UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from ____________ to ____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading Symbol(s) | Name of Each Exchange on Which Registered: | ||
| The
|
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.
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).
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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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 November 12, 2024, the registrant had shares of its Common Stock, par value $ per share, outstanding.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 43 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 61 |
| Item 4. | Controls and Procedures | 61 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 62 |
| Item 1A. | Risk Factors | 62 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 63 |
| Item 3. | Defaults Upon Senior Securities | 63 |
| Item 4. | Mine Safety Disclosures | 63 |
| Item 5. | Other Information | 64 |
| Item 6. | Exhibits | 64 |
| Signatures | 65 | |
| 2 |
PART I - Financial Information
Item 1. Financial Statements.
TNF PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2024 and December 31, 2023
(unaudited)
| As of | ||||||||
| September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Marketable Securities | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Lease Right-of-Use | ||||||||
| Goodwill | ||||||||
| Investment in Oravax Medical | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Trade and Other Payables | $ | $ | ||||||
| Due to MyMD FL Shareholders | ||||||||
| Lease Liability | ||||||||
| Dividends Payable | ||||||||
| Derivative Liability | ||||||||
| Warrant Liability | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Deferred Compensation Payable, net of current | ||||||||
| Total Non-Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Mezzanine Equity | ||||||||
| Series
F Convertible Preferred Stock,
shares designated, par value $and a stated value of $per share, and
shares
issued and outstanding as of September 30, 2024 and December 31, 2023. Liquidation preference of $ | ||||||||
| Series F Convertible Preferred Stock – Discount | ( | ) | ( | ) | ||||
| Series F Convertible Preferred Stock – Derivative | ( | ) | ( | ) | ||||
| Series
F-1 Convertible Preferred Stock, shares designated, par value $ and a stated value of $ per share, and
shares issued and outstanding as of September 30, 2024 and December 31, 2023. Liquidation preference of $ | ||||||||
| Series F-1 Convertible Preferred Stock – Discount | ( | ) | ||||||
| Series
G Convertible Preferred Stock, shares designated, par value $ and a stated value of $ per share, and
shares issued and outstanding as of September 30, 2024 and December 31, 2023. Liquidation preference of $ | ||||||||
| Series G Convertible Preferred Stock – Discount | ( | ) | ||||||
| Total Mezzanine Equity | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock, par value $, total preferred shares authorized | ||||||||
| Series
D Convertible Preferred Stock, shares designated, $ par value and a stated value of $ | ||||||||
| Common Stock, par value $, shares authorized, and shares issued and outstanding as of September 30, 2024 and December 31, 2023 | ||||||||
| Additional Paid in Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities, Mezzanine Equity, and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
| 3 |
TNF PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Product Revenue | $ | $ | $ | $ | ||||||||||||
| Product Cost of Sales | ||||||||||||||||
| Gross Income | ||||||||||||||||
| General and Administrative Expenses | ||||||||||||||||
| Research and Development Expenses | ||||||||||||||||
| Stock Based Compensation Expenses | ||||||||||||||||
| Series F Warrant Issuance Expenses | ||||||||||||||||
| Series F-1 Warrant Issuance Expenses | ||||||||||||||||
| Series G Warrant Issuance Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (Income) Expenses | ||||||||||||||||
| Interest and Dividend Income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Gain)/Loss on Sale of Marketable Securities | ( | ) | ( | ) | ||||||||||||
| Change in fair value of Marketable Securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of Derivatives Liabilities | ( | ) | ( | ) | ||||||||||||
| Change in fair value of Warrant Liabilities | ( | ) | ( | ) | ||||||||||||
| Loss on issuance of Series F-1 Convertible Preferred Stock | ||||||||||||||||
| Loss on issuance of Series G Convertible Preferred Stock | ||||||||||||||||
| Casualty Loss/(Gain) | ( | ) | ( | ) | ||||||||||||
| Total Other (Income)/Expense | ( | ) | ( | ) | ||||||||||||
| Income/(Loss) Before Income Tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Income Tax Benefit/(Provision) | ||||||||||||||||
| Net Income/(Loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Preferred Stock Dividends | ||||||||||||||||
| Net Income/(Loss) Attributable to Common Stockholders | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Basic net income/(loss) per common share | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Diluted net income/(loss) per common share | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average basic common stock outstanding | ||||||||||||||||
| Weighted average diluted common stock outstanding | ||||||||||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
| 4 |
TNF PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2024 and 2023
(unaudited)
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series F Convertible Preferred Stock | Series F-1 Convertible Preferred Stock | Series G Convertible Preferred Stock | Series D Convertible Preferred Stock | Common Stock Par Value | Additional Paid | Accumulated | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Series F | Shares | Series F | Shares | Series F | Shares | Series D | Shares | $0.001 |
In Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for vested restricted stock units | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemption
of shares of Series F Convertible Preferred Stock, January 1, 2024 installment of $ | ( | ) | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accelerated Conversion of shares of Series F Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Redemption
of shares of Series F Convertible Preferred Stock, February 1, 2024 installment of $ | ( | ) | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accelerated Conversion of shares of Series F Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible Preferred Stock Dividend | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Reclass of warrant liability upon warrant modification | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Issuance
