ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information and financial
data discussed below is derived from the audited consolidated financial statements of Actinium Pharmaceuticals, Inc. for its fiscal years
ended December 31, 2023 and 2022. The consolidated financial statements of Actinium Pharmaceuticals, Inc. were prepared and presented
in accordance with generally accepted accounting principles in the United States. The information and financial data discussed below is
only a summary and should be read in conjunction with the historical financial statements and related notes of Actinium Pharmaceuticals,
Inc. contained elsewhere in this Report. The financial statements contained elsewhere in this Report fully represent Actinium Pharmaceuticals,
Inc.’s financial condition and operations; however, they are not indicative of the Company’s future performance. See “Cautionary
Note Regarding Forward-Looking Statements” above for a discussion of forward-looking statements and the significance of such statements
in the context of this Report.
Actinium Pharmaceuticals,
Inc. is a clinical-stage, biopharmaceutical company applying its proprietary platform technology and clinical experience to develop novel
targeted radiotherapies for patients with unmet needs. Our targeted radiotherapies combine the cell-killing ability of radiation via a
radioisotope payload with a targeting agent, such as a monoclonal antibody, to deliver radiation in a precise manner inside the body to
specific, targeted cells such as cancer cells, to potentially achieve greater efficacy with lower toxicity than with cytotoxic chemotherapy
or external beam radiation. Targeted radiotherapies also enable broader application of radiation than external beam radiation as they
can be used in the treatment of both solid tumors and blood cancers, which generally cannot be treated with external radiation given their
diffuse nature.
Results of Operations – Year Ended December
31, 2023 Compared to the Year Ended December 31, 2022
The following table sets forth,
for the periods indicated, data derived from our statements of operations:
For the years ended December 31, Increase
(amounts in thousands) 2023 2022 (Decrease)
Revenue:
Revenue $ - $ - $ -
Operating expenses:
Other income:
Revenues
We recorded no commercial
revenues for the years ended December 31, 2023 and 2022, respectively.
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Other revenue
We determined that certain
collaborations with a third-party were within the scope of Topic ASC 606, Revenue Recognition from Contracts with Customers, or
ASC 606. The collaboration agreement was made up of multiple modules related to various research activities. While the third party has
the option to terminate the agreement at the conclusion of any module, we identified a single performance obligation to provide research
services within each module for which we receive monetary consideration. The consideration was recognized as revenue over each module
and revenue of $0.9 million was recognized during the year ended December 31, 2022. There was no corresponding revenue recognized from
a collaboration during the year ended December 31, 2023.
The National Institutes of
Health awarded us a Small Business Technology Transfer cost reimbursable grant to support a clinical collaboration with Memorial Sloan
Kettering Cancer Center, or MSK, to study Iomab-ACT, our CD45-targeting Antibody Radio-Conjugate, for targeted conditioning to achieve
lymphodepletion prior to administration of a CD19-targeted CAR T-cell therapy developed at MSK. We recognized other revenue during the
years ended December 31, 2023 and December 31, 2022 of $0.1 million in each year from this grant.
On April 7, 2022, we entered
into a license and supply agreement with Immedica Pharma AB, or Immedica, pursuant to which Immedica licensed the exclusive product rights
for commercialization of Iomab-B in the European Economic Area, Middle East and North Africa (EUMENA) including Algeria, Andorra, Bahrain,
Cyprus, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Monaco, Morocco, Oman, Palestine, Qatar, San Marino, Saudi Arabia,
Switzerland, Syria, Tunisia, Turkey, the United Arab Emirates, the United Kingdom, the Vatican City and Yemen. Upon signing, we were entitled
to an upfront payment of $35 million from Immedica, which was received in May 2022. Under the terms of the License Agreement, we are eligible
to receive regulatory and commercial milestone payments and are entitled to receive royalties in the mid-20 percent range on net sales
of the product in certain countries that may result from the License Agreement. We will continue to be responsible for certain clinical
development activities and the manufacturing of Iomab-B and will retain commercialization rights in the U.S. and rest of the world.
Our contract liabilities are
recorded within Other revenue deferred – current liability or Long-term license revenue deferred in our condensed consolidated balance
sheets depending on the short-term or long-term nature of the payments to be recognized. Our contract liabilities primarily consist of
advanced payments from licensees. Long-term license revenue deferred was $35.0 million at both December 31, 2023 and December 31, 2022,
resulting from the receipt from Immedica. This deferred revenue will be recognized upon European Union regulatory approval of Iomab-B.
