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 consolidated financial statements of Relmada for the years ended December 31, 2022 and 2021. The consolidated
financial statements of Relmada 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 Relmada contained elsewhere in this Report. The consolidated financial statements contained elsewhere
in this Report fully represent Relmada’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 Annual Report.
This discussion contains forward-looking statements
reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in
these forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk Factors”
and elsewhere herein. 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 Relmada Therapeutics, Inc. contained elsewhere in this document. Relmada’s
current consolidated financial position and consolidated results of operations; are not necessarily 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 document.
Our Corporate History and Background
Relmada Therapeutics, Inc. is a clinical-stage,
publicly traded biotechnology company developing NCEs that potentially address areas of high unmet medical need in the treatment of depression
and other CNS diseases.
The Company’s lead product candidate, esmethadone,
is being developed as a rapidly acting, oral agent for the treatment of depression and other potential indications.
On October 15, 2019, we reported top-line data
from study REL-1017-202. This was a double-blind, placebo-controlled Phase 2 clinical trial evaluating the safety, tolerability and efficacy
of two doses of REL-1017, 25 mg once a day and 50 mg once a day, as an adjunctive treatment in patients with MDD, who experienced an inadequate
response to 1 to 3 treatments with an antidepressant medication.
On December 20, 2020, the Company announced that
the first patient had been enrolled in the first Phase 3 clinical trial (RELIANCE I) of REL-1017, as an adjunctive treatment for MDD.
On April 1, 2021, Relmada announced the initiation
of RELIANCE II, the second of two sister pivotal Phase 3 clinical trials (RELIANCE I and RELIANCE II) of REL-1017, as an adjunctive treatment
for MDD. Patients who complete RELIANCE I and RELIANCE II are eligible to rollover into the long-term, open-label study, which also includes
subjects who had not previously participated in a REL-1017 clinical trial.
On October 4, 2021, Relmada announced the initiation
of the RELIANCE III study, the monotherapy trial for the Company’s lead product candidate, REL-1017.
On August 9, 2022, Relmada announced that the
FDA granted Fast Track designation to REL-1017 as a monotherapy for the treatment of MDD.
On October 13, 2022, Relmada announced that its
RELIANCE III study, evaluating REL-1017 in the monotherapy setting for MDD, did not achieve its primary endpoint, which was a statistically
significant improvement in depression symptoms compared to placebo as measured by MADRS on Day 28. In the study, the REL-1017 treatment
arm showed a MADRS reduction of 14.8 points at Day 28 versus 13.9 points for the placebo arm, a higher than expected placebo response.
On December 7, 2022, Relmada announced that its RELIANCE I study, evaluating
REL-1017 as an adjunctive treatment for MDD, did not achieve its primary endpoint, which was a statistically significant improvement in
depression symptoms compared to placebo as measured by MADRS on Day 28. In the study, the REL-1017 treatment arm (n= 113) showed a MADRS
reduction of 15.1 points at Day 28 versus 12.9 points for the placebo arm (n=114), which is a clinically meaningful difference of 2.2
points on the MADRS, as well as a statistically significant difference in the response rate, with a response rate of 27.2% on placebo
vs 39.8% in the REL1017 arm (p<0.05).
34
In addition, in order to support potential regulatory
submissions seeking approval for REL-1017 as adjunctive and monotherapy treatment, the FDA confirmed that, based on what is known at
this time, Relmada will not be required to conduct a two-year carcinogenicity study of REL-1017, as sufficient clinical data have been
generated to date. The FDA also confirmed that Relmada does not need to conduct a TQT cardiac study in humans to support cardiac safety
in potential regulatory submissions for REL-1017, as the data already provided and the data to be generated by the Phase 3 program will
be adequate to evaluate the cardiac safety profile of REL-1017.
We have not generated revenues and do not anticipate
generating revenues for the foreseeable future. We had a net loss of approximately $157,043,800 and $125,751,800 for the years ended December
31, 2022 and 2021, respectively. At December 31, 2022, we have an accumulated deficit of approximately $462,110,900.