of shares of Series F-1 Convertible Preferred Stock, net of discount and offering costs of $ | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of shares of Series G Convertible Preferred Stock, net of discount and offering costs of $ | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Accelerated Conversion of shares of Series F Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Accelerated Conversion of shares of Series F Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible Preferred Stock Dividend | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Accelerated Conversion of shares of Series F Convertible Preferred Stock | (113 | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible Preferred Stock Dividend | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Reclass of warrant liability upon warrant modification | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Series F | Series F-1 | Series G | Series D | Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible Preferred | Convertible Preferred | Convertible Preferred | Convertible Preferred | Common Stock | Additional | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Par Value | Paid In | Accumulated | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Series F | Shares | Series F-1 | Shares | Series G | Shares | Series D | Shares | $0.001 | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Round-up
shares from the | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance
of shares of Series F Convertible Preferred Stock, net of discount and offering costs of $ | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series F Convertible Preferred Stock Dividend | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Stock Based Compensation - Stock Options | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | $ | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Conversion
of shares of Series F Convertible Preferred Stock, July 1, 2023 installment of $ | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion
of shares of Series F Convertible Preferred Stock, August 1, 2023 installment of $ | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Series F Convertible Preferred Stock Dividend | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for vested restricted stock units | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of prepaid equity forward contract | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Net profit | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Conversion
of shares of Series F Convertible Preferred Stock, September 1, 2023 installment of $ | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Conversion
of shares of Series F Convertible Preferred Stock, October 1, 2023 installment of $ | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Accelerated Conversion of shares of Series F Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Deemed Dividend for the true-up of the August 1, 2023 installment for the Series F Convertible Preferred Stock paid with common stock | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Series F Convertible Preferred Stock Dividend | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation - stock options | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
| 5 |
TNF PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| (Gain)/Loss on sale of marketable securities | ( | ) | ||||||
| Change in fair value of marketable securities | ( | ) | ||||||
| Change in fair value of derivatives | ( | ) | ||||||
| Change in fair value of warrants | ( | ) | ||||||
| Loss on issuance of Series F-1 Convertible Preferred Stock | ||||||||
| Loss on issuance of Series G Convertible Preferred Stock | ||||||||
| Stock based compensation | ||||||||
| Options issued to directors | ||||||||
| Options issued to key employees | ||||||||
| Options issued to non-employees | ||||||||
| Change in assets and liabilities | ||||||||
| Prepaid Expenses | ( | ) | ( | ) | ||||
| Trade and Other Payables | ( | ) | ||||||
| Operating Leases | ( | ) | ||||||
| Deferred Compensation Payable | ( | ) | ||||||
| Dividend Payable | ( | ) | ||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from sale of marketable securities | ||||||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Redemption of Series F Convertible Preferred Stock | ( | ) | ||||||
| Net proceeds from the issuance of Series F Convertible Preferred Stock | ||||||||
| Net proceeds from the issuance of Series F-1 Convertible Preferred Stock | ||||||||
| Net proceeds from the issuance of Series G Convertible Preferred Stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Financing and Investing Activities | ||||||||
| Accrual of Series F Convertible Preferred Stock Dividend | $ | $ | ||||||
| Initial fair value of warrant liabilities pursuant to the issuance of Series F Convertible Preferred Stock and Warrants | $ | $ | ||||||
| Initial fair value of derivative liabilities pursuant to the issuance of Series F Convertible Preferred Stock and Warrants | $ | $ | ||||||
| Initial fair value of warrant liabilities pursuant to the issuance of Series F-1 Convertible Preferred Stock and Warrants | $ | $ | ||||||
| Initial fair value of derivative liabilities pursuant to the issuance of Series F-1 Convertible Preferred Stock and Warrants | $ | $ | ||||||
| Initial fair value of warrant liabilities pursuant to the issuance of Series G Convertible Preferred Stock and Warrants | $ | $ | ||||||
| Reclass of warrant liability upon warrant modification for the Series F Warrants | $ | $ | ||||||
| Reclass of warrant liability upon warrant modification for the Series F-1 Warrants | $ | $ | ||||||
| Reclass of warrant liability upon warrant modification for the Series G Warrants | $ | $ | ||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
| 6 |
TNF PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 – Organization and Description of Business
TNF Pharmaceuticals, Inc. is a Delaware corporation (“TNF” or the “Company”) that was incorporated in New Jersey prior to the Reincorporation (as defined below). On July 22, 2024, the Company changed its name from MyMD Pharmaceuticals, Inc. to TNF Pharmaceuticals, Inc. by filing a certificate of amendment to its certificate of incorporation with the Secretary of State of Delaware. In addition, effective before the open of market trading on July 24, 2024, the Company’s common stock, par value $ per share (“Common Stock”) ceased trading under the ticker symbol “MYMD” and began trading on the Nasdaq Stock Market under the ticker symbol “TNFA.”