Research and Development Expense, net of reimbursements
Research and development expenses
increased by $15.6 million to $38.7 million for the year ended December 31, 2023 compared to $23.1 million for the year ended December
31, 2022. Higher expenses were primarily due to increased CMC activity related to the planned BLA and MAA-enabling work for Iomab-B. In
addition, increased compensation of $4.3 million resulting from higher headcount, primarily to support BLA and MAA-enabling activity.
General and Administrative Expenses
General and administrative
expenses increased by $1.3 million to $13.3 million for the year ended December 31, 2023 compared to $12.0 million for the year ended
December 31, 2022. Higher expenses were primarily due to increased compensation of $0.9 million resulting from higher headcount and increased
non-cash equity compensation of $0.8 million, partially offset by lower consulting fees and legal fees.
Other Income
Other income is comprised
of net interest income in both reporting periods. Other income of $3.1 million for the year ended December 31, 2023 increased from $1.1
million for the year ended December 31, 2022 primarily due to higher interest rates.
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Net Loss
Net loss increased by $15.8
million to $48.8 million for the year ended December 31, 2023 compared to $33.0 million for the year ended December 31, 2022, primarily
due to higher research and development expenses largely attributed to increased CMC activity and headcount to support the planned BLA
and MAA-enabling activity and general and administrative expenses, partially offset by other income, as discussed above.
Liquidity and Capital Resources
Historically, we have financed
our operations primarily through sales of our common stock and common stock equivalents. The following tables sets forth selected cash
flow information for the periods indicated:
For the years ended December 31,
Cash (used in)/provided by operating activities $ (47,335 ) $ 8,644
Cash used in investing activities (153 ) (366 )
Cash provided by financing activities 14,870 23,109
Net change in cash, cash equivalents and restricted cash $ (32,618 ) $ 31,387
Net cash used in operating
activities for the year ended December 31, 2023 was $47.3 million, a decrease of $56.0 million from $8.6 million of net cash provided
by operating activities in the prior-year period, primarily as a result of the higher net loss of $15.8 million and the receipt in the
prior-year period of the $35.0 million up-front payment from Immedica.
Net cash used in investing
activities was $0.2 million and $0.4 million for the years ended December 31, 2023 and December 31, 2022, respectively, primarily due
to the purchase of equipment for our laboratory space.
In August 2020, we entered into the Capital on DemandTM Sales
Agreement with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we are able to sell, from time to time, through
or to JonesTrading, up to an aggregate of $200 million of our common stock. On June 28, 2022, we entered into an Amendment and Restated
Capital on DemandTM Sales Agreement, or the Amended Sales Agreement, with JonesTrading and B. Riley Securities, Inc. (“B. Riley”).
The Amended Sales Agreement modifies the original Capital on DemandTM Sales Agreement to include B. Riley as an additional sales
agent thereunder. Shares of common stock are offered pursuant to a shelf registration statement on Form S-3 (File No. 333-242322) filed
with the SEC on August 7, 2020 (the “Prior Shelf Registration Statement”). On August 11, 2023, we filed a new registration
statement on Form S-3 (File No. 333-273911), and amended on February 2, 2024, which was declared effective on February 5, 2024, to replace
the Prior Shelf Registration Statement, including a base prospectus which covers the offering, issuance and sale of up to $500 million
of common stock, preferred stock, warrants, units and/or subscription rights; and a sales agreement prospectus covering the offering,
issuance and sale of up to a maximum aggregate offering price of $200 million of common stock that may be issued and sold under the Amended
Sales Agreement. For the year ended December 31, 2023, we sold 1.9 million shares of common stock, resulting in gross proceeds of $15.1
million and net proceeds of $14.6 million. For the year ended December 31, 2022, we sold 3.5 million shares of common stock, resulting
in gross proceeds of $23.9 million and net proceeds of $23.2 million.
We entered into a lease
for corporate office space effective June 1, 2022. The lease has a term of five years two months, with an expiration date in 2027, and
current annual rent of $0.6 million. We are also responsible for certain other costs, such as insurance, utilities and maintenance. We
issued a letter of credit in connection with the lease and as of December 31, 2023 maintain a $0.3 million certified deposit as collateral
for the letter of credit.
