Scopus BioPharma Inc. - Quarter Report: 2023 March (Form 10-Q)

Table of Contents

​

​

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

​

FORM 10-Q

​

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

​

For the quarterly period ended March 31, 2023

​

or

​

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

​

For the transition period ended from ________ to ________

​

Commission File Number: 001-39788

​

SCOPUS BIOPHARMA INC

(Exact name of registrant as specified in its charter)

​

​

420 Lexington Avenue, Suite 300

New York, New York, 10170

(Address of principal executive offices)

​

(212) 479-2513

(Registrant’s telephone number, including area code)

​

Securities registered pursuant to Section 12(b) of the Act:

​

​

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

​

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

​

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

​

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

​

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

​

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No ☒

​

As of May 8, 2023, there were 39,784,264 shares outstanding of the registrant’s common stock.

​

​

​

​

Table of Contents

TABLE OF CONTENTS

​

​

​

​

​

Table of Contents

PART I - FINANCIAL INFORMATION

​

Item 1. Unaudited Condensed Consolidated Financial Statements.

​

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

​

See accompanying notes to condensed consolidated financial statements.

​

2

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

​

See accompanying notes to condensed consolidated financial statements.

​

3

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Unaudited)

​

​

​

See accompanying notes to condensed consolidated financial statements.

​

4

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

​

See accompanying notes to condensed consolidated financial statements.

​

​

5

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

Nature of Operations

Scopus BioPharma Inc. (“Scopus”) and its subsidiary, Vital Spark Inc. (“VSI”), are headquartered in New York, New York. Its other subsidiaries, Duet BioTherapeutics Inc. (“Duet”) (formerly Olimmune Inc.) and Scopus BioPharma Israel Ltd. (“SBI”), are headquartered in Los Angeles, California and Jerusalem, Israel, respectively. Scopus, VSI, Duet, and SBI are collectively referred to as the “Company.” The Company is a biopharmaceutical company developing transformational therapeutics for serious diseases with significant unmet medical need.

Going Concern

The Company is an early-stage company and has not generated revenues to date. As such, the Company is subject to all of the risks associated with early-stage companies. Since inception, the Company has incurred losses and negative cash flows from operating activities which have been funded from the issuance of common stock, convertible notes, warrants and additional investment options (“AIOs”). The Company does not expect to generate positive cash flows from operating activities for at least the next several years, if at all, until such time it completes the development of its drug candidates, including obtaining regulatory approvals, and anticipates incurring operating losses for the foreseeable future.

The Company incurred a net loss of $2,679,656 for the three months ended March 31, 2023 and had an accumulated deficit of $55,514,797 as of March 31, 2023. The Company’s net cash used in operating activities was $759,856 for the three months ended March 31, 2023 and the working capital deficit totaled $7,711,919 as of March 31, 2023. Further, while the Company has raised significant cash proceeds from public offerings and private placements (see Notes 3 and 7), the Company still has significant obligations related to certain research and development acquisitions and agreements (see Note 5).

The Company’s ability to fund its operations is dependent upon management’s plans, which include raising capital through issuances of debt and equity securities, securing research and development grants, and controlling the Company’s expenses. A failure to raise sufficient financing and/or control expenses, among other factors, will adversely impact the Company’s ability to meet its financial obligations as they become due and payable and to achieve its intended business objectives.

The Company’s results of operations and its ability to fund its operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond its control. The business could be impacted by, among other things, downturns in the financial markets or in economic conditions, inflation, increases in interest rates, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine.

Accordingly, based on the considerations discussed above, management has concluded there is substantial doubt as to the Company’s ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued.

The Company’s condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should the Company be unable to continue as a going concern.

6

​

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

Trading Market for the Company’s Common Stock

As previously disclosed on Form 8-K filed with the SEC on December 16, 2022, trading in the Company’s common stock on Nasdaq was suspended on December 19, 2022. Upon satisfaction of certain Nasdaq procedural requirements, formal delisting of the Company’s common stock occurred in March 2023. Upon the suspension of trading on Nasdaq in December 2022, the Company’s common stock commenced trading on the OTCQB. Trading in over-the-counter securities is subject to various regulatory requirements and constraints, which generally have an adverse effect on liquidity, which may, among other things, make it more difficult to buy and sell such securities and result in trading price inefficiency and volatility. The OTCQB requires, among other things, that companies be current on its filings and satisfy applicable requirements under the Securities Exchange Act of 1934. The OTCQB has additional requirements, including a minimum share price and unaffiliated share ownership. Failure to satisfy these and other requirements could result in the Company’s common stock no longer being eligible to trade on the OTCQB.

COVID-19 Pandemic

COVID-19 had a material adverse impact on the Company, including delays in drug development. As previously disclosed, the COVID-19 pandemic, including related constraints on mobility and travel, caused delays in enrollment in the investigator-sponsored clinical trial for our initial immuno-oncology drug candidate, for which the Company had previously received IND clearance from the FDA. Although in the United States the COVID-19 global pandemic emergency declarations are set to expire in May 2023, there may continue to be residual effects of COVID-19, especially as it relates to potential clinical trial participants who are predominately immunocompromised. There can be no assurance that a resurgence of COVID-19 will not occur and any such resurgence is likely to have a material adverse effect on drug development, which would have a material adverse effect on the Company and its financial condition.

​

​

​

​

The Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected to avail itself of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. In management’s opinion, the accompanying statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. All significant intercompany transactions have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries including VSI and SBI and majority-owned subsidiary, Duet. The portion of Duet not owned by the Company is presented as a noncontrolling interest as of and during the periods consolidated. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 14, 2023 (the “2022 Form 10-K”).

7

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

The accompanying balance sheet as of December 31, 2022 has been derived from the audited balance sheet as of December 31, 2022 contained in the Company's 2022 Form 10-K. Results of operations for interim periods are not necessarily indicative of the result of operations for a full year.