Results of Operations
For the Year Ended December 31, 2022 vs the Year Ended December
31, 2021
Research and Development Expense
Total research and development expense for the
year ended December 31, 2022 was approximately $113,323,000, as compared to $90,621,600 for the same period of 2021, an increase of $22,701,400.
The increase in research and development expense was primarily due to:
● Increase in pre-clinical and toxicology expenses of $225,500;
General and Administrative Expense
Total general and administrative expense for the
year ended December 31, 2022 was approximately $47,926,100, as compared to $35,081,900 for the same period of 2021, an increase of $12,844,200.
The increase in general and administrative expenses was primarily due to:
Other Income, Net
Gain on settlement fees was approximately $6,351,600 received from
a settlement during 2022.
Interest/investment income was approximately $2,659,400
for the year ended December 31, 2022 compared to approximately $1,199,100 for the same period of 2021, an increase of $1,460,300. The
increase was primarily related to a lower average investment balance during 2021 as compared to 2022.
Realized loss on short-term investments was approximately
$585,500 compared to approximately $636,000 for the same period of 2021, a decrease of $50,500. The decrease was related to the timing
of the sales of short-term investments along with market conditions.
Unrealized loss on short-term investments was
approximately $4,220,300 compared to approximately $611,400 for the same period of 2021, an increase of $3,608,900. The increase was related
to the market conditions.
Income Taxes
The Company did not provide for income taxes
for the years ended December 31, 2022 and 2021, since there was a loss and a full valuation allowance against all deferred tax assets.
Net Loss
The Company recorded a net loss of approximately
$157,043,800 and $125,751,800 or $5.30 and $7.16 per common share, basic and diluted, during the years ended December 31, 2022 and 2021,
respectively, based on the factors described above.
35
Liquidity
As shown in the accompanying financial statements,
the Company incurred negative operating cash flows of $103,801,617 for the year ended December 31, 2022 and has an accumulated deficit
of $462,110,935 from inception through December 31, 2022.
Relmada has funded its past operations through
equity raises and most recently in the year ended December 31, 2022, Relmada raised $42,728,599 in net proceeds from the sale of common
stock, $1,264,523 through the exercise of warrants, and $703,720 through the exercise of options.
Management believes that due to the recent equity
raises completed and exercises of options and warrants and the resulting cash position on its balance sheet, it has obtained sufficient
funding, based on its budgeted cash flow requirements, to continue ongoing operations for at least 12 months from the filing of this
annual report.
The following table sets forth selected cash flow information for
the periods indicated below:
For the Year Ended For the Year Ended
December 31, December 31,
For the year ended December 31, 2022, cash used in operating activities
was $103,801,617 primarily due to the net loss of $157,043,823. This was offset by non-cash expenses which primarily consisted of stock-based
compensation of $44,194,765 and a gain on settlement of $6,351,606. There were realized and unrealized losses on short term investments
of $585,522 and $4,220,255, respectively. In addition, there were increases in operating assets and liabilities for the year ended December
31, 2022 of $10,593,270.
For the year ended December 31, 2021, cash used
in operating activities was $91,873,395 primarily due to the net loss of $125,751,809. This was offset by non-cash expenses which primarily
consisted of stock-based compensation of $40,494,476 and depreciation expense of $1,258. There were realized and unrealized losses on
short term investments of $636,012 and $611,382, respectively. In addition, there were increases in operating assets and liabilities
for the year ended December 31, 2021 of $7,864,714.
For the year ended December 31, 2022, cash provided
by investing activities was $19,733,609, due to $47,293,763 of purchases of short term investments offset by $67,027,372 of sales of short
term investments.
For the year ended December 31, 2021, cash used
in investing activities was $54,118,036, due to $222,981,675 of purchases of short term investments offset by $168,863,639 of sales of
short term investments.