65
We will require
additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and, subject to such approvals,
commercially launch our product candidates, and will need to secure additional financing in the future to support our operations. As
of the date of filing this report, we expect that our existing resources will be more than sufficient to fund our planned operations
for more than 12 months following the date of this report. We base this belief on assumptions that are subject to change, and we may
be required to use our available cash and cash equivalent resources sooner than we currently expect. Our actual future capital
requirements will depend on many factors, including the progress and results of our ongoing clinical trials, the duration and cost
of discovery and preclinical development, laboratory testing and clinical trials for our pipeline candidates, the timing and outcome
of regulatory review of our product candidates, the costs involved in preparing, filing, prosecuting, maintaining, defending, and
enforcing patent claims and other intellectual property rights, the number and development requirements of other pipeline candidates
that we pursue, and the costs of commercialization activities, including product marketing, sales, and distribution.
We expect to continue to operate
at a net loss as we continue our research and development efforts, continue to conduct clinical trials and develop manufacturing, sales,
marketing and distribution capabilities. There can be no assurance that the products under development by us will be approved for sale
in the United States or elsewhere. Our ability to obtain additional capital may depend on prevailing economic conditions and financial,
business, and other factors beyond our control. Current economic conditions have been, and continue to be, volatile. Continued instability
in these market conditions may limit our ability to access the capital necessary to fund and grow our business.
Off-Balance Sheet Arrangements
We do not have any off-balance
sheet arrangements.
Critical Accounting Estimates
Our management’s discussion
and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of
contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and
analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our
estimates on historical experience, known trends and events, 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 readily apparent
from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may
differ materially from these estimates under different assumptions or conditions.
Fair Value Measurement
Fair value is defined as the
price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants.
A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs.
Revenue Recognition
We recognize revenue in accordance
with ASC 606. Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects
the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements
within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction
price to the performance obligations in the contract; and (v) recognize revenue as we satisfy a performance obligation. We only apply
the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the
goods or services we transfer to the customer.
66
At contract inception,
once the contract is determined to be within the scope of ASC 606, we assess whether the promised goods or services promised within
each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined
not to be distinct are combined with other promised goods and services until a distinct bundle is identified. In determining whether
goods or services are distinct, we evaluate certain criteria, including whether (i) the customer can benefit from the good or
service either on its own or together with other resources that are readily available to the customer (capable of being distinct)
and (ii) the good or service is separately identifiable from other goods or services in the contract (distinct in the context
of the contract).
ASC 606 requires us to allocate
the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction
price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling
price is defined in the new revenue standard as the price at which an entity would sell a promised good or service separately to a customer.
We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation as each performance
obligation is satisfied, either at a point in time or over time, and if over time, recognition is based on the use of an output or input
method.
Collaborative Arrangements
We follow the accounting guidance
for collaboration agreements, which requires that certain transactions between us and collaborators be recorded in our consolidated statements
of operations on either a gross basis or net basis, depending on the characteristics of the collaborative relationship, and requires enhanced
disclosure of collaborative relationships. We evaluate our collaboration agreements for proper classification in our consolidated statements
of operations based on the nature of the underlying activity. When we conclude that we have a customer relationship with one of our collaborators,
we follow the guidance of ASC 606.
Grant Revenue
We have a grant from a government-sponsored
entity for research and development related activities that provides for payments for reimbursed costs, which included overhead and general
and administrative costs as well as an administrative fee. We recognize revenue from the grant as we perform services under this arrangement.
Associated expenses are recognized when incurred as research and development expense. Revenue and related expenses are presented gross
in the consolidated statements of operations.
License Revenue
We entered into a product
licensing agreement whereby we allowed a third party to commercialize a certain product in specified territories using our trademarks.
The terms of this arrangement includes payment to us for a combination of one or more of the following: upfront license fees; development,
regulatory and sales-based milestone payments; and royalties on net sales of licensed products. We use judgment to determine whether milestones
or other variable consideration should be included in the transaction price.
Upfront license fees:
If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement,
we will recognize revenue from upfront license fees allocated to the license when the license is transferred to the licensee and the licensee
is able to use and benefit from the license. For licenses that are bundled with other promises, we determine whether the combined performance
obligation is satisfied over time or at a point in time.
Development, regulatory
or commercial milestone payments: At the inception of each arrangement that includes payments based on the achievement of certain
development, regulatory and sales-based or commercial events, we evaluate whether the milestones are considered probable of being achieved
and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant
revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not
within our or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until regulatory
approval is received. At the end of each subsequent reporting period, we will re-evaluate the probability of achieving such development
and regulatory milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such
adjustments are recorded on a cumulative catch-up basis and recorded as part of license revenues during the period of adjustment.