Foreign Currency

The functional currency of Scopus, VSI and Duet is the U.S. Dollar, and the functional currency of SBI is the Israeli New Shekel. All assets and liabilities of SBI are translated at the current exchange rate as of the end of the period and the related translation adjustments are recorded as a separate component of accumulated other comprehensive loss. Revenue and expenses are translated at average exchange rates in effect during the period. Foreign currency transaction gains and losses resulting from, or expected to result from, transactions denominated in a currency other than the functional currency are recognized in “General and administrative” expenses in the condensed consolidated statements of comprehensive loss.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net loss as well as other changes in stockholders' equity that result from transactions and economic events other than those with stockholders. Accumulated other comprehensive income (loss), net of tax, consists of foreign currency translation adjustment gains (losses) of $13,475 and ($4,954) as of March 31, 2023 and December 31, 2022, respectively.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates in these condensed consolidated financial statements include those related to the fair value of stock-based compensation, the provision or benefit for income taxes and the corresponding valuation allowance on deferred tax assets, and probability of meeting certain milestones. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. On an ongoing basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Due to the inherent uncertainty involved in making estimates, actual results could differ materially from those estimates.

Cash

At times, the balance of the Company’s cash deposits may exceed federally insured limits, and there is no insurance on cash deposits within Israel. The Company has not experienced and does not anticipate any losses on deposits with commercial banks and financial institutions which exceed federally insured limits.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. The property and equipment balances as of March 31, 2023 and December 31, 2022 consist of computer equipment. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of 3 years. Depreciation expense for the three months ended March 31, 2023 and 2022 was $231 and $609, respectively.

Research and Development Expenses

Research and development expenses are expensed as incurred and consist principally of internal and external costs which includes the cost of patent licenses, contract research services, laboratory supplies, acquired in-process research and development, as well as development and manufacture of preclinical compounds and consumables for clinical trials and pre-clinical testing.

8

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

Fair Value Measurement

Certain assets and liabilities are carried at fair value in accordance with U.S. GAAP. Fair value is defined as the price which would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy which prioritizes the inputs used in the valuation methodologies, are as follows:

Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets which are not active, or other inputs observable or can be corroborated by observable market data.

Level 3Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

As of March 31, 2023 and December 31, 2022, the carrying amounts of the Company’s cash, and accounts payable and accrued expenses approximate their respective fair values due to the short-term nature of these instruments.

There were no assets or liabilities measured at fair value on a recurring or non-recurring basis at March 31, 2023 and December 31, 2022.

Stock Subscriptions Receivable

The stock subscriptions receivable balances as of March 31, 2023 and December 31, 2022 include cash to be received for shares of Class B common stock of Duet (“Duet Shares”), Series W Warrants of Duet (“Duet Warrants”), and shares of common stock of Scopus issued prior to the balance sheet date, in connection with the Duet Private Placement and Scopus Private Placement (see Note 3).

Stock-Based Compensation

The Company accounts for share-based payments in accordance with Accounting Standard Codification Topic 718, Compensation—Stock Compensation (“Topic 718”). Under Topic 718, the Company measures, and records compensation expense related to share-based payment awards (to employees and non-employees) based on the grant date fair value using the Black-Scholes option-pricing model. Forfeitures are recognized when they occur. The Company calculates the fair value of options granted using the Black-Scholes option-pricing model using the following assumptions:

Expected Volatility – Due to the lack of substantial company-specific historical and implied volatility data of its common stock, the Company has based its estimate of expected volatility on the historical volatility of a group of similar public companies. When selecting these companies on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry and with historical share price information sufficient to meet the expected term of the stock-based awards. The Company will continue to apply this process until sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected Term – The expected term of the Company’s options represents the period that the stock-based awards are expected to be outstanding. The Company has limited historical data upon which it can estimate the expected lives of the share-based payment awards and accordingly has used the simplified method allowable under SEC Staff Accounting Bulletin Topic 14 for employee holders and the contractual term for non-employee holders.

Risk-Free Interest Rate – The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a term that is equal to the expected term of the options at the grant date.

9

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

Dividend Yield – The Company has not declared or paid dividends to date and does not anticipate declaring dividends in the foreseeable future. As such, the dividend yield has been estimated to be zero.

Noncontrolling Interest

Noncontrolling interest represents the portion of net book value (deficit) in Duet that is not owned by Scopus and is reported as a component of stockholders’ equity (deficit) in Scopus’s condensed consolidated balance sheets (see Note 7). Net income (loss) is allocated to the noncontrolling interest based on the noncontrolling ownership percentage held in Duet.

Net Loss Per Share

Basic net loss per common share attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the relevant period. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as dilutive net loss per share as the inclusion of the weighted-average number of all potential dilutive common shares, which consists of stock options, warrants and AIOs, would be anti-dilutive.

The following table presents the weighted-average, potentially dilutive shares that were excluded from the computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:

​

​

Recent Accounting Pronouncements

The Company, as an emerging growth company, has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of The Securities Act of 1933, for complying with new or revised accounting standards, which allows us to defer adoption of certain accounting standards until those standards would otherwise apply to private companies unless otherwise noted.

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

During the first quarter of 2023, the Company raised an aggregate of approximately $924,500 from the issuance of common stock in a private placement at a price of $0.05 per share (the “Scopus Private Placement”), of which $25,000 is included in stock subscriptions receivable as of March 31, 2023 (see Note 7).

During the fourth quarter of 2022, Duet raised $276,065 from third-party investors from the sale of Duet Shares and Duet Warrants at prices of $2.50 per share and $0.05 per warrant, respectively (the “Duet Private Placement”). The Duet Warrants are exercisable at $2.50 per share of Duet’s Class B Common Stock beginning on the date that is one year after the date that the shares of Duet’s Class B Common Stock are first traded or quoted on a public trading market (“Duet Class B Shares Initial Trading Date”) and expiring five years from the Duet Class B Shares Initial Trading Date. During the first quarter of 2023, in connection with the Duet Private Placement, Duet raised an additional $1,089,603. Of the total aggregate proceeds of $1,365,668 from the Duet Private Placement through March 31, 2023, $3,578 and $33,950 were included in stock subscriptions receivable in the accompanying condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

10

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

​

Accounts payable and accrued expenses consist of the following as of:

​

​

​

Agreement Related to Intellectual Property Rights

In July 2017, VSI, as “Licensee,” entered into a Patent License Agreement (the “Patent License Agreement”) with the U.S. Department of Health and Human Services, as represented by the National Institute on Alcohol Abuse and Alcoholism (“NIAAA”) and the National Institute on Drug Abuse (“NIDA”) of the National Institutes of Health (“NIH”), (collectively “Licensor”). In the course of conducting biomedical and behavioral research, the Licensor developed inventions that may have commercial applicability. The Company acquired commercialization rights to certain inventions in order to develop processes, methods, or marketable products for public use and benefit.