Net cash provided by financing activities for
the year ended December 31, 2022, was $45,020,474 due to proceeds from issuance of common stock of $42,728,599, proceeds from warrants
exercised for common stock of $1,264,523, proceeds from options exercised for common stock of $703,720, proceeds from 16b short swing
profit of $373,632 offset by the payment of fees for warrants issued for common stock of $50,000.
Net cash provided by financing activities for
the year ended December 31, 2021, was $187,939,473 due to proceeds from issuance of common stock of $184,642,981, proceeds from warrants
exercised for common stock of $2,628,061, proceeds from options exercised for common stock of $668,431.
Effects of Inflation
Our assets are primarily monetary, consisting
of cash and cash equivalents. Because of their liquidity, these assets are not directly affected by inflation. Because we intend to retain
and continue to use our equipment, we believe that the incremental inflation related to replacement costs of such items will not materially
affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and contract services,
which could increase our level of expenses and the rate at which we use our resources.
Lease Obligations
The Company is obligated to pay approximately
$274,000 under 2 office operative leases over the next year.
36
Seasonality
We do not have a seasonal business cycle.
Critical Accounting Policies and Use of Estimates
The preparation of 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 and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for the reporting period. Management bases its estimates on historical experience
and on various assumptions that are believed to be 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. On a continual basis,
management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience,
and reasonable assumptions. After such reviews, and if deemed appropriate, managements estimates are adjusted accordingly. Actual results
could differ from those estimates and assumptions under different and/or future circumstances. Management considers an accounting estimate
to be critical if:
We evaluate our estimates and assumptions on
an ongoing basis and none of the Company’s estimates and assumptions used within the consolidated financial statements involve
a high level of estimation uncertainty. For additional discussion regarding the application of the significant accounting policies, see
Note 2 to the Company’s consolidated financial statements included in this report.
Recent Accounting Pronouncements
The Company lists material recent accounting
pronouncements in Note 2 of the consolidated financial statements.
37
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Interest rate risk
Our cash and cash equivalents include all highly
liquid investments with an original maturity of three months or less. Our cash equivalents are in a money market account. Because of
the short-term maturities of our cash and cash equivalents, we do not believe that an increase in market rates would have a significant
impact on the realized value of our investments. We place our cash and cash equivalents on deposit with financial institutions in the
United States. The Federal Deposit Insurance Corporation limits coverage for all depository accounts. Our cash and cash equivalents at
times may exceed covered limits.
Foreign currency exchange risk
We currently have limited, but may in the future
have increased, clinical and commercial manufacturing agreements which are denominated in Euros or other foreign currencies. As a result,
our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar and
the Euro or other applicable currencies, or by weak economic conditions in Europe or elsewhere in the world. We are not currently engaged
in any foreign currency hedging activities.
Market indexed security risk
We have issued warrants to various holders underlying
shares of our common stock. These warrants are re-measured to their fair value at each reporting period with changes in their fair value
recorded as derivative gain (loss) in the accompanying consolidated statement of operations. We use the Black-Scholes model for valuation
of the warrants.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Our audited consolidated financial statements
as of December 31, 2022 and 2021 for the years then ended are included beginning on Page F-1 immediately following the signature page
to this report. See Item 15 for a list of the financial statements included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, at December 31, 2022, such
disclosure controls and procedures were effective.
Disclosure controls and procedures are controls
and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed
or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial
Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
This Annual Report on Form 10-K does not include
an attestation report from our registered public accounting firm regarding internal control over financial reporting. Our internal control
over financial reporting was not subject to such attestation as we are a non-accelerated filer.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures are designed
to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have
been detected. Our Chief Executive Officer and Chief Financial Officer have concluded, based on his evaluation as of the end of the period
covered by this Report that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives
of our disclosure control system were met.