67
Sales-based milestone
payments and royalties: For arrangements that include sales-based royalties, including milestone payments based on the volume of
sales, we will determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones
relate and if such is the case, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the
performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Upfront payments and fees
may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements or when it is
probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with
any variable consideration is subsequently resolved. Amounts payable to us are recorded as accounts receivable when our right to consideration
is unconditional.
Research and Development Costs
Research and development costs
are expensed as incurred. These costs include the costs of manufacturing drug components and final drug product, the costs of clinical
trials, costs of employees and associated overhead, and depreciation and amortization costs related to facilities and equipment. Research
and development reimbursements are recorded by us as a reduction of research and development costs.
Share-Based Payments
We estimate the fair value
of each stock option award at the grant date by using the Black-Scholes option pricing model. The fair value determined represents the
cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the
award. We account for forfeitures of stock options as they occur.
Income Taxes
We use the asset and liability
method to calculate deferred taxes. Deferred taxes are recognized based on the differences between the financial reporting and income
tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
We review deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will
be fully realized. A valuation allowance, if necessary, is provided against deferred tax assets, based upon our assessment as to their
realization.
We recognize tax when the
positions meet a “more-likely-than-not” recognition threshold. There were no tax positions for which it is considered reasonably
possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next year. We recognize
interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Recently Issued Accounting Pronouncements
In December 2023, FASB issued
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness
of income tax disclosures. The amendments in ASU 2023-09 provide improvements primarily related to the rate reconciliation and income
taxes paid information included in income tax disclosures. We would be required to disclose additional information regarding reconciling
items equal to or greater than five percent of the amount computed by multiplying pretax income (loss) by the applicable statutory tax
rate. Similarly, we would be required to disclose income taxes paid (net of refunds received) equal to or greater than five percent of
total income taxes paid (net of refunds received). The amendments in ASU 2023-09 are
effective January 1, 2025, including interim periods. Early adoption is permitted for annual financial statements that have not yet been
issued or made available for issuance. We will evaluate the impact of ASU 2023-09 on our financial statements.
68
In November 2023, FASB
issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which provides
improvements to reportable segment disclosure requirements, primarily through enhanced disclosures around segment expenses. ASU
2023-07 requires us to disclose significant segment expenses that are regularly provided to the chief operating decision maker, or
CODM, and included within each reported measure of segment profit or loss. ASU 2023-07 also requires that we disclose an amount for
other segment items by reportable segment, a description of their composition and provide all annual disclosures about a reportable
segment’s profit or loss and assets pursuant to Topic 280 during interim periods. We must also disclose the CODM’s title
and position, as well as certain information around the measures used by the CODM and an explanation of how the CODM uses the
reported measures in assessing segment performance and deciding how to allocate resources. For public entities with a single
reportable segment, the entity must provide all the disclosures required by pursuant to ASU 2023-07 and all existing segment
disclosures under Topic 280. The amendments of ASU 2023-07 are effective for us for annual
periods beginning January 1, 2024, and effective for interim periods beginning January 1, 2025. Early adoption is permitted for
annual financial statements that have not yet been issued or made available for issuance. We
will evaluate the impact of ASU 2023-07 on our financial statements.
In October 2021, FASB issued
ASU 2021-08, Business Combinations (Topic 805), Account for Contract Assets and Contract Liabilities from Contracts with Customers,
which provides guidance on accounting for contract assets and contract liabilities acquired in a business combination in accordance
with ASC 606. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue
contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities
consistent with how they were recognized and measured in the acquiree’s financial statements. The amendments of ASU 2021-08 are
effective January 1, 2023, including interim periods. We will evaluate the impact of ASU 2021-08 on any future business combinations
we may enter in the future.
Subsequent Event
Since December 31, 2023, we
have sold 1.8 million shares of common stock under our Amended Sales Agreement, resulting in net proceeds of $14.7 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
We are not currently exposed
to significant market risk related to changes in interest rates. As of December 31, 2023, our cash equivalents consisted primarily of
short-term money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the
general level of U.S. interest rates. Due to the short-term nature of the cash equivalents in our portfolio and the low risk profile
of our cash equivalents, an immediate 10% change in interest rates would not have a material effect on the fair market value of our financial
position or results of operations.