Patent fee reimbursement under the Patent License Agreement was $0 and $5,017 for the three months ended March 31, 2023 and 2022, respectively. These costs are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

Pursuant to the terms of the Patent License Agreement, VSI was required to make minimum annual royalty payments on January 1 of each calendar year, which shall be credited against any earned royalties due for sales made in that year, throughout the term of the Patent License Agreement. For the three months ended March 31, 2023 and 2022, $0 and $6,250 minimum royalty payments, respectively, were recognized in each period in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

The Patent License Agreement also provides for payments from VSI to the Licensor upon the achievement of certain product development and regulatory clearance milestones, as well as royalty payments on net sales upon the commercialization of products developed utilizing the licensed patents (see below). Through March 31, 2023, the Licensor has not achieved any milestones and therefore VSI has not made any milestone payments.

VSI is obligated to pay earned royalties based on a percentage of net sales, as defined in the Patent License Agreement, of licensed product throughout the term of the Patent License Agreement. Since April 18, 2017 (inception) through March 31, 2023, there have been no sales of licensed products. In addition, VSI is also obligated to pay the Licensor additional sublicensing royalties on the fair market value of any consideration received for granting each sublicense. Through March 31, 2023, VSI has not entered into any sublicensing agreements and therefore no sublicensing consideration has been paid to Licensor.

The Company’s rights under its license with the NIH may overlap with rights which may have been granted to another company. The Company has been in communication with the NIH seeking clarification as to each company’s rights. The Company has also had, from time to time, discussions with such other company to explore possible collaborations. The Company has been unable to enter into any such arrangements. Notwithstanding the Company’s attempts to engage the NIH to clarify these overlapping rights, the NIH has disregarded such requests. By email dated August 15, 2022, the NIH purported to terminate the Company’s rights. The Company rejected the NIH’s purported action and intends to further seek to engage with the NIH in an attempt to protect and clarify its rights.

11

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

Memorandums of Understanding

Effective July 28, 2018, SBI entered into two Memorandums of Understanding (“MOUs”) with Yissum Research Development Company (“Yissum”) of the Hebrew University of Jerusalem Ltd. (“Hebrew University”). Research under the Yissum MOUs was completed in December 2019 and March 2020, respectively, resulting in the license agreements below.

Effective March 5, 2019, the Company entered in a license agreement with Yissum with respect to the results of the research relating to the combination of cannabidiol with approved anesthetics as a potential treatment for the management of pain. Under the license agreement, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the license agreement, including net sales generated from sub-licensees. In addition, the Company will be obligated to make payments upon the achievement of certain clinical development and product approval milestones. From March 5, 2019 through March 31, 2023, there have been no sales of licensed products by the Company nor has the Company entered into any sub-licensing agreements. Further, none of the milestones in the agreement have been reached and therefore as of March 31, 2023, there is no obligation to make any milestone payments.

Effective August 8, 2019, the Company entered into a second license agreement with Yissum with respect to the research results relating to the synthesis of novel cannabinoid dual-action compounds and novel chemical derivatives of cannabigerol and tetrahydrocannabivarin. Under this license agreement, the Company is required to pay earned royalties based upon a percentage of net sales at one percentage for regulated products and a lesser percentage for non-regulated products. The Company is obligated to pay development milestone payments tied to regulated products totaling $1,225,000 in the aggregate and $100,000 for non-regulated products in the aggregate. None of the milestones in the agreement have been reached and therefore as of March 31, 2023 there is no obligation to make any milestone payments.

CpG-STAT3siRNA (DUET-01) Agreements

In June 2020, the Company entered into an exclusive, worldwide license agreement with City of Hope (“COH”) relating to DUET-01 (the “DUET-01 Exclusive License Agreement”). In addition to the DUET-01 Exclusive License Agreement, the Company also entered into a Sponsored Research Agreement (the “SRA”) relating to on-going research and development activities in collaboration with COH relating to DUET-01. The Company obtained the right to negotiate the DUET-01 Exclusive License Agreement with COH as part of the Bioscience Oncology Pty Ltd acquisition in June 2020. The Company incurred license maintenance fees in relation to the DUET-01 Exclusive License Agreement of $7,500 during each of the three months ended March 31, 2023 and 2022. In September 2022, the SRA was extended until September 2023 with no additional costs to the Company.

Under the terms of the DUET-01 Exclusive License Agreement, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the DUET-01 Exclusive License Agreement, including net sales generated from sub-licensees. In addition, the Company is obligated to make payments in cash upon the achievement of certain clinical development and product approval milestones totaling $3,525,000 in the aggregate. None of the milestones in the DUET-01 Exclusive License Agreement have been reached and therefore as of March 31, 2023, there is no obligation to make any milestone payments. Pursuant to the terms of the SRA, the Company has committed to fund research and development at COH for two years in accordance with a predetermined funding schedule. Total expenses incurred in connection with the SRA were $0 and $62,500 for the three months ended March 31, 2023 and 2022, respectively. These expenses are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

Further, the Company incurred costs of $44,000 and $43,433 during the three months ended March 31, 2023 and 2022, respectively, pursuant to a clinical research support agreement (the “CRSA”) relating to a Phase 1 clinical trial for DUET-01 to be conducted at COH. These expenses are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

On April 7, 2022, the Company entered into a sponsored research agreement (the “Kortylewski SRA”) with COH for research to be conducted by Marcin Kortylewski, Ph.D., a Co-Founder and Senior Advisor of Duet and Professor in the Department of Immuno-Oncology at COH. Pursuant to the Kortylewski SRA, Dr. Kortylewski and his lab are evaluating novel chemical structures and formulations to increase the stability of siRNA-based molecules to enable systemic delivery. The research under the Kortylewski SRA is conducted over a two-year period at a cost of approximately $200,000 per year. The Company incurred $50,722 and $0

12

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

during the three months ended March 31, 2023 and 2022, respectively, related to the Kortylewski SRA,and is included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.