Changes in Internal Control Over Financial
Reporting
There were no changes in the Company’s
internal controls over financial reporting that occurred during the fourth quarter of the fiscal year covered by this Annual Report on
Form 10-K that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
38
Management’s Report on Internal Control
Over Financial Reporting
As required by the SEC rules and regulations for the implementation
of Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control
over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with
United States Generally Accepted Accounting Principles (GAAP). Our internal control over financial reporting includes those policies and
procedures that:
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of
our internal control over financial reporting at December 31, 2022. In making these assessments, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission COSO (2013 framework). Based on our assessments and those criteria,
management determined that we did maintain effective internal control over financial reporting at December 31, 2022.
ITEM
9B. OTHER INFORMATION
On March 17, 2023, our Board of Directors unanimously
approved, subject to stockholder approval, an amendment to the Company’s 2021 Equity Incentive Plan (the “2021 Plan”),
increasing by 2,500,000 shares the number of shares of our common stock that will be available for issuance of awards under the 2021 Plan.
The 2021 Plan as adopted and approved by our shareholders originally authorized awards for up to 1,500,000 shares of our common stock.
On May 25, 2022, shareholders approved an amendment to the 2021 Plan to increase the shares of the Company’s common stock available
for issuance thereunder by 3,900,000 shares.
The purpose of the 2021 Plan is to (a) enable
the Company and its affiliates to attract and retain the types of employees, directors and consultants who will contribute to the Company’s
long range success; (b) provide incentives that align the interests of employees, consultants and directors with those of the stockholders
of the Company; and (c) promote the success of the Company’s business, thus enhancing the value of the Company for the benefit
of its stockholders.
Administration. The 2021 Plan will be
administered by a committee (the “Committee”), or in the Board’s sole discretion by the Board. In case no Committee
has been appointed, the Board may appoint one or more members of the Board appointed by the Board to administer the 2021 Plan in accordance
with the terms of the 2021 Plan. The Board has appointed the Compensation Committee of the Board to administer the 2021 Plan.
Shares Available for Awards. Subject to
adjustment in certain circumstances in accordance with the terms of the 2021 Plan, we will reserve for issuance under the 2021 Plan no
more than 7,900,000 shares of common stock (subject to adjustment in certain circumstances as provided in the Plan). Shares of Common
Stock available for distribution under the 2021 Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares
or shares reacquired by the Company in any manner. Shares of Common Stock subject to an award that expires or is canceled, forfeited,
or terminated without issuance of the full number of shares of Common Stock to which the award related, as well as any shares of common
stock subject to an award that are (a) tendered in payment of an option, (b) delivered or withheld by the company to satisfy any tax withholding
obligation, or (c) covered by a stock-settled stock appreciation right or other awards that were not issued upon the settlement of the
award, shall be added back to the shares of common stock available for issuance of awards or delivery under the 2021 Plan.
Available Awards. Awards that may be granted
under the 2021 plan include: (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) restricted
awards, (e) performance share awards, (f) cash awards, and (g) other equity-based awards.
Recipients of Grants. Incentive stock
options may be granted only to employees. Awards other than incentive stock options may be granted to employees, consultants and directors
and those individuals whom the Committee or the Board determines are reasonably expected to become employees, consultants and directors
following the grant date. Our principal executive officer, principal financial officer and other named executive officers are eligible
to participate in and receive awards under the 2021 Plan.
Term.
The 2021 Plan has a term of ten years.
This summary of the 2021 Plan is qualified in
its entirety by the full text of the 2021 Plan, which is filed as Exhibit 10.33 to this Report and is incorporated by reference herein.
The proposed amendment to the 2021 Plan will be
submitted for the approval of our shareholders at our 2023 Annual Meeting of Stockholders. If the proposed amendment is not approved by
the shareholders, the 2021 Plan will remain effective with respect to the number of shares of common stock originally authorized. Options
for 930,336 shares of commons stock were issued subject to approval by the shareholders of this amendment. If the amendment is not approved,
such options will be void.
ITEM 9C. DISCLOSURE REGARDING FOREIGN
JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
39
PART III
The information required for the Items contained
in Part III is incorporated herein by reference from our definitive proxy statement for our 2023 Annual Meeting of Stockholders
(the “Proxy Statement”), which will be filed with the SEC no later than 120 days after December 31, 2022.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS,
AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
40
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules
Our consolidated financial statements are listed
on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.
