RELMADA THERAPEUTICS, INC. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on NASDAQ, under the symbol “RLMD”. Holders As of December 31, 2020, 16,332,939 shares of common stock were issued and outstanding, which were held by 178 holders of record. These stockholders held their stock either individually or in nominee or “street” names through various brokerage firms. There are no shares of Class A convertible preferred stock outstanding. Our transfer agent is: Empire Stock Transfer 1859 Whitney Mesa Drive Henderson, NV 89014 Telephone (702) 818-5898 www.empirestock.com Inquiries regarding stock transfers, lost certificates or address changes should be directed to the above address. Dividends We plan to retain any earnings for the foreseeable future for our operations. We have never paid any cash dividends on our stock and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend on our financial condition, operating results, capital requirements and such other factors as our Board of Directors deems relevant. 30 Securities Authorized for Issuance under Equity Compensation Plans Relmada has a 2014 Option and Equity Incentive Plan, as amended (the Plan) in which its directors, officers, employees and consultants shall be eligible to participate. The Plan allows for the granting of common stock awards, stock appreciation rights, and incentive and nonqualified stock options to purchase shares of the Company. On March 6, 2020, at the annual shareholders meeting, our shareholders approved the increase in shares authorized to be granted under the Plan by 2,500,000 shares. With these grants and approvals, as of December 31, 2020, the Company had 1,247,205 awards available to be issued. The following table summarizes our equity compensation plan information as of December 31, 2020: Equity Compensation Plan Information Plan Category Number of securities to be issued upon exercise of outstanding options and stock appreciation rights Weighted- average exercise price of outstanding options and stock appreciation rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders 3,905,737 $ 24.32 1,247,205 Equity compensation plans not approved by security holders - - - Total 3,905,737 $ 24.32 1,247,205 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 year ended December 31, 2020, year ended December 31, 2019 (unaudited), six months ended December 31, 2019 and year ended June 30, 2019. 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. 31 Our Corporate History and Background Relmada Therapeutics is a late-stage, publicly traded biotechnology company developing (New Chemical Entities) NCEs to address areas of high unmet medical need in the treatment of CNS diseases - primarily depression. The Company’s lead product Esmethadone, is an NCE being developed as a rapidly acting, oral agent for the treatment of depression and other potential indications. We have previously completed Phase 1 single and multiple ascending dose studies and on October 15, 2019 we reported top-line data from study REL-1017-202, 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. On Dec. 7, 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 major depressive disorder (MDD). Key points of the REL-017 Phase 3 program agreed upon in discussions with FDA include: ● The Phase 3 program will consist of two sister, two-arm, placebo-controlled clinical trials. Each trial will be conducted in 55 clinical sites in the United States and will include approximately 400 MDD patients with inadequate response to standard antidepressants in their current depression episode. Patients will add either a 25 mg oral dose of REL-1017 once per day or placebo to their ongoing antidepressant treatment. ● The primary endpoint to be evaluated will be the change from baseline on the Montgomery and Asberg Depression Rating Scale (MADRS) score at day-28 for REL-1017 compared to placebo. Success on this endpoint with the collection of sufficient safety data would support the use of REL-1017 for chronic treatment, if approved. ● The change from baseline and the 7-day MADRS score will serve as a key secondary endpoint and will provide data on the rapid onset of treatment effect; statistically significant separation between REL-1017 and the control group was achieved by day 4 in the Phase 2 proof-of-principle trial completed in 2019. ● The Company expects to initiate the second Phase 3 trial, RELIANCE II, in the first half of 2021. Patients who complete RELIANCE I and RELIANCE II will be eligible to rollover into the long-term, open-label study, which is also expected to include subjects who had not previously participated in a REL-1017 clinical trial. The Company changed its fiscal year end to December 31 from June 30. This transition report was for the six-month transition period of July 1, 2019 through December 31, 2019. The information for the year ended December 31, 2019 is presented for comparative purposes only and is unaudited. We have not generated revenues and do not anticipate generating revenues for the foreseeable future. We had a net loss of approximately $59,456,400, $15,005,200, $8,196,500, and $17,318,100 for the years ended December 31, 2020, December 31, 2019 (unaudited), six months ended December 31, 2019, and for the year ended