These condensed consolidated financial statements include two wholly owned subsidiaries as of September 30, 2024, Akers Acquisition Sub, Inc. and Bout Time Marketing Corporation (together, the “Company”). All material intercompany transactions have been eliminated in consolidation.
MYMD-1 is an oral, next-generation TNF-α inhibitor with the potential to transform the way TNF-α based diseases are treated due to its selectivity and ability to cross the blood brain barrier. Its ease of oral dosing is a significant differentiator compared to currently available TNF-α inhibitors, all of which require delivery by injection or infusion. MYMD-1 has also been shown to selectively block TNF-α action where it is overactivated without preventing it from doing its normal job of responding to routine infection. MYMD-1 is doubly effective at inhibiting inflammation by blocking both TNF-a and IL-6 activity, whereas currently approved anti-TNF and anti-IL-6 treatments for rheumatoid arthritis can only target one or the other. In addition, in early clinical studies it has not been associated with serious side effects known to occur with traditional immunosuppressive therapies that treat inflammation.
At the Company’s annual meeting of stockholders held on July 31, 2023, the stockholders approved a plan to merge the Company with and into a newly formed wholly owned subsidiary, MyMD Pharmaceuticals, Inc., a Delaware corporation (“MyMD Delaware”), with MyMD Delaware being the surviving corporation, for the purpose of changing the Company’s state of incorporation from New Jersey to Delaware (the “Reincorporation”). The Reincorporation was effected as of March 4, 2024. In connection with the Reincorporation to Delaware, the par value of the Company’s Common Stock and preferred stock was changed to $ per share.
MyMD Delaware is deemed to be the successor issuer of MyMD New Jersey under Rule 12g-3 of the Securities Exchange Act of 1934, as amended.
The Reincorporation did not result in any change in the Company’s name, business, management, fiscal year, accounting, location of the principal executive offices, assets or liabilities. In addition, the Company’s Common Stock retained the same CUSIP number and continued to trade on the Nasdaq Capital Market under the symbol “MYMD.” Holders of shares of the Company’s Common Stock did not have to exchange their existing MyMD New Jersey stock certificates for MyMD Delaware stock certificates.
As of the Effective Date of the Reincorporation, the rights of the Company’s stockholders are governed by the Delaware General Corporation Law, the MyMD Delaware Certificate of Incorporation and the Bylaws of MyMD Delaware.
On
February 14, 2024, the Company effected a
On July 25, 2024, the Company increased the number of authorized shares of the Company’s Common Stock from to and made a corresponding change to the number of authorized shares of the Company’s capital stock by filing a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Share Increase”). The Share Increase was approved by the Company’s stockholders at the Company’s special meeting of stockholders held on July 24, 2024.
Recent Events
The February 2023 Offering
On
February 21, 2023, the Company entered into a Securities Purchase Agreement (the “Series F Purchase Agreement”) with
certain accredited investors (the “Series F Investors”), pursuant to which it agreed to sell to the Investors (i) an
aggregate of
shares of the Company’s newly-designated Series F convertible preferred stock with a stated value of $
In
connection with the Private Placements (as defined herein), (i) the conversion price of the Series F Preferred Shares was adjusted to
$ per share pursuant to the full ratchet anti-dilution provisions contained in the Series F Certificate of Designations and, (ii)
the exercise price of the Series F Warrants was adjusted to $
| 7 |
Series F Convertible Preferred Stock
The
Series F Preferred Shares became convertible upon issuance into Common Stock (the “Series F Conversion Shares”) at the election
of the holder at any time at an initial conversion price of $
Prior
to the Series F Certificate of Amendment (as defined below), the Company was initially required to redeem the Series F Preferred Shares
in 12 equal monthly installments, commencing on July 1, 2023.
