, pursuant to agreements with the Investor in the private financing conducted in connection with the Merger, from issuing equity securities in the near term without the consent of such Investor.
As of
Six Months ended June 30, Increase (Decrease)
2021 2020 $ %
Net cash used in operating activities $ (8,972 ) $ (2,351 ) $ (6,621 ) 282 %
Net cash provided by (used in) investing
activities $ 294 $ (6 ) $ 300 -5000 %
Net cash provided by financing
activities $ 20,618 $ 279 $ 20,339 7290 %
Cash used in operating activities for the six months endedJune 30, 2021 , reflects Palisade's$35.8 million loss for the period adjusted for certain non-cash items including: (i)$5.4 million of net cash outflows related to changes in operating assets and liabilities, (ii)$0.1 million of non-cash lease expense, (iii)$0.3 million gain on forgiveness of a PPP loan, (iv)$1.1 million recorded for stock-based compensation, (v)$5.2 million gain recorded for the change in the fair market value of the warrant liabilities, (vi)$0.1 million gain recorded for the change in the fair market value of the share liability (vii)$0.7 million loss on the issuance of the senior secured debt, (viii)$0.2 million in accounts payable write-off's. Additionally, the following net non-cash expenses of$35.7 million were incurred in connection with the Merger transaction:
(a)
related to the Merger.
(b)
Merger
(c) $1.9 million loss recorded in connection with the issuance of LBS Series 1
Preferred Stock
(d)
result of the transaction costs associated with the Merger.
(e)
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Net Cash Provided by (Used in) Investing Activities
For the six months endedJune 30, 2021 , cash provided by investing activities consisted of$3.3 million in cash acquired in connection with the Merger. Approximately$3.0 million was used to pay for acquisition related costs in the same period.
Net Cash Provided by Financing Activities
For the six months endedJune 30, 2021 , cash provided by financing activities was$20.6 million which was primarily generated as follows: (i)$19.9 million in net proceeds from the issuance of LBS Series 1 Preferred Stock and (ii)$1.2 million in proceeds from the issuance of senior secured debt. These increases were offset by payments on debt of$0.3 million , redemption of warrants of$0.1 million , and payment of debt issuance costs of$0.1 million . Future Liquidity and Needs
Palisade has incurred significant operating losses and negative cash flows since inception. Palisade has not been able to generate significant revenues nor achieved profitability.
As explained in the notes to Palisade's Unaudited Condensed Consolidated Financial Statements, there continues to be substantial doubt as to Palisade's ability to continue as a going concern
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