June 30, 2019, respectively. At December 31, 2020, we have an accumulated deficit of approximately $179,315,300. Results of Operations For the Year Ended December 31, 2020 vs the Year Ended December 31, 2019 (unaudited) Research and Development Expense Total research and development expense for the year ended December 31, 2020 was approximately $35,972,700, as compared to $7,859,500 for the same period of 2019, an increase of $28,113,200. The increase in research and development expense was primarily due to: ● Increase in study costs of $15,238,700 associated with the execution of our Phase 2 and Phase 3 studies; ● Increase in manufacturing and drug storage costs of $989,700; ● Increase in pre-clinical and toxicology expenses of $1,881,900; ● Increase in compensation expense of $2,376,000 related to the hiring of six additional research and development employees and their related bonuses; ● Increase in stock-based compensation expense of $3,677,600 of stock-based compensation expense related to the hiring of six additional research and development employees and the related options granted to them, as well as the separation agreement with Ottavio Vitolo of approximately $1,500,000; ● Increase in other research expenses of $3,949,400 primarily associated to the additional consultants contracted with to assist in the execution of our Phase 3 studies. 32 General and Administrative Expense Total general and administrative expense for the year ended December 31, 2020 was approximately $24,865,900, as compared to $7,249,900 for the same period of 2019, an increase of $17,616,000. The increase in general and administrative expenses was primarily due to: ● Increase in compensation expense of $2,753,800 related to the hiring of four additional general and administrative employees and their related bonuses; ● Increased in stock-based compensation expense of $13,934,400 primarily related to options granted to employees and the board of directors during 2020; ● Increase in other G&A expenses of $927,800. Interest Income and Expense, Net Interest income and realized and unrealized gains and losses in investments was approximately $1,382,300 and $104,100 for the years ended December 31, 2020 and 2019, respectively. The increase of $1,278,200 resulted from the increase in investments during 2020 compared to 2019. Income Taxes The Company did not provide for income taxes for the year ended December 31, 2020 and December 31, 2019, 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 $59,456,400 and $15,005,200 or $3.81 and $1.62 per common share, basic and diluted, during the years ended December 31, 2020 and 2019, respectively, based on the factors described above. Liquidity As shown in the accompanying financial statements, the Company incurred negative operating cash flows of $27,808,801 for the year ended December 31, 2020 and has an accumulated deficit of $179,315,303 from inception through December 31, 2020. Relmada has funded its past operations through equity raises and most recently in the year ended December 31, 2020, Relmada raised net proceeds from the sale of common stock of $19,791,644 and $8,056,416 through the exercise of warrants, and $735,514 through the exercise of options. Management believes that due to the recent equity raises completed and exercises of outstanding warrants and the resulting cash position on its balance sheet, it has obtained sufficient funding to continue ongoing operations for at least 12 months from the filing of this annual report. Since December 31, 2020 and to date, the Company has received approximately $1,909,200 in warrant and option exercises, which resulted in the Company having approximately $105.3 million in cash, cash equivalents and short term investments at March 15, 2021. Based on its budgeted cash flow requirements, the Company believes these funds are sufficient to fund its ongoing operations for at least 12 months after the filing of this annual report. The Company expects that the cash burn rate for the 12 months ended December 31, 2021, will range between $75 and $100 million. The following table sets forth selected cash flow information for the periods indicated below: (Unaudited) For the Year Ended For the Year Ended For the Six Months Ended For the Year Ended December 31, December 31, December 31, June 30, 2020 2019 2019 2019 Cash used in operating activities $ (27,808,801 ) $ (12,092,784 ) $ (6,413,775 ) $ (10,497,854 ) Cash used in investing activities (34,447,648 ) (80,164,823 ) (80,164,823 ) - Cash provided by financing activities 28,473,327 126,109,375 113,640,563 17,475,465 Net increase/(decrease) in cash and cash equivalents $ (33,783,122 ) $ 33,851,768 $ 27,061,965 $ 6,977,611 For the year ended December 31, 2020, cash used in operating activities was $27,808,801 primarily due to the net loss of $59,456,394. This was offset by non-cash expenses which primarily consisted of stock-based compensation of $20,777,272. There were realized losses and unrealized gains on short term investments of $156,213 and $139,267, respectively. In addition, there were changes in operating assets and liabilities for the year ended December 31, 2020 of $10,849,623. For the unaudited year ended December 31, 2019, cash used in operating activities was $12,092,784 primarily due to the net loss of $15,005,199. This was offset by non-cash expenses which primarily consisted of stock-based compensation and loss on fair value of shares relinquished of $3,165,153 and $394,410, respectively. There were changes in operating assets and liabilities for the year ended December 31, 2020 of $137,309. For the six months ended December 31, 2019, the transition period, cash used in operating activities was $6,413,775 primarily due to the net loss of $8,196,542. This was offset by non-cash expenses which primarily consisted of stock-based compensation of $2,367,001. There were changes in operating assets and liabilities for the six months ended December 31, 2019 of $586,434. 