On
April 5, 2024, the Company entered into an Omnibus Waiver and Amendment (the “Omnibus Agreement”) with the Required Holders
(as defined in the Series F Certificate of Designations). Pursuant to the Omnibus Agreement, the Required Holders agreed (i) to defer
payment of the monthly installment amounts due on March 1, 2024, and April 1, 2024 (the “Installments”), under Section 9(a)
of the Series F Certificate of Designations, until May 1, 2024, and (ii) to waive any breach or violation of the Series F Purchase Agreement,
the Series F Certificate of Designations, or the Series F Warrants resulting from missing the Installments. The Company may require holders
to convert their Series F Preferred Shares into shares of Common Stock if the closing price of the Common Stock exceeds $ per share
(as adjusted for the Reverse Stock Split) (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations
or other similar events) for 20 consecutive trading days and the daily dollar trading volume of the Common Stock exceeds $
On
May 20, 2024, the Company entered into an Omnibus Waiver, Consent, Notice and Amendment (the “Series F Agreement”) with the
Required Holders (as defined in the Series F Certificate of Designations). Pursuant to the Series F Agreement, the Required Holders agreed
to (i) amend the Series F Purchase Agreement to amend certain terms relating to purchase rights thereunder, (ii) waive certain rights
under the Series F Purchase Agreement and Series F Certificate of Designations in respect of the issuance of the Company’s Series
F-1 Convertible Preferred Stock, with a par value of $ per share and a stated value of $
| 8 |
The
holders of the Series F Preferred Shares are entitled to dividends of
Notwithstanding the foregoing, the Company’s ability to settle conversions and make amortization and dividend make-whole payments using shares of Common Stock is subject to certain limitations set forth in the Series F Certificate of Designations. Further, the Series F Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares of Common Stock issuable upon conversion of, or as part of any amortization payment or dividend make-whole payment under, the Series F Certificate of Designations or Series F Warrants.
The Series F Preferred Shares are classified in temporary equity as the holder of the Series F Preferred Stock has the right to require the Company to redeem for cash all or any portion of such holder’s shares upon the suspension from trading or the failure of the Common Stock to be trading or listed (as applicable) on an eligible market for a period of five (5) consecutive trading days. The Series F Preferred Stock is not unconditionally redeemable and is only conditionally puttable at the holder’s option upon this trading suspension or failure. This would not be considered to be within the Company’s control.
The
Series F Preferred Shares were determined to be more akin to a debt-like host than an equity-like host. The Company identified the following
embedded features that are not clearly and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption
event, 2) make-whole interest upon a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in
the Series F Certificate of Designations), and 4) variable share-settled installment conversion. These features were bundled together,
assigned probabilities of being affected and measured at fair value. Subsequent changes in fair value of these features are recognized
in the Condensed Consolidated Statements of Comprehensive Loss. The Company estimated at issuance the $
The
discount to the fair value is included as a reduction to the carrying value of the Series F Preferred Shares. The Company recorded a
total discount of $
| 9 |
During
the three months ended September 30, 2024 and 2023, the Company recorded a loss of $
Series F Common Stock Warrants
Pursuant
to the February 2023 Offering, the Company issued to investors the Series F Warrants to purchase
The
Series F Warrants were determined to be within the scope of ASC 480-10 as they are puttable to the Company at Holders’ election
upon the occurrence of a Fundamental Transaction (as defined in the agreements). As such, the Company recorded the Series F Warrants
as a liability at fair value with subsequent changes in fair value recognized in earnings. The Company utilized the Black Scholes Model
to calculate the value of these warrants. The fair value of the Series F Warrants of $
Transaction
costs incurred attributable to the issuance of the Series F Warrants of $
During
the three months ended September 30, 2024, the Company recorded no gain or loss on the change in fair value due to the reclassification of Series F Warrant liabilities to equity
on March 31, 2024 (see below). During the nine months ended September 30, 2024, the Company recorded a loss of $
During
the three months ended September 30, 2023, the Company recorded a gain of $
| 10 |
On
May 14, 2024, the Company entered into an Amendment (the “Series F Warrant Amendment”) with the Series F Investors in the
February 2023 Offering, effective as of March 31, 2024. The Series F Warrant Amendment modified certain terms of the Series F Warrants
relating to the rights of the holders of the Series F Warrants to provide that, in the event of a Fundamental Transaction (as defined
in the Series F Warrants) that is not within the Company’s control, including the Fundamental Transaction not being approved by
the Company’s Board of Directors, the holder of the Series F Warrant shall only be entitled to receive from the Company or any
successor entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion
of such Series F Warrant, that is being offered and paid to the holders of the Company’s common stock in connection with the Fundamental
Transaction, whether that consideration be in the form of cash, stock or any combination
thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection
with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration
in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the successor entity (which
such successor entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. The modification resulted in the reclassification of the Series F Warrants to be considered equity classified as they were
no longer in the scope of ASC 815. In accordance with ASC 815-40, the Company remeasured the Series F Warrant liabilities at $
On November 7, 2024, each holder of the Series F Preferred Shares agreed that payment by the Company of any Installment Amounts (as defined in the Series F Certificate of Designations) that are accrued and are unredeemed, unconverted and/or otherwise unpaid as of November 7, 2024, will be deferred until December 1, 2024.