We are not currently exposed
to significant market risk related to changes in foreign currency exchange rates. Our operations may be subject to fluctuations in foreign
currency exchange rates in the future.
Inflation generally affects
us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial
condition, or results of operations during the years ended December 31, 2023 and 2022.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and Board of Directors of
Actinium Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of Actinium Pharmaceuticals, Inc. (the “Company”) as of December 31, 2023 and 2022, and the
related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the
period ended December 31, 2023 and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023,
in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2012.
Houston, Texas
March 29, 2024
F-1
Actinium Pharmaceuticals, Inc.
Consolidated Balance Sheets
(amounts in thousands, except share and per share
data)
Assets
Current Assets:
Restricted cash – current - 396
Prepaid expenses and other current assets 1,586 1,636
Property and equipment, net of accumulated depreciation of $694 and $487 550 604
Restricted cash – long term 313 302
Operating lease right-of-use assets 2,289 2,341
Finance leases right-of-use assets 30 3
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses $ 7,953 $ 10,130
Operating leases current liability 530 494
Finance leases current liability 11 4
Long-term operating lease obligations 1,553 2,083
Long-term finance lease obligations 19 -
Commitments and contingencies
Stockholders’ Equity:
Total Liabilities and Stockholders’ Equity $ 81,445 $ 114,192
See accompanying notes to the consolidated financial
statements.
F-2
Actinium Pharmaceuticals, Inc.
Consolidated Statements of Operations
(amounts in thousands, except share and per share
data)
For the Year ended December 31,
Revenue
Revenue $ - $ -
Operating expenses:
Research and development, net of reimbursements 38,670 23,135
Other income:
Net loss per common share – basic and diluted $ (1.83 ) $ (1.37 )
See accompanying notes to the consolidated financial
statements.
F-3
Actinium Pharmaceuticals, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended December 31, 2023 and 2022
(amounts in thousands, except share amounts)
Additional
Common Stock Paid-In Accumulated Stockholders’
Shares Amount Capital Deficit Equity
Issuance of common stock from exercise of stock options 44,241 - 262 262
See accompanying notes to the consolidated financial
statements.
F-4
Actinium Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
For the Year ended December 31,
Cash Flows from Operating Activities:
Stock-based compensation expense 3,842 2,795
Depreciation and amortization expense 790 699
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 49 (158 )
Accounts payable and accrued expenses (2,177 ) 4,595
Other revenue deferred – current liability - (998 )
Long-term license revenue deferred - 35,000
Operating lease right-of-use assets (527 ) -
Operating lease liabilities (494 ) (272 )
Net Cash Used In/Provided By Operating Activities (47,335 ) 8,644
Cash Flows Used in Investing Activities:
Purchase of property and equipment (153 ) (366 )
Net Cash Used In Investing Activities (153 ) (366 )
Cash Flows from Financing Activities:
Payments on finance leases (4 ) (49 )
Proceeds from the exercise of stock options 262 -
Net Cash Provided By Financing Activities 14,870 23,109
Net change in cash, cash equivalents and restricted cash (32,618 ) 31,387
Cash, cash equivalents and restricted cash at beginning of year 109,608 78,221
Cash, cash equivalents and restricted cash at end of year $ 76,990 $ 109,608
Supplemental disclosures of cash flow information:
Cash paid for interest $ - $ -
Cash paid for taxes $ - $ -
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for lease liabilities $ 30 $ 2,605
Equipment obtained in exchange for security deposit $ - $ 50
See accompanying notes to the consolidated financial
statements.
F-5
Actinium Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
Note 1 – Description of Business and Summary
of Significant Accounting Policies
Nature of Business –
Actinium Pharmaceuticals, Inc. is a biopharmaceutical company developing ARCs and other targeted radiotherapies to deliver cancer-killing
radiation with cellular level precision to treat patients with high unmet medical needs.
Principles of Consolidation
- The consolidated financial statements include the Company’s accounts and those of the Company’s wholly owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Use of Estimates in Financial
Statement Presentation - The preparation of these consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash
Equivalents and Restricted Cash- The Company considers all highly liquid accounts with original maturities of three months or
less to be cash equivalents. The Company holds most of its cash equivalents in a Money Market account comprised of US Treasury
notes. Balances held by the Company are typically in excess of Federal Deposit Insurance Corporation insured limits.
