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| PART I. | FINANCIAL INFORMATION | 7 |
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| Item 1. | Financial Statements (Unaudited) | 7 |
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| | Condensed Consolidated Balance Sheets | 7 |
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| | Condensed Consolidated Statements of Operations and Comprehensive Loss | 8 |
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| | Condensed Consolidated Statements of Stockholders’ Equity | 9 |
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| | Condensed Consolidated Statements of Cash Flows | 10 |
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| | Notes to Unaudited Condensed Consolidated Financial Statements | 11 |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 |
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 28 |
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| Item 4. | Controls and Procedures | 29 |
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| PART II. | OTHER INFORMATION | 29 |
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| Item 1. | Legal Proceedings | 29 |
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| Item 1A. | Risk Factors | 30 |
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 74 |
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| Item 3. | Defaults Upon Senior Securities | 74 |
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| Item 4. | Mine Safety Disclosures | 74 |
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| Item 5. | Other Information | 74 |
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| Item 6. | Exhibits | 75 |
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| | Signatures | 76 |
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SUMMARY OF THE MATERIAL AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS
Our business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:
| ● | We may not be successful in identifying and implementing any strategic transaction and any strategic transactions that we may consummate in the future could have negative consequences. |
| ● | Even if we successfully consummate any transaction from our strategic assessment, including, but not limited to, a merger, acquisition or business combination, we may fail to realize all of the anticipated benefits of the transaction, those benefits may take longer to realize than expected, or we may encounter integration difficulties. |
| ● | If we are successful in completing a strategic transaction, we may be exposed to other operational and financial risks. |
| ● | Our board of directors may decide to pursue a dissolution and liquidation instead of a strategic transaction. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities. |
| ● | We are a biopharmaceutical company with a limited operating history. |
| ● | We have incurred significant operating losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We may never achieve or maintain profitability. |
| ● | We have no products approved for commercial sale and have not generated any revenue from product sales. |
| ● | Should we resume development of AV-101 or any other product candidates, our business would be entirely dependent on the successful development, regulatory approval and commercialization of such product candidates. |
| ● | The results of earlier studies and trials may not be predictive of future trial results. |
| ● | We have experienced, and should we resume development of AV-101 or any other product candidates, may in the future encounter, difficulties with site activation and patient enrollment in our clinical trials, and our clinical development activities could be delayed or otherwise adversely affected. |
| ● | Should we resume development of AV-101 or any other product candidates, we may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration. Our competitors are likely to have significantly greater resources than we do and we may not be able to successfully compete. |
| ● | Should we resume development of AV-101 or any other product candidates, we would rely on qualified third parties to supply all components of such product candidates. If we experience problems with any of these suppliers, or they fail to comply with applicable regulatory requirements or to supply sufficient quantities at acceptable quality levels or prices, or at all, it would materially and adversely affect our business. |
| ● | Should we resume development of AV-101 or any other product candidates, we would rely on third parties in the conduct of all of our clinical trials. If these third parties do not successfully carry out their contractual duties, fail to comply with applicable regulatory requirements or meet expected deadlines, we may be unable to obtain regulatory approval for any of our product candidates. |
| ● | We have six issued U.S. patents and many pending patent applications with respect to AV-101. We can provide no assurance that any of our other current or future patent applications will result in issued patents. If we cannot |
protect our patent rights or our other proprietary rights, others may develop products similar or identical to ours, and we may not be able to compete effectively in our market or successfully commercialize any product candidates we may develop.
| ● | Should we resume development of AV-101 or any other product candidates, we may be unable to obtain regulatory approval under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of any product candidates and adversely impact our potential to generate revenue, our business and our results of operations. |
| ● | AV-101 is a drug-device combination product, which may result in additional regulatory risks. |
| ● | Should we resume development of any product candidates, we may in the future conduct clinical trials outside the United States, and the U.S. Food and Drug Administration, or FDA, European Medicines Agency, or EMA, and applicable foreign regulatory authorities may not accept data from such trials. |
| ● | Unfavorable global economic or political conditions could adversely affect our ability to identify and implement any strategic transaction. |
The material and other risks summarized above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission, or the SEC. If any such material and other risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full under Item 1A of this Quarterly Report on Form 10-Q are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
| ● | our ongoing comprehensive review and consideration of strategic alternatives for the company and our ability to maximize shareholder value with this process; |
| ● | should we decide to pursue a transaction in connection with our strategic review process, our ability to complete such transaction and do so on attractive terms; |
| ● | anticipated expenses and cost savings in connection with our discontinuation of development of AV-101 and our workforce reduction; |
| ● | estimates of our future expenses, revenues, capital requirements and, should we resume development of AV-101 or any other product candidates, our needs for additional financing; |
| ● | should we decide to resume development of AV-101 or any other product candidates, our expectations for clinical and regulatory development plans, and, if approved, subsequent commercialization of any product candidates; |
| ● | the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for any product candidates we may develop should we decide to resume development of AV-101 or any other product candidates; |
| ● | our commercialization, marketing and manufacturing capabilities and strategy if we decide to pursue any future product development and commercialization efforts; |
| ● | our expectations regarding our ability to obtain and maintain intellectual property protection for any product candidates we may develop if we decide to pursue any future product development efforts; |
| ● | our ability to identify products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives if we decide to pursue any future product development efforts; |
| ● | the scope of protection we are able to establish and maintain for intellectual property rights covering AV-101 or any future product candidates we may pursue, including the projected terms of patent protection; |
| ● | potential regulatory developments in the United States and foreign countries; |
| ● | our ability to enter into strategic collaborations, including for the commercialization of any future product candidates inside or outside the United States; |
| ● | our ability to contract with third-party suppliers, manufacturers and contract research organizations, or CROs, and their ability to perform adequately; |
| ● | developments relating to our competitors and our industry, including the impact of government laws and regulations; |
| ● | our ability to retain key scientific or management personnel in order to operate our business following announcement of our workforce reduction plan; |
| ● | our ability to obtain additional funding for our operations, if needed, should we decide to resume development of AV-101 or any other product candidates; and |
| ● | other risks and uncertainties, including those listed under the section titled “Risk Factors.” |
In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed above under “Summary of the Material Risks Associated with Our Business” and under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission, or the SEC, as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.