All financial statement schedules are omitted
because they are not applicable or the required information is shown in the financial statements or notes thereto.
Our independent registered public accounting firm is Marcum LLP (PCAOB
ID #688) of Houston, Texas.
41
RELMADA THERAPEUTICS, INC.
(INDEX TO FINANCIAL STATEMENTS)
Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2022 and 2021 F-3
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and Board of Directors of
Relmada Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Relmada Therapeutics, Inc. (the “Company”) as of December 31, 2022 and 2021, 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, 2022,
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, 2022 and 2021, and the results of
its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 Matter
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 2014.
Houston, Texas
March 23, 2023
F-2
Relmada Therapeutics, Inc.
Consolidated Balance Sheets
As of As of
December 31, December 31,
Assets
Current assets:
Lease payments receivable – short term - 86,377
Liabilities and Stockholders’ Equity
Current liabilities:
Commitments and Contingencies (Note 7)
Stockholders’ Equity:
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
Relmada Therapeutics, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2022 and 2021
Operating expenses:
Other income (expenses):
Gain on settlement of fees 6,351,606 -
Realized loss on short-term investments (585,522 ) (636,012 )
Net loss per common share – basic and diluted $ (5.30 ) $ (7.16 )
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
Relmada Therapeutics, Inc.
Consolidated Statements of Changes in Stockholders’
Equity
For the Years Ended December 31, 2022 and 2021
Common Stock Additional Paid-in Accumulated
Shares Par Value Capital Deficit Total
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
Relmada Therapeutics, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2022 and 2021
Cash flows from operating activities
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense - 1,258
Change in operating assets and liabilities:
Cash flows from investing activities
Cash flows from financing activities
Payment of fees for warrants issued for common stock (50,000 ) -
Proceeds from options exercised for common stock 703,720 668,431
Proceeds from short swing profit, net 373,632 -
F-6
Relmada Therapeutics, Inc.
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31, 2022 and 2021
Supplemental disclosure of cash flow information:
Non-cash operating transactions:
Forgiveness of accounts payable related to gain $ 3,212,583 $ -
Non-cash investing and financing transactions:
Share exchange for Pre-funded warrants $ 1,452 $ -
Net exercise of Pre-funded warrants $ (1,452 ) $ -
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
Relmada Therapeutics, Inc.
Notes to Consolidated Financial Statements
NOTE 1 - BUSINESS
Relmada Therapeutics Inc. (Relmada or the Company)
(a Nevada corporation) is a clinical-stage, publicly traded biotechnology company focused on the development of esmethadone (d-methadone,
dextromethadone, REL-1017), an N-methyl-D-aspartate (NMDA) receptor antagonist. Esmethadone is a New Chemical Entity (NCE) that potentially
addresses areas of high unmet medical need in the treatment of central nervous system (CNS) diseases and other disorders.
In addition to the normal risks associated with
a new business venture, there can be no assurance that the Company’s research and development will be successfully completed or
that any product will be approved or commercially viable. The Company is subject to risks common to companies in the biotechnology industry
including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology, and compliance with the Food and Drug Administration
(FDA) and other governmental regulations and approval requirements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements
and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.
GAAP). The consolidated financial statements include the Company’s accounts and those of the Company’s wholly-owned subsidiary.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Liquidity
As shown in the accompanying consolidated financial
statements, the Company incurred negative operating cash flows of $103,801,617 for the year ended December 31, 2022 and has an accumulated
deficit of $462,110,935 from inception through December 31, 2022.
Relmada has funded its past operations through
equity raises and most recently in the year ended December 31, 2022, Relmada raised $42,728,599 in proceeds from the sale of common stock
through an ATM offering, $1,264,523 through the exercise of warrants, and $703,720 through the exercise of options.