Following is a summary of
cash, cash equivalents and restricted cash at December 31, 2023 and December 31, 2022:
Restricted cash – current - 396
Restricted cash – long-term 313 302
Cash, cash equivalents and restricted cash $ 76,990 $ 109,608
Restricted cash relates to
certificates of deposit held as collateral for letters of credit issued in connection with the Company’s leases of corporate office
spaces.
Property and
Equipment - Machinery and equipment are recorded at cost and depreciated on a straight-line basis over estimated useful lives of
three to five years. Furniture and fixtures are recorded at cost and depreciated on a straight-line basis over estimated useful
lives of seven years. When assets are retired, the cost and related accumulated depreciation are removed from the accounts, and any
related gain or loss is reflected in operations. Repairs and maintenance expenditures are charged to operations when incurred. Capitalized lease
assets are recorded at the lesser of the present value of minimum lease payments or fair value and amortized over the estimated
useful life of the related property or term of the lease.
Leases – The
Company has an operating lease for corporate office space and a finance lease for office equipment located at the corporate office space.
Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on
a straight-line basis over the lease term.
F-6
Fair Value Measurement
- Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted
prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Revenue Recognition -
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers
(“ASC 606”). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services,
in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine
revenue recognition for arrangements within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable
consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue as
the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the
entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.
At contract inception, once
the contract is determined to be within the scope of ASC 606, the Company assesses whether the promised goods or services promised within
each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not
to be distinct are combined with other promised goods and services until a distinct bundle is identified. In determining whether goods
or services are distinct, the Company evaluates certain criteria, including whether (i) the customer can benefit from the good or
service either on its own or together with other resources that are readily available to the customer (capable of being distinct) and
(ii) the good or service is separately identifiable from other goods or services in the contract (distinct in the context of the
contract).
The Company then determines
the transaction price, which is the amount of consideration it expects to be entitled from a customer in exchange for the promised goods
or services for each performance obligation and recognizes the associated revenue as each performance obligation is satisfied. The Company’s
estimate of the transaction price for each contract includes all variable consideration to which it expects to be entitled. Variable consideration
includes payments in the form of collaboration milestone payments. If an arrangement includes collaboration milestone payments, the Company
evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price
using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value
is included in the transaction price.
ASC 606 requires the Company
to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining
the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative
standalone selling price is defined in the revenue standard as the price at which an entity would sell a promised good or service separately
to a customer. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance
obligation as each performance obligation is satisfied, either at a point in time or over time, and if over time, recognition is based
on the use of an output or input method.
Collaborative Arrangements
- The Company follows the accounting guidance for collaboration agreements with third parties, which requires that certain transactions
between the Company and collaborators be recorded in its consolidated statements of operations on either a gross basis or net basis, depending
on the characteristics of the collaborative relationship, and requires enhanced disclosure of collaborative relationships. The Company
evaluates its collaboration agreements for proper classification in its consolidated statements of operations based on the nature of the
underlying activity. When the Company has concluded that it has a customer relationship with one of its collaborators, the Company follows
the guidance of ASC 606.
F-7
Grant Revenue – The
Company has a grant from a government-sponsored entity for research and development related activities that provides for payments
for reimbursed costs, which included overhead and general and administrative costs as well as an administrative fee. The Company
recognizes revenue from grants as it performed services under this arrangement. Associated expenses are recognized when incurred as
research and development expense. Revenue and related expenses are presented gross in the consolidated statements of operations.
License Revenue –
The Company entered into a product licensing agreement whereby the Company allowed a third party to commercialize a certain product
in specified territories using the Company’s trademarks. The terms of this arrangement includes payment to the Company for a combination
of one or more of the following: upfront license fees; development, regulatory and sales-based milestone payments; and royalties on net
sales of licensed products. The Company uses its judgment to determine whether milestones or other variable consideration should be included
in the transaction price.
Upfront license fees:
If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified
in the arrangement, the Company will recognize revenue from upfront license fees allocated to the license when the license is transferred
to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company
determines whether the combined performance obligation is satisfied over time or at a point in time.
Development, regulatory
or commercial milestone payments: At the inception of each arrangement that includes payments based on the achievement of certain
development, regulatory and sales-based or commercial events, the Company evaluates whether the milestones are considered probable of
being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable
that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments
that are not within the Company’s or the licensee’s control, such as regulatory approvals, are not considered probable of
being achieved until regulatory approval is received. At the end of each subsequent reporting period, the Company will re-evaluate the
probability of achieving such development and regulatory milestones and any related constraint, and if necessary, adjust the Company’s
estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis and recorded as part of license
revenue during the period of adjustment.