Duet (DUET-02 and DUET-03) License Agreements

On June 25, 2021, the Company entered into two exclusive, worldwide license agreements with COH relating to Duet’s drug candidates. The Company obtained the rights to negotiate the CpG-STAT3ASO Patent Rights License Agreement and the CpG-STAT3decoy Patent Rights License Agreement (together, the “Duet License Agreements”) with COH as part of the Duet acquisition in June 2021. Under the terms of the Duet License Agreements, the Company is obligated to pay earned royalties based on a percentage of net sales, as defined in the Duet License Agreements, including net sales generated from sub-licensees. The Company incurred license fees of $16,730 and $12,500 in connection with the Duet License Agreements during the three months ended March 31, 2023 and 2022, respectively. License fees related to the Duet License Agreements of $249,807 and $233,076 were included in accounts payable and accrued expenses at March 31, 2023 and December 31, 2022, respectively. On April 19, 2022, the Company entered into an amendment to the DUET-02 Patent Rights License Agreement with COH to secure a non-exclusive royalty bearing right and license to use and make derivative works of certain technical information and know how related to DUET-02. In connection with the amendment, the Company agreed to make a one-time non-refundable license fee payment of $25,000 to COH within five days of the effective date of the amendment.

In addition, the Company is obligated to make payments in cash upon the achievement of certain clinical development and product approval milestones totaling $6,750,000 for each license, or $13,500,000 in the aggregate. None of the milestones in the Duet License Agreements have been reached and therefore, as of March 31, 2023, there is no obligation to make any milestone payments.

​

Research and Development Agreements

The Company has entered into various research and development agreements which require the Company to provide certain funding and support. See Note 5 for further information regarding these agreements.

Legal Proceedings

The Company continues to be a party in several litigation matters initiated by or against certain adverse parties and certain of their affiliates and/or related parties (the “Adverse Parties”) who are stockholders of the Company and certain of whom are also former officers and/or directors of the Company. As previously disclosed, one of such Adverse Parties initiated litigation with respect to a dispute about ownership of certain shares and various other matters. Most recently, a trial date was scheduled for May 25, 2023, which was subsequently postponed. It is currently uncertain as to when any trial date may be rescheduled. Such Adverse Parties also filed a stockholder derivative complaint, purportedly on behalf of the Company. The Company filed a motion to dismiss this stockholder derivative complaint in November 2021. In March 2022, the Delaware Court of Chancery (“Chancery Court”) dismissed such complaint. One of the Adverse Parties also initiated an action in the Supreme Court of the State of New York (the “New York Court”) alleging, among other things, that he was wrongfully terminated by the Company. In March 2023, the New York Court dismissed all of the claims in such action other than the wrongful termination claim. Due to the factual nature of such claim, it remains subject to further proceedings. The status and timing of the remaining litigation matters are uncertain. The outcome relating to any such matters, and litigation generally, are highly unpredictable and the costs of litigation, including legal fees, costs and expenses, and the possible liabilities, including monetary damages, to which the Company could become subject could be significant. Any such liabilities could have a material adverse effect on the Company. The Company’s existing capital resources will not be sufficient to implement its business plan, including the development of its drug candidates, especially if the Company continues to be subject to or pursuing ongoing litigation. The Company requires additional financing and there can be no assurance that any such financing will be available on satisfactory terms, or at all. Failure to obtain additional financing will have a material adverse effect on the Company.

13

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

Preferred Stock

The Company is authorized to issue 20,000,000 shares of preferred stock with a par value of $0.001 per share with such designation, rights and preferences as may be determined from time-to-time by the Company’s board of directors. Authority is expressly vested in the board of directors to authorize the issuance of one or more series of preferred stock. All 20,000,000 shares remained unissued as of March 31, 2023 and December 31, 2022.

Common Stock

The Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.001 per share. The number of authorized shares of common stock may be increased or decreased (but not below the number of shares of common stock then outstanding) by an affirmative vote of the holders of a majority of the common stock.

The powers, preferences, and rights of the holders of the common stock are junior to the preferred stock and are subject to all the powers, rights, privileges, preferences, and priorities of the preferred stock. The holder of each share of common stock shall have the right to one vote per share. Each holder of common stock shall be entitled to receive dividends and distributions (whether payable in cash or otherwise) as declared by the board of directors of the Company, subject to the rights of any class of preferred stock outstanding. In the event of any liquidation, dissolution or winding-up of the Company (whether voluntary or involuntary), the assets available for distribution to holders of common stock will be in equal amounts per share.

During the first quarter of 2023, Scopus raised an aggregate of approximately $924,500, of which $25,000 is included in stock subscriptions receivable as of March 31, 2023, from the sale of 18,490,000 shares of common stock at a price of $0.05 per share.

Warrants

Each W Warrant is exercisable for one Series B Unit (“B Unit”). Each B Unit consists of one share of common stock and one Series Z Warrant (“Z Warrant”). Each Z Warrant is exercisable for one share of common stock. The exercise price of the W Warrant is $4.00, and the exercise price of the Z Warrant is $5.00. The W Warrants became exercisable on October 1, 2021 and the Z Warrants became exercisable on July 1, 2022. The W Warrants and Z Warrants expire on September 30, 2026 and June 30, 2027, respectively, unless previously exercised.