33 For the year ended June 30, 2019 cash used in operating activities was $10,497,854 primarily due to the net loss of $17,318,060. This was offset by non-cash expenses which primarily consisted of stock-based compensation of $1,213,996, the change in the fair value of derivative liabilities of $54,634, loss on fair value of shares relinquished of $394,410, loss on extinguishment of promissory note of $3,774,468 and amortization of deferred financing costs of $661,168. There were changes in operating assets and liabilities for the years ended June 30, 2019 of $1,505,480. For the year ended December 31, 2020, cash used in investing activities was $34,447,648, due to $182,051,630 of purchases of short term investments offset by $147,603,982 of sales of short term investments. For the unaudited year ended December 31, 2019, cash used in investing activities was $80,164,823, due to $84,849,198 of purchases of short term investments offset by $4,684,375 of sales of short term investments. For the six months ended December 31, 2019, cash used in investing activities was $80,164,823, due to $84,849,198 of purchases of short term investments offset by $4,684,375 of sales of short term investments. For the year ended June 30, 2019, no cash was used in investing activities. Net cash provided by financing activities for the six months ended December 31, 2020, was $28,473,327 due to proceeds from issuance of common stock of $19,791,644, proceeds from warrants exercised for common stock of $8,056,416, proceeds from options exercised for common stock of $735,514 partially offset by payments of notes payable of $110,247. Net cash provided by financing activities for the unaudited year ended December 31, 2019, was $126,109,375 due to proceeds from issuance of common stock of $122,031,032, proceeds from warrants exercised for common stock of $4,447,038 partially offset by payments of notes payable of $368,695. Net cash provided by financing activities for the six months ended December 31, 2019, was $113,640,563 due to proceeds from issuance of common stock of $109,447,482, proceeds from warrants exercised for common stock of $4,447,038 partially offset by payments of notes payable of $253,957. Net cash provided by financing activities for the year ended June 30, 2019 was $17,475,465 due to proceeds from issuance of common stock of $17,760,635 partially offset by payments of notes payable of $285,170. 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. Contractual Obligations The following tables sets forth our contractual obligations for the next five years and thereafter: Total Less than 1 year 1 - 2 years 3 - 5 years More than 5 years Office lease $ 104,760 $ 104,760 $ - $ - $ - Total obligations $ 104,760 $ 104,760 $ - $ - $ - Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 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. Actual results could differ from those estimates. The significant estimates are incurred costs of clinical studies, stock-based compensation expense, valuation of derivative financial liabilities, and income taxes and valuation of deferred tax assets. 34 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. 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. Compensation expense for warrants granted to non-employees is determined by the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured, and is recognized over the service period. The expense is subsequently adjusted to fair value at the end of each reporting period until such warrants vest, and the fair value of such instruments, as adjusted, is expensed over the related vesting period. Adjustments to fair value at each reporting date may result in income or expense, depending upon the estimate of fair value and the amount of expense recorded prior to the adjustment. The Company reviews its agreements and the future performance obligation with respect to the unvested warrants for its vendors or consultants. When appropriate, the Company will expense the unvested warrants at the time when management deems the service obligation for future services has ceased. 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. As of December 31, 2020 and 2019, and June 30, 2019, the Company recorded a valuation allowance to the full extent of our net deferred tax assets since the likelihood of realization of the benefit does not meet the more likely than not threshold. Recent Accounting Pronouncements The Company lists material recent accounting pronouncements in Note 2 of the consolidated financial statements. 35