Series F-1 Private Placement
On
May 20, 2024, the Company entered into a Securities Purchase Agreement (the “Series F-1 Purchase Agreement”) with certain
accredited investors (the “Series F-1 Investors”) pursuant to which it agreed to sell to the Series F-1 Investors (i) an
aggregate of shares of the Company’s newly-designated Series F-1 Preferred Stock, initially convertible into up to
shares of Common Stock at a conversion price of $
Series F-1 Preferred Stock
The
Series F-1 Preferred Stock became convertible upon issuance into Common Stock (the “Series F-1 Conversion Shares”) at the
election of the holder at any time at an initial conversion price of $
The
Company is required to redeem the Series F-1 Preferred Stock in seven (7) equal monthly installments, commencing on December 1, 2024.
| 11 |
The
holders of the Series F-1 Preferred Stock are entitled to dividends of
Notwithstanding the foregoing, the Company’s ability to settle conversions and make amortization and dividend make-whole payments using shares of Common Stock is subject to certain limitations set forth in the Series F-1 Certificate of Designations. Further, the Series F-1 Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares of Common Stock issuable upon conversion of, or as part of any amortization payment or dividend make-whole payment under, the Series F-1 Certificate of Designations or Series F-1 Warrants.
The Series F-1 Preferred Shares are classified as temporary equity as the holder of the Series F-1 Preferred Stock has the right to require the Company to redeem for cash all or any portion of such Holder’s shares upon the suspension from trading or the failure of the Common Stock to be trading or listed (as applicable) on an eligible market for a period of five (5) consecutive Trading Days. The Series F-1 Preferred Stock is not unconditionally redeemable and is only conditionally puttable at the Holder’s option upon this trading suspension or failure. This would not be considered to be within the Company’s control.
The
estimated fair value of the Series F-1 Preferred Stock on the issuance date of approximately $
million, was determined utilizing Monte Carlo simulations. The estimated aggregate fair value of the Warrants of approximately
$
The
approximately $
During the three months ended September 30, 2024 and 2023, the Company recorded a loss of $
Series F-1 Warrants
The
Series F-1 Warrants were accounted for as liabilities based on the following analysis. The Series F-1 Preferred Shares were determined
to be more akin to a debt-like host than an equity-like host. The Company identified the following embedded features that are not clearly
and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption event, 2) make-whole interest upon
a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in the Series F Certificate of Designations),
and 4) variable share-settled installment conversion. These features were bundled together, assigned probabilities of being affected
and measured at fair value. Subsequent changes in fair value of these features are recognized in the Condensed Consolidated Statements
of Comprehensive Loss. The Company estimated at issuance the $
| 12 |
Pursuant
to the Series F-1 Private Placement, the Company issued to investors (i) the Series F-1 Long-Term Warrants to purchase
The exercise price of the Series F-1 Warrants and the number of shares issuable upon exercise of the Series F-1 Warrants are subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable exercise price (subject to certain exceptions). Upon any such price-based adjustment to the exercise price, the number of shares issuable upon exercise of the Series F-1 Warrants will be increased proportionately.