In October 2022, in connection with a recapitalization of Duet, Scopus entered into exchange agreements with the holders of 10,439,670 W Warrants, exercisable into an aggregate of 20,879,340 shares of Scopus common stock, pursuant to which such W Warrants were exchanged for 1,043,989 Duet Shares previously owned by Scopus (the “Warrant Exchanges”). Each W Warrant was exchanged for one-tenth of a Duet Share. Upon completion of the Warrant Exchanges, the exchanged W Warrants were cancelled.

Subsequent to the Warrant Exchanges, Scopus held an approximately 90% financial interest in Duet. As such, the Warrant Exchanges resulted in a deficit to the noncontrolling interest account of $379,522, which represents the portion of Duet’s noncontrolling stockholders’ interest in the negative book value of Duet at the date of the Warrant Exchanges.

As of March 31, 2023, 1,414,539 Scopus warrants were outstanding and exercisable at a weighted-average exercise price of $3.56. As of March 31, 2023, the remaining contractual term of the outstanding warrants was 3.3 years. Of the 1,414,539 Scopus warrants outstanding as of March 31, 2023, 1,164,539 are W Warrants and 250,000 are warrants exercisable into one share of common stock each, at an exercise price of $1.50 per warrant, with an expiration date of October 3, 2025.

AIOs

As of March 31, 2023, the Company had outstanding Series A Additional Investment Options (the “Series A AIOs”) to purchase 1,500,000 shares of Common Stock and Series B Additional Investment Options (the “Series B AIOs,” together with the Series A

14

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

AIOs, the “AIOs”) to purchase 1,500,000 shares of common stock, at a purchase price of $3.25 per share. The Series A AIOs are exercisable immediately and have a term of five years starting on January 18, 2022 and have an exercise price of $3.125 per share. The Series B AIOs became exercisable upon effectiveness of that certain Registration Statement on Form S-3 (File No 333-261991), which was declared effective by the SEC on January 18, 2022, and have a term of five years starting on January 18, 2022 and have an exercise price of $3.125 per share.

In addition, as of March 31, 2023, certain AIOs issued to a placement agent during 2021 were outstanding (the “Placement Agent AIOs”), which allow the placement agent to purchase up to 225,000 shares of common stock. The Placement Agent AIOs have an exercise price equal to $4.0625, with a term of five years following January 18, 2022.

As of March 31, 2022, no AIOs or Placement Agent AIOs have been exercised or forfeited. As of March 31, 2023, an aggregate of  3,225,000 AIOs and Placement Agent AIOs were outstanding at a weighted-average exercise price of $3.19. As of March 31, 2023, the remaining contractual term of the outstanding AIOs was 3.6 years.

Contingent Common Stock

As a result of the Company’s acquisition of Bioscience Oncology in June 2021, the previous shareholders of Bioscience Oncology are eligible to receive remaining contingent consideration of up to approximately 1.3 million shares of common stock upon the achievement of a specified milestone, which will be recorded when it is determined the corresponding milestone is probable to be achieved.

Noncontrolling Interest

In connection with the Warrant Exchanges, Duet’s certificate of incorporation was amended and restated to authorize (i) an additional 50,000,000 shares of capital stock and (ii) the redesignation of its common stock to include shares of Class A common stock (“Class A Common Stock”) and shares of Class B common stock (“Class B Common Stock”). The Class A Common Stock and Class B Common Stock are identical, except that the holders of Class A Common Stock are entitled to ten votes per share and holders of Class B Shares are entitled to one vote per share. All of the outstanding shares of Class A Common Stock are owned by Scopus. In addition, each share of Class A Common Stock is convertible, at the option of Scopus in its sole discretion, at any time into one share of Class B Common Stock. Each share of Class A Common Stock is automatically convertible into one share of Class B Common Stock if it is held by anyone other than Scopus or a permitted transferee.

During the fourth quarter of 2022, Duet raised $276,065 from third-party investors in connection with the Duet Private Placement. During the first quarter of 2023, in connection with the Duet Private Placement, Duet raised an additional $1,089,603. The related issuance costs were approximately $84,072. Of the total aggregate proceeds of $1,365,668 from the Duet Private Placement through March 31, 2023, $3,578 and $33,950 were included in stock subscriptions receivable in the accompanying condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

During the three months ended March 31, 2023, the Duet Private Placement resulted in an increase to the deficit of the noncontrolling interest of $35,228, which represents the additional portion of Duet’s noncontrolling stockholders’ interest in the negative book value of Duet at the dates of issuances of the Duet Shares.

After giving effect to the Warrant Exchanges and the Duet Private Placement, Scopus continues to be the controlling stockholder of Duet with voting control of approximately 98%.

​

Effective September 24, 2018, the Company approved the Scopus BioPharma Inc. 2018 Equity Incentive Plan (the “Plan”), and reserved 1,000,000 shares of the Company’s common stock, such amount subsequently being increased to 2,400,000 shares, for issuance under the Plan. As of March 31, 2023,  there were 1,800,000 shares authorized for issuance under the Plan, subject to the Company having sufficient authorized shares for any such issuances. The stock options shall be granted at an exercise price per share equal to at least the fair market value of the shares of common stock on the date of grant and generally vest over a three-year period.

15

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

Stock option activity is summarized as follows for the three months ended March 31, 2023:

​

​

Included in the table above are 172,500 options issued to the underwriters outside of the Plan in connection with the Company’s public offerings during 2021.

Stock-based compensation expense associated with the vesting of options was $78,108 and $95,028 for the three months ended March 31, 2023 and 2022, respectively. This cost is included in “General and administrative” expenses in the accompanying condensed consolidated statements of comprehensive loss. As of March 31, 2023, total unrecognized stock-based compensation expense was $220,887 and is expected to be recognized over the remaining weighted-average contractual vesting term of 0.7 years.

​

The Company has a management services agreement, as amended, with Portfolio Services, an affiliated entity, to provide management services to the Company including, without limitation, financial and accounting resources, general business development, corporate development, corporate governance, marketing strategy, strategic development and planning, coordination with service providers and other services as agreed upon between the parties. The Company pays Portfolio Services a monthly management services fee plus related expense reimbursement and provision of office space and facilities. The monthly management services fee and monthly facilities fee are $50,000 and $3,000, respectively.