Management believes that the Company’s
existing cash and cash equivalents will enable them to fund operating expenses and capital expenditure requirements for at least 12 months
from the issuance of these consolidated financial statements. Beyond that point management will evaluate the size and scope of any subsequent
operations and clinical trials that will affect the timing of additional financings through public or private sales of equity or debt
securities or from bank or other loans or through strategic collaboration and/or licensing agreements. Any such expenditures related
to any subsequent clinical trials will not be incurred until such additional financing is raised. Further, additional financing related
to subsequent trials does not affect the Company’s conclusion that based on the cash on hand and the budgeted cash flow requirements,
the Company has sufficient funds to maintain operations for at least 12 months from the issuance of these consolidated financial statements.
F-8
Relmada Therapeutics, Inc.
Notes to Consolidated Financial Statements
Use of Estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ from those estimates. The significant estimates are stock-based compensation expenses,
and recorded amounts related to income taxes.
Cash and Cash Equivalents
The Company considers cash deposits and all highly
liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s cash deposits are
held at two high-credit-quality financial institutions. The Company’s cash balance of $5,395,905 at December 31, 2022 at these
institutions exceed federally insured limits.
Short-term Investments
The Company’s investments consist entirely
of mutual funds. The securities are measured at fair value based on the net asset value (“NAV”). The Company has adopted
FASB ASU 2016-01, Financial Instruments, for the year ended December 31, 2021 which requires substantially all equity investments in
nonconsolidated entities to be measured at fair value with recurring changes recognized in earnings, except for those accounted for using
equity method accounting. Changes in fair value of the securities are recorded as part of other income on the consolidated statement
of operations. Short term investment activity is presented in the investing activities section on the consolidated statement of cash
flows.
Short-term investments at December 31, 2022
consisted of mutual funds with a fair value of $142,926,781.
Patents
Costs related to filing and pursuing patent applications
are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.
Leases
The Company recognizes their leases with a term
of greater than a year on the balance sheet by recording right-of-use assets and lease liabilities. Leases can be classified as either
operating leases or finance leases. Operating leases will result in straight-line lease expense, while finance leases will result in
front-loaded expense. The Company’s lease consists of an operating leases for office space. The Company does not recognize a lease
liability or right-of-use asset on the balance sheet for short-term leases. Instead, the Company recognizes short-term lease payments
as an expense on a straight-line basis over the lease term. A short-term lease is defined as a lease that, at the commencement date,
has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain
to exercise.
Gain on Settlement
The Company recognizes a gain when cash (or other
assets, such as claims to cash) has been received without the expectation of repayment. A gain is recorded when the assets are readily
convertible to know amounts of cash or claims to cash. Gains are reported as part of other income (expense) on the consolidated statement
of operations. The Company recorded an gain on settlement of $6,351,606 and $0 included in other income (expense) for the years ended
December 31, 2022 and 2021, respectively.
F-9
Relmada Therapeutics, Inc.
Notes to Consolidated Financial Statements
Fair Value of Financial Instruments
The Company’s financial instruments primarily
include cash, short term investments derivative liabilities and accounts payable. Due to the short-term nature of cash and accounts payable
the carrying amounts of these assets and liabilities approximate their fair value. Derivatives are recorded at fair value at each period
end.
Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at
the reporting date. 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. The fair value hierarchy is as
follows:
Level 1 Inputs - Unadjusted quoted prices in
active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices
for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are
not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment
speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company’s short-term investment instruments of $142,926,781
at December 31, 2022 are classified using Level 1 inputs within the fair value hierarchy because they are valued using NAV. Unrealized
gains and losses are recorded in the consolidated statement of operations as unrealized gain on short-term investments. The Company recorded
an unrealized loss of $4,220,255 and $611,382, included in other income (expense) for the years ended December 31, 2022 and 2021, respectively.
Fair Value on a Recurring Basis
As required by Accounting Standard Codification
(ASC) Topic No. 820 - 10 Fair Value Measurement, financial assets and liabilities are classified based on the lowest level of
input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to
the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement
within the fair value hierarchy levels.
F-10
Relmada Therapeutics, Inc.