On
August 16, 2024, the Company entered into (i) an Amendment (the “Series F-1 Long Term Warrant Amendment”) with the Series
F-1 Investors, effective as of June 30, 2024 relating to the Series F-1 Long Term Warrants, and (ii) an Amendment (the “Series
F-1 Short Term Warrant Amendment” and, together with the Series F-1 Long Term Warrant Amendment, the “Series F-1 Warrant
Amendments”) with the Series F-1 Investors, effective as of June 30, 2024 relating to the Series F-1 Short Term Warrants. The Series
F-1 Warrant Amendments modified certain terms of the Series F-1 Warrants relating to the rights of the holders of the Series F-1 Warrants
to provide that, in the event of a Fundamental Transaction (as defined in the Series F-1 Warrants) that is not within the Company’s
control, including the Fundamental Transaction not being approved by the Company’s Board of Directors, the holder of the Series
F-1 Warrant shall only be entitled to receive from the Company or any successor entity the same type or form of consideration (and in
the same proportion), at the Black Scholes Value of the unexercised portion of such Series F-1 Warrant, that is being offered and paid
to the holders of the Company’s Common Stock in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination
thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection
with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration
in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the successor entity (which
such successor entity may be the Company following such Fundamental Transaction). Additionally, the Series F-1 Warrant
Amendments amend the definition of Black Scholes Value related to the volatility input which is now an expected volatility equal to the
30 day volatility, obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization factor) as
of the trading day immediately following the earliest to occur of (1) the public disclosure of the applicable Fundamental Transaction
and (2) the date of a holder’s request. The modification resulted in the reclassification of the Series F-1 Warrants to be considered
equity classified as they were no longer in the scope of ASC 815. In accordance with ASC 815-40, the Company remeasured the Series F-1
Warrants at fair value as of July 25, 2024 ($
Series G Private Placement
On
May 20, 2024, the Company entered into a Securities Purchase Agreement (the “Series G Purchase Agreement” and collectively
with the Series F-1 Purchase Agreement, each a “Purchase Agreement” and collectively, the “Purchase Agreements”)
with certain accredited investors (the “Series G Investors” and collectively with the Series F-1 Investors, the “Investors”),
with certain accredited investors (the “Series G Investors”), pursuant to which it agreed to sell to the Series G Investors
(i) an aggregate of shares of the Company’s newly-designated Series G Preferred Stock, initially convertible into up to
shares of the Company’s Common Stock, at a conversion price of $
Series G Preferred Stock
The
Series G Preferred Shares became convertible upon issuance into Common Stock (the “Series G Conversion Shares”) at the election
of the holder at any time at an initial conversion price of $
| 13 |
The
holders of the Series G Preferred Shares will be entitled to dividends of
Notwithstanding the foregoing, the Company’s ability to settle conversions and make dividend make-whole payments using shares of Common Stock is subject to certain limitations set forth in the Series G Certificate of Designations. Further, the Series G Certificate of Designations contains a certain beneficial ownership limitation, which applies to each Series G Investor, other than PharmaCyte Biotech, Inc., after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Series G Preferred Shares or as part of any dividend make-whole payment under the Series G Certificate of Designations.
On June 17, 2024, the Company entered into an Amendment Agreement (the “Series G Amendment”) with the Required Holders (as defined in the Series G Certificate of Designations). Pursuant to the Series G Amendment, the Required Holders agreed to amend the Series G Certificate of Designations by filing a Certificate of Amendment (“Series G Certificate of Amendment”) to the Series G Certificate of Designations with the Secretary of State of the State of Delaware (the “Secretary of State”) to increase the number of authorized shares of Series G Preferred Stock from to , in order to authorize a sufficient number of shares of Series G Preferred Stock for the payment of PIK Shares. On June 17, 2024, the Company filed the Series G Certificate of Amendment with the Secretary of State, thereby amending the Series G Certificate of Designations. The Series G Certificate of Amendment became effective with the Secretary of State upon filing.
The Series G Preferred Shares are classified as temporary equity as the holder of the Series G Preferred Stock has the right to require the Company to redeem for cash all or any portion of such Holder’s shares upon the suspension from trading or the failure of the Common Stock to be trading or listed (as applicable) on an eligible market for a period of five (5) consecutive Trading Days. The Series G Preferred Stock is not unconditionally redeemable and is only conditionally puttable at the Holder’s option upon this trading suspension or failure. This would not be considered to be within the Company’s control.