During each of the three months ended March 31, 2023 and 2022, the Company incurred expenses of $159,000 of management services fees related to the management services agreement. The costs are included in “General and administrative” expenses in the accompanying condensed consolidated statements of comprehensive loss. Amounts payable to Portfolio Services as of March 31, 2023 and December 31, 2022 were $75,000 and $50,706, respectively.

Pursuant to a management services agreement with Clil Medical Ltd. (“Clil”), an affiliate of a co-founder and former director of the Company, such individual was obligated to provide executive and other management services to the Company. This management services agreement was terminated in June 2020 and, concurrently, such individual resigned as a director of the Company, but continued to serve in various other capacities for the Company and its subsidiaries. Subsequently, such individual submitted resignations to the Company and its subsidiaries. The Company and such individual do not agree on various matters, including obligations under the applicable management services agreement, both prior and subsequent to its termination. The amounts for the services provided through the termination date were fully accrued for as of March 31, 2023 and December 31, 2022. No expenses were incurred under this management services agreement during either of the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, the total amount due to Clil was $198,530, and is included in “Accounts payable and accrued expenses” on the accompanying condensed consolidated balance sheets.

On September 26, 2021, the Board approved an indemnification agreement (the “Indemnification Agreement”), pursuant to which the Company has agreed to indemnify each of the Executive Committee Directors, the employees of HCFP, and certain affiliates and related entities (collectively, the “Indemnified Parties”) from and against any losses, claims, damages or liabilities, including reasonable attorney’s fees, suffered or incurred by the Indemnified Parties in connection with any disputes, litigation or threatened litigation (whether existing prior to or commencing after the date of the Indemnification Agreement) involving certain current or former executives and directors of the Company and arising or resulting from any Indemnified Party’s affiliation or involvement with the Company, including in connection with the provision of additional services beyond those initially contemplated under the

16

Table of Contents

SCOPUS BIOPHARMA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

​

Portfolio Services management services agreement. The Indemnification Agreement also provides that the Company will advance expenses to any Indemnified Party, including legal fees, incurred by such Indemnified Party in connection with any litigation or proceeding to which such Indemnified Party is entitled to indemnification under the Indemnification Agreement. The Company incurred $0 and $16,585 in legal fees and other expenses in connection with this Indemnification Agreement for the three months ended March 31, 2023 and 2022, respectively.

​

The Company did not provide for any income taxes for the three months ended March 31, 2023 and 2022. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is not more likely than not that the Company will realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of March 31, 2023 and December 31, 2022. Management reevaluates the positive and negative evidence at each reporting period.

Since the commencement of their respective private placements and as of May 8, 2023, Scopus and Duet raised aggregate gross proceeds of approximately $2.3 million on a consolidated basis in concurrent financings resulting from the sale of shares of Scopus common stock, Duet Shares, and Duet Warrants to third-party investors (Note 7). Shares of Scopus common stock were sold at a price of $0.05 per share and the Duet Shares and Duet Warrants were sold on the same terms as disclosed in Note 7. In April 2023, Scopus purchased 3,000,000 Duet Warrants identical to and at the purchase price for the Duet Warrants issued in the Duet Private Placement. The purchase price for such warrants was made through a reduction in the intercompany advances made by Scopus to Duet.

​

​

17

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on April 14, 2023 (the “2022 Form 10-K), and certain other reports filed with the SEC as may be set forth below.

Forward Looking Statements

This quarterly report on Form 10-Q (“Quarterly Report”) and other reports filed by Scopus BioPharma Inc. (the “Company”) from time to time with the SEC (collectively, the “Filings”) contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Quarterly Report, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, potential growth or growth prospects, future research and development, sales and marketing and general and administrative expenses, and our objectives for future operations, are forward-looking statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,” “continues,” “anticipates,” “intends,” “expects,” “could,” “would,” “projects,” “plans,” “targets,” and variations of such words and similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” described in our 2022 Form 10-K. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Unless otherwise stated in this Quarterly Report, “we”, “us”, “our”, “Company”, “Scopus” and “Scopus BioPharma” refer to Scopus BioPharma Inc. and its subsidiaries.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Quarterly Report are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason after the date of this Quarterly Report or to conform statements to actual results or revised expectations, except as required by law.

Overview

We are a biopharmaceutical company developing transformational therapeutics for serious diseases with significant unmet medical need. We are currently focusing our development efforts on our immuno-oncology programs, which are conducted primarily through Duet BioTherapeutics Inc. (“Duet”), our majority-owned subsidiary.

18

Table of Contents

Duet continues to develop its novel approach to immuno-oncology, with a suite of bifunctional oligonucleotides that activate antigen-presenting cells within the tumor microenvironment, while alleviating tumor immunosuppression to jump-start T cell-mediated immune responses. The unique mechanism-of-action of these synthetic oligonucleotides comes from simultaneously targeting two intracellular immune pathways – signal transducer and activator of transcription 3 (“STAT3”), a master immune checkpoint inhibitor, and toll-like receptor 9 (“TLR9”). The targeted inhibition of STAT3 reawakens immune cells and allows for the full potential of TLR9-driven innate and adaptive immune responses. We refer to Duet’s three distinctive, complementary CpG-STAT3 inhibitors as the Duet Platform. The Duet Platform is comprised of the following:

​

Our initial efforts in immuno-oncology related to DUET-01, as a monotherapy targeting B-cell non-Hodgkin lymphoma (“NHL”). As previously disclosed, the design of the investigator-sponsored clinical protocol for DUET-01, including the number of study visits, together with constraints on mobility and travel due to the COVID-19 pandemic, resulted in development delays, including relating to clinical enrollment. As a result of our acquisition of Duet (known as Olimmune Inc. prior to its acquisition), we gained access to a broader technology platform from the laboratory of the principal senior research scientist who is the architect of the oligonucleotide bifunctionality underpinning the Duet Platform, including CpG-STAT3siRNA, previously licensed by us, which is currently designated as DUET-01. DUET-01 is a small interfering RNA (“siRNA”)-based technology which is delivered intratumorally. DUET-02 is being developed for systemic delivery. DUET-02 has a similar mechanism of action as DUET-01, except the STAT3 inhibitor in DUET-02 is an antisense (“ASO”) RNA molecule rather than a siRNA. The STAT3ASO molecule binds directly to the STAT3 mRNA, recruiting ribonuclease H1 (“RNase H1”) to degrade the STAT3 mRNA. The use of ASO permits other chemical modifications resulting in greater stability in human blood. This allows for systemic treatment of harder-to-reach solid tumors such as prostate or kidney cancers. Dose-range finding studies, good laboratory practice toxicology studies, and good manufacturing process manufacturing of the drug substance and product are all currently in process. Duet expects to file an investigational new drug application (“IND”) for DUET-02 in Q1 2024 in advanced solid malignancies, with a Phase 1/2 clinical trial anticipated to begin in Q2 2024 in the United States. Pursuant to a sponsored research agreement, research is being conducted to evaluate increasing the stability of novel siRNA-based molecules to enable systemic delivery, which we sometimes refer to as DUET-01B. Pursuant to such agreement, research is also being conducted on double-stranded ASOs, which we sometimes refer to as DUET-02B. We also have the rights for DUET-03, which uses an alternative to the destruction of mRNA to silence STAT3 activity, such as with DUET-01 and DUET-02. DUET-03 targets the actual STAT3 transcription factor protein. Our drug candidates are being evaluated both as monotherapies and as combination therapies with checkpoint inhibitors and/or chimeric antigen receptor T-cell therapies.

On an ongoing basis, we continue to refine, update and enhance its immuno-oncology pipeline and target indications, including prioritizing solid tumor indications. We also continually evaluate the possibilities of additional studies with a view to enhancing, among other things, the effectiveness and method of delivery of our drug candidates and identifying additional protections for our intellectual property. As of May 10, 2023, in connection with our most recent evaluation of our immuno-oncology pipeline, we redesignated our drug candidates, hereafter referring to DUET-02A and DUET-02B as DUET-101 and DUET-102, respectively; DUET-01 and DUET-01B as DUET-201 and DUET-202, respectively; and DUET-03 as DUET-301. In addition to our immuno-oncology portfolio, the company obtained licenses for certain non-immuno-oncology drug candidates. As a result of our increased emphasis on our immuno-oncology programs and other considerations, including capital constraints, we have allowed certain of these rights to lapse and continue to evaluate our posture with regard to certain other rights. All of our development efforts continue to be considered in the light of the extreme capital markets dislocation, especially pertaining to small biotechnology companies, which has severely curtailed access to capital.

We do not have any products approved for sale and have not generated any revenue. We expect to continue to incur significant expenses and increasing operating losses. We anticipate that all of our expenses will increase substantially, including as we:

19

Table of Contents

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our drug candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital to fund our operations. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through equity and debt offerings. We may also raise capital through government or other third-party funding and grants, collaborations and development agreements, strategic alliances, and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Moreover, our ability to raise capital continues to be impeded by limited availability of authorized common stock. Our failure to raise capital or enter into such other arrangements as and when needed would impair our ability to develop our drug candidates and would have a material adverse effect on our financial condition, including possibly being required to substantially curtail or cease our operations.

We have incurred net losses in every year since our inception. From inception (April 18, 2017) until March 31, 2023, we have funded our operations through the issuance of common stock, warrants, additional investment options (“AIOs”) and convertible notes. As of March 31, 2023, we had an accumulated deficit of approximately $55.5 million.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience 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. Our actual results may differ from these estimates under different assumptions or conditions.

Please refer to the information provided under the heading “Critical Accounting Policies and Estimates” included in our 2022 Form 10-K. There were no material changes to such policies in the three months ended March 31, 2023.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to companies that are not emerging growth companies.

20

Table of Contents

As an “emerging growth company,” we also rely on exemptions from certain reporting requirements, including without limitation: (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of an initial public offering; (iii) the date on which we have issued more than $1 billion in non-convertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Results of Operations

Three Months Ended March 31, 2023 Versus Three Months Ended March 31, 2022

The following table summarizes our results of operation for the three months ended March 31, 2023 and 2022:

​

​

Revenue

We did not have any revenue during the three months ended March 31, 2023 and 2022. Our ability to generate product revenues in the future will depend almost entirely on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize a drug candidate, or enter into collaborations that provide for payments to us.

Operating Expenses

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and benefits to our personnel, including the costs related to our management services agreements, directors, and scientific and senior advisors; professional fees and services, including accounting and legal services; and expenses related to obtaining and protecting our intellectual property. We incurred general and administrative expenses during the three months ended March 31, 2023 and 2022 of approximately $1.1 million and $4.3 million, respectively, with a decrease of approximately $3.2 million or 75.0%. This decrease in general and administrative expenses during the three months ended March 31, 2023 as compared to three months ended March 31, 2022 is primarily attributable to a decrease in legal and accounting fees and other expenses incurred in connection with or as a result of the 2021 proxy contest and litigation, including legal services provided to the Board and certain directors and committees thereof, of approximately $3.2 million.  Our general and administrative expenses are likely to increase, including to the extent we are able to obtain additional financing to enable us to expand our operations, and may increase materially based upon the activity level of ongoing litigation in any particular period.

Research and Development Expenses

We recognize research and development expenses as they are incurred. Our research and development expenses consist of fees incurred under our agreements with licensors, including the expenses associated with securities issued in connection with such agreements, as applicable, and expenses relating to third-party research and development vendors and consultants. During the three months ended March 31, 2023 and 2022, we incurred research and development expenses of approximately $1.6 million and $0.4 million, respectively, an increase of approximately $1.2 million or 336%. The increase in research and development costs during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 is primarily attributable to the increase of approximately $1.2 million in costs and expenses associated with the preclinical development and IND-enabling activities relating to

21

Table of Contents

DUET-02. We anticipate that our research and development expenses, exclusive of any in-process research and development relating to our acquisitions, will increase for the foreseeable future as we continue the development of our drug candidates.