Sales-based milestone payments
and royalties: For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, the
Company will determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate
and if such is the case, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance
obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Upfront payments and fees
may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements or
when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty
associated with any variable consideration is subsequently resolved. Amounts payable to the Company are recorded as accounts receivable
when the Company’s right to consideration is unconditional.
Research and Development
Costs - Research and development costs are expensed as incurred. These costs include the costs of manufacturing drug product, the
costs of clinical trials, costs of employees and associated overhead, and depreciation and amortization costs related to facilities and
equipment. Research and development reimbursements are recorded by the Company as a reduction of research and development costs.
Share-Based Payments -
The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model. The
fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required
to provide service in exchange for the award. The Company accounts for forfeitures of stock options as they occur.
F-8
Income Taxes - The
Company accounts for income taxes in accordance with ASC 740 Income Taxes, which requires the asset and liability method to calculate
deferred taxes. Deferred taxes are recognized based on the differences between the financial reporting and income tax bases of assets
and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company
reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be
fully realized.
ASC 740 prescribes guidance
for the financial statement recognition, measurement and disclosure of uncertain tax positions. Tax positions must meet a “more-likely-than-not”
recognition threshold to be recognized. There were no tax positions for which it is considered reasonably possible that the total amounts
of unrecognized tax benefits will significantly increase or decrease within the next year. The Company recognizes interest related to
unrecognized tax benefits in interest expense and penalties in operating expenses.
Net Loss Per Common Share
- Basic loss per common share is computed by dividing the net loss available to common stockholders by the weighted average number of
common shares outstanding during the reporting period. For periods of net loss, diluted loss per share is calculated similarly to basic
loss per share because the impact of all potential dilutive common shares is anti-dilutive.
For the years ended December
31, 2023 and 2022, the Company’s potentially dilutive shares, which include outstanding common stock options, restricted stock units
and warrants, have not been included in the computation of diluted net loss per share as the result would have been anti-dilutive.
Subsequent Events -
The Company’s management reviewed all material events through the date the consolidated financial statements were issued for subsequent
event disclosure consideration.
Recently Issued Accounting
Pronouncements - In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures,
to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide improvements primarily
related to the rate reconciliation and income taxes paid information included in income tax disclosures. The Company would be required
to disclose additional information regarding reconciling items equal to or greater than five percent of the amount computed by multiplying
pretax income (loss) by the applicable statutory tax rate. Similarly, the Company would be required to disclose income taxes paid (net
of refunds received) equal to or greater than five percent of total income taxes paid (net of refunds received). The amendments in ASU
2023-09 are effective January 1, 2025, including interim periods. Early adoption is permitted for annual financial statements that have
not yet been issued or made available for issuance. The Company will evaluate the impact of ASU 2023-09 on its financial statements.
In November 2023, FASB issued
ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which provides improvements
to reportable segment disclosure requirements, primarily through enhanced disclosures around segment expenses. ASU 2023-07 requires the
Company to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”)
and included within each reported measure of segment profit or loss. ASU 2023-07 also requires that the Company disclose an amount for
other segment items by reportable segment, a description of their composition and provide all annual disclosures about a reportable segment’s
profit or loss and assets pursuant to Topic 280 during interim periods. The Company must also disclose the CODM’s title and position,
as well as certain information around the measures used by the CODM and an explanation of how the CODM uses the reported measures in
assessing segment performance and deciding how to allocate resources. For public entities with a single reportable segment, the entity
must provide all the disclosures required pursuant to ASU 2023-07 and all existing segment disclosures under Topic 280. The amendments
of ASU 2023-07 are effective for the Company for annual periods beginning January 1, 2024, and effective for interim periods beginning
January 1, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.
The Company will evaluate the impact of ASU 2023-07 on its financial statements.
In October 2021, FASB issued
ASU 2021-08, Business Combinations (Topic 805), Account for Contract Assets and Contract Liabilities from Contracts with Customers,
which provides guidance on accounting for contract assets and contract liabilities acquired in a business combination in accordance with
ASC 606. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue
contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities
consistent with how they were recognized and measured in the acquiree’s financial statements. The amendments of ASU 2021-08 are
effective January 1, 2023, including interim periods. The Company will evaluate the impact of ASU 2021-08 on any future business combinations
the Company may enter in the future.
F-9
Note 2 - Prepaid Expenses and Other Current
Assets