The
estimated fair value of the Series G Preferred Stock on the issuance date of approximately $
The
approximately $
Since
the fair value of the liabilities required to be subsequently measured at fair value exceeds the net proceeds received, the excess of
the fair value over the net proceeds received is recognized as a loss in earnings. As such, the Company recognized a loss on the issuance
of preferred stock of approximately $
On August 8, 2024, the Company entered into an Amendment Agreement (the “August Series G Amendment”) with the Required Holders (as defined in the Series G Certificate of Designations). Pursuant to the August Series G Amendment, the Required Holders agreed to amend the Series G Certificate of Designations by filing a Certificate of Amendment (“August Series G Certificate of Amendment”) to the Series G Certificate of Designations with the Secretary of State to adjust the calculation of the PIK Shares. On August 8, 2024, the Company filed the August Series G Certificate of Amendment with the Secretary of State, thereby amending the Series G Certificate of Designations. The August Series G Certificate of Amendment became effective with the Secretary of State upon filing.
| 14 |
Series G Warrants
The
Series G Preferred Shares were determined to be more akin to a debt-like host than an equity-like host. The Company identified the following
embedded features that are not clearly and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption
event, 2) make-whole interest upon a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in
the Series F Certificate of Designations), and 4) variable share-settled installment conversion. These features were bundled together,
assigned probabilities of being affected and measured at fair value. Subsequent changes in fair value of these features are recognized
in the Condensed Consolidated Statements of Comprehensive Loss. The Company estimated at issuance the $
Pursuant
to the Series G Private Placement, the Company issued to investors (i) the Series G Long-Term Warrants to purchase
The exercise price of the Series G Warrants and the number of shares issuable upon exercise of the Series G Warrants are subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable exercise price (subject to certain exceptions). Upon any such price-based adjustment to the exercise price, the number of shares issuable upon exercise of the Series G Warrants will be increased proportionately.
On
August 16, 2024, the Company entered into (i) an Amendment (the “Series G Long Term Warrant Amendment”) with the Series G
Investors, effective as of June 30, 2024, relating to the Series G Long Term Warrants, and (ii) an Amendment (the “Series G Short
Term Warrant Amendment” and, together with the Series G Long Term Warrant Amendment, the “Series G Warrant Amendments”)
with the Series G Investors, effective as of June 30, 2024, relating to the Series G Short Term Warrants. The Series G Warrant Amendments
modified certain terms of the Series G Warrants relating to the rights of the holders of the Series G Warrants to provide that, in the
event of a Fundamental Transaction (as defined in the Series G Warrants) that is not within the Company’s control, including the
Fundamental Transaction not being approved by the Company’s Board of Directors, the holder of the Series G Warrant shall only be
entitled to receive from the Company or any successor entity the same type or form of consideration (and in the same proportion), at
the Black Scholes Value (as defined in the Series G Warrants) of the unexercised portion of such Series G Warrant, that is being offered
and paid to the holders of the Company’s Common Stock in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination
thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection
with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration
in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the successor entity (which
such successor entity may be the Company following such Fundamental Transaction). Additionally, the Series
G Warrant Amendments amend the definition of Black Scholes Value related to the volatility input which is now an expected volatility
equal to the 60 day volatility, obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization
factor) as of the trading day immediately following the earliest to occur of (1) the public disclosure of the applicable Fundamental
Transaction and (2) the date of a holder’s request. The modification resulted in the reclassification of the Series G Warrants
to be considered equity classified as they were no longer in the scope of ASC 815. In accordance with ASC 815-40, the Company remeasured
the Series G Warrants at fair value as of July 25, 2024 ($
Registration Rights Agreements
In
connection with the Series F-1 Private Placement,
In
connection with the Series G Private Placement,
In connection with the Registration Rights Agreements, the Company filed a registration statement on Form S-3 covering such securities, which registration statement was filed on June 21, 2024, amended on August 8, 2024 and declared effective by the SEC on August 12, 2024. Under the Series F-1 Registration Rights Agreement, the Company is obligated to pay certain liquidated damages to the Series F-1 Investors if the Company, among other things, failed to file the Series F-1 Registration Statement when required, failed to file or cause the Series F-1 Registration Statement to be declared effective by the SEC when required, or fails to maintain the effectiveness of the Series F-1 Registration Statement.
| 15 |
Private Placement Warrants
Nasdaq Stockholder Approval
The
Company’s ability to issue Series F-1 Conversion Shares and Series G Conversion Shares and Series F-1 Warrant Shares and Series
G Warrant Shares using shares of Common Stock is subject to certain limitations set forth in the Series F-1 Certificate of Designations
and Series G Certificate of Designations, as applicable. Prior to the Nasdaq Stockholder Approval (as defined below), such limitations
included a limit on the number of shares that could be issued until the time that the Company’s stockholders have approved the
issuance of more than
Executive Officer Contract Amendments and Separations
Dr.