Net Loss

Our net losses were approximately $2.7 million and $4.7 million for the three months ended March 31, 2023 and 2022, respectively, a decrease of approximately $2.0 million or 42.5%. We anticipate our net losses will continue as we advance our research and drug development activities and incur additional general and administrative expenses to meet the needs of our business.

Liquidity and Capital Resources

We have incurred losses since our inception, and, as of March 31, 2023, we had an accumulated deficit of approximately $55.5 million. We anticipate that we will continue to incur losses for at least the next several years. Since April 18, 2017 (inception) through March 31, 2023, we have funded our operations principally with approximately $31.4 million in gross proceeds from the sale of convertible notes, common stock, warrants and units comprised of common stock and warrants, the exercise of a portion of such warrants, and units comprised of common stock and AIOs.

During the three months ended March 31, 2023, we used approximately $0.8 million of cash in operations, which was attributable to our net loss of approximately $2.7 million, offset by the changes in operating assets and liabilities of approximately $1.8 million and approximately $0.1 million of non-cash expenses.

We are party to litigation in several matters as of the date hereof. Litigation is highly unpredictable and the costs of litigation, including legal fees and expenses, and the possible liabilities, including monetary damages, to which we could become subject could be significant. Any such liabilities could have a material adverse effect on us. Our existing capital resources will not be sufficient to fully implement our business plan, including the development of our drug candidates, while also continuing to be subject to or pursuing ongoing litigation.

Our cash resources are extremely limited. We had cash of approximately $1.4 million as of March 31, 2023. As of May 8, 2023, Scopus and Duet raised aggregate gross proceeds of approximately $2.3 million on a consolidated basis in concurrent financings. Notwithstanding such financings, we continue to have an immediate need for additional financing. Our ability to raise capital continues to be impeded by limited availability of authorized common stock and the current price of our common stock. Further, we are subject to certain stock market requirements relating to, among other things, the amount and nature of the capital that we can raise. There can be no assurance that financing will be available to us on a timely basis and on satisfactory terms, or at all. Failure to obtain sufficient financing on satisfactory terms in the immediate future will have a material adverse effect on us, including possibly being required to substantially curtail or cease our operations.

Our ability to fund our operations is dependent upon management’s plans, which include raising capital through issuances of debt and equity securities, securing research and development grants, and controlling our expenses. A failure to raise sufficient financing and/or control expenses, among other factors, will adversely impact our ability to meet our financial obligations as they become due and payable and to achieve our intended business objectives.

Accordingly, based on the considerations discussed above, management has concluded there is substantial doubt as to the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued.

Future Funding Requirements

We have not generated any revenue. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our drug candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue to research, develop, and seek regulatory approval for, our drug candidates. We expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our drug candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations.

22

Table of Contents

As a result, we anticipate that we will need substantial additional funding in connection with our continuing operations to fund future clinical trials and pre-clinical testing for our drug candidates, general and administrative costs and public company and other expenses, including potential indemnification obligations and legal fees (primarily related to litigation). We expect to finance our cash needs primarily through the sale of our debt and equity securities. However, our ability to raise capital continues to be impeded by the current price of our common stock and a lack of sufficient authorized shares of common stock. We may also raise capital through government or other third-party funding and grants, collaborations and development agreements, strategic alliances and licensing arrangements. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to estimate the amounts of additional capital outlays and operating expenditures necessary to complete the development of our drug candidates.

Our future capital requirements will depend on many factors, including:

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of debt financings and equity offerings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of debt and equity securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may

23

Table of Contents

include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us.

Recent Accounting Pronouncements

As previously noted, we, as an emerging growth company, have elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards, which allows us to defer adoption of certain accounting standards until those standards would otherwise apply to private companies unless otherwise noted.

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

Effect of Inflation and Changes in Prices

Increased inflation and changes in prices may result in increased operating costs, including our labor costs and research and development costs, reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

​

24

Table of Contents

Item 4. Controls and Procedures.

The Company, including its principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based upon the evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective. Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include controls and procedures designed to reasonably ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company, including its principal executive officer and principal financial officer, reviewed the Company’s internal control over financial reporting, pursuant to Rule 13(a)-15(e) under the Exchange Act and concluded that there was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

​

25

Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We continue to be a party in several litigation matters initiated by or against certain adverse parties and certain of their affiliates and/or related parties (the “Adverse Parties”) who are stockholders of the company and certain of whom are also former officers and/or directors of the company. As previously disclosed, one of such Adverse Parties initiated litigation with respect to a dispute about ownership of certain shares and various other matters. Most recently, a trial date was scheduled for May 25, 2023, which was subsequently postponed. It is currently uncertain as to when any trial date may be rescheduled. One of the Adverse Parties also initiated an action in the Supreme Court of the State of New York (the “New York Court”) alleging, among other things, that he was wrongfully terminated by the company. In March 2023, the New York Court dismissed all of the claims in such action other than the wrongful termination claim. Due to the factual nature of such claim, it remains subject to further proceedings. The status and timing of the remaining litigation matters are uncertain. The outcome relating to any such matters, and litigation generally, are highly unpredictable and the costs of litigation, including legal fees, costs and expenses, and the possible liabilities, including monetary damages, to which the company could become subject could be significant. Any such liabilities could have a material adverse effect on the company. The company’s existing capital resources will not be sufficient to implement its business plan, including the development of its drug candidates, especially if the company continues to be subject to or pursuing ongoing litigation. The company requires additional financing and there can be no assurance that any such financing will be available on satisfactory terms, or at all. Failure to obtain additional financing will have a material adverse effect on the company.

​

Item 1A. Risk Factors.

Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1A of our 2022 Form 10-K. The risks described in our 2022 Form 10-K are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

As of March 31, 2023, we issued 18,490,000 shares of common stock, at an offering price of $0.05 per share, for aggregate gross proceeds of $924,500 in a private placement.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

​

26

Table of Contents

Item 6. Exhibits.

​

​

27

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

28