Notes to Consolidated Financial Statements
Income Taxes
The Company accounts for income taxes using the
asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is
recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the
deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred
tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain. At December
31, 2022 and 2021, the Company had recorded a valuation allowance to the full extent of the Company’s net deferred tax assets since
the likelihood of realization of the benefit does not meet the more likely than not threshold.
The Company files a U.S. Federal income tax return
and various state returns. Uncertain tax positions taken on our tax returns will be accounted for as liabilities for unrecognized tax
benefits. The Company will recognize interest and penalties, if any, related to unrecognized tax benefits in general and administrative
expenses in the statements of operations. There were no liabilities recorded for uncertain tax positions at December 31, 2022 and 2021.
The open tax years, subject to potential examination by the applicable taxing authority, for the Company are from June 30, 2018 forward.
Research and Development
Research and development costs primarily consist
of research contracts for the advancement of product development, salaries and benefits, stock-based compensation, and consultants. The
Company expenses all research and development costs in the period incurred. The Company makes an estimate of costs in relation to clinical
study contracts. The Company analyzes the progress of studies, including the progress of clinical studies and phases, invoices received
and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability.
Stock-Based Compensation
The Company measures the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over
the period during which an employee is required to provide service in exchange for the award - the requisite service period. The grant-date
fair value of employee share options is estimated using the Black-Scholes option pricing model adjusted for the unique characteristics
of those instruments.
Net Loss per Common Share
Basic net loss per common share attributable
to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common
shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per common share attributable
to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common
share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised
of Class A convertible preferred stock, Series A preferred stock, options and warrants to purchase common stock. For all periods presented,
there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net
losses in each period.
F-11
Relmada Therapeutics, Inc.
Notes to Consolidated Financial Statements
The potentially dilutive securities that would
be anti-dilutive due to the Company’s net loss are not included in the calculation of diluted net loss per share attributable to
common stockholders. The anti-dilutive securities are as follows (in common stock equivalent shares):
Year ended December 31, Year ended December 31,
Subsequent Events
The Company’s management reviewed all material
events through the date the financial statements were issued for subsequent event disclosure consideration.
Recent Accounting Pronouncements
In November 2021, the FASB issued ASU 2021-10,
“Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”. The amendments
in this ASU require annual disclosures to increase the transparency of government assistance received by a business entity including
information about the nature of the government transactions, related accounting policy, the line items on the balance sheet and income
statement that are affected, amounts applicable to each financial statement line item, and significant terms and conditions of the transactions,
including commitments and contingencies. The amendments in this ASU are effective for annual periods beginning after December 15, 2021.
Early adoption is permitted. The Company adopted this standard effective January 1, 2022 and the standard did not have a significant
impact on our consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08,
“Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”.
The amendments in this ASU require that an entity (acquirer) recognize, and measure contract assets and contract liabilities acquired
in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, as if it
had originated the contracts as of the acquisition date. The amendments in this ASU are effective for annual and interim periods beginning
after December 15, 2022. Early adoption is permitted. The Company will evaluate the impact of ASU 2021-08 on any business combinations
entered into the future.
In May 2021, the FASB issued ASU No. 2021-04, Earnings
Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718),
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2021-04 outlines how an entity should
account for modifications made to equity-classified written call options, including stock options and warrants to purchase the entity’s
own common stock. The guidance in the ASU requires an entity to treat a modification of an equity-classified written call options that
does not cause the option to become liability-classified as an exchange of the original option for a new option. This guidance applies
whether the modification is structured as an amendment to the terms and conditions of the equity-classified written call option or as
termination of the original option and issuance of a new option. The guidance is effective prospectively for fiscal years beginning after
December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including in an interim period as
of the beginning of the fiscal year that includes that interim period. The Company adopted this standard effective January 1, 2022 and
the standard did not have a significant impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects
related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies
and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020. The Company adopted this standard effective January 1, 2021 and the standard did
not have a significant impact on our consolidated financial statements.
F-12