Chapman’s employment agreement terminated on June 14, 2024. Pursuant to a General Release and Severance Agreement (the “Separation
Agreement”), dated as of June 14, 2024, Dr. Chapman is entitled to (i) payment in the amount of $
| 16 |
Effective November 13, 2023, the Company entered into an amendment to the employment agreement of Dr. Adam Kaplin, its Chief Scientific Officer, providing that Dr. Kaplin’s employment and had an initial term of four months, which the parties had the option to mutually agree to extend for additional consecutive terms of one month each. The amendment further provided that, in the event of termination without cause by the Company prior to the end of the initial term, Dr. Kaplin shall receive his monthly base salary through the end of the initial term. The amendment further provided that all outstanding and unvested shares granted pursuant to the Nonqualified Stock Option Agreement, dated June 7, 2023, between the Company and Dr. Kaplin shall accelerate upon the termination of Dr. Kaplin’s employment. Dr. Kaplin’s amendment further provided that, in the event of a termination for any reason prior to the end of the first renewal term following the end of the initial term, the Company will continue to cover the costs of Dr. Kaplin’s health insurance coverage through the end of the first renewal term, subject to the execution and timely return of a release. Dr. Kaplin’s employment was terminated effective April 15, 2024.
Effective November 13, 2023, the Company entered into a mutual employment separation agreement with Paul M. Rivard, its Chief Legal Officer. The separation agreement provides for a lump-sum severance payment equal to three months of his normal base salary in exchange for a waiver and release. The separation agreement further provides that Mr. Rivard will be deemed a contractor providing services to the Company for purposes of any awards previously granted to him under the 2021 Plan if at the relevant time(s) he is providing services to the Company while under the employ of a law firm representing the Company.
Director’s Deferral of Board Service Fees
On
November 13, 2023, the Board approved certain adjustments to the director fees. Mr. Silverman’s fees were decreased from $
| 17 |
Note 2 – Significant Accounting Policies
(a) Basis of Presentation
The condensed consolidated financial statements of the Company are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States of America (US GAAP).
The accompanying unaudited condensed financial statements have been prepared by the Company. These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in Note 2 Significant Accounting Policies included in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on April 1, 2024 (the “2023 Annual Report”). Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the 2023 Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three and nine months ended September 30, 2024 may not be necessarily indicative of the operating results expected for the full year or any future period.
(b) Use of Estimates and Judgments
The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes for recording the fair value of financial instruments, derivative financial instruments valuations, research and development expenses, impairment of intangible assets and the valuation of share-based payments.
(c) Functional and Presentation Currency
These condensed consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency. All financial information has been rounded to the nearest dollar. Foreign Currency Transaction Gains or Losses, resulting from cash balances denominated in Foreign Currencies, are recorded in the Condensed Consolidated Statements of Comprehensive Loss.
| 18 |
(d) Comprehensive Income (Loss)
The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220 in reporting comprehensive income. Comprehensive income (loss) is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income (loss). Since the Company has no items of other comprehensive income (loss), comprehensive loss is equal to net loss.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments, which include short-term bank deposits (up to three months from date of deposit) that are not restricted as to withdrawal date or use, to be cash equivalents.
(f) Fair Value of Financial Instruments
Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the three and nine months ended September 30, 2024. The carrying amounts of cash equivalents, accounts receivable, other current assets, other assets, accounts payable, and accrued expenses approximated their fair values as of September 30, 2024 due to their short-term nature. The fair value of the bifurcated embedded derivative related to the convertible preferred stock was estimated using a Monte Carlo simulation model, which uses as inputs the fair value of the Company’s Common Stock and estimates for the equity volatility and traded volume volatility of the Company’s Common Stock, the time to maturity of the convertible preferred stock, the risk-free interest rate for a period that approximates the time to maturity, dividend rate, a penalty dividend rate, and the probability of default. The fair value of the warrant liabilities was estimated using the Black Scholes Model which uses as inputs the following weighted average assumptions: dividend yield, expected term in years; equity volatility; and risk-free interest rate.
Fair Value Measurement
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:
| Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company can access. | |
| Level 2 | Inputs to the valuation methodology include: |
| ● | quoted prices for similar assets or liabilities in active markets; | |
| ● | quoted prices for identical or similar assets or liabilities in inactive markets; | |
| ● | inputs other than quoted prices that are observable for the asset or liability; | |
| ● | inputs that are derived principally from or corroborated by observable market data by correlation or other means |
| If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. | ||
| Level 3 | Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
| 19 |
(f) Fair Value of Financial Instruments, continued
The following is a description of the valuation methodologies used for assets measured at fair value as of September 30, 2024 and December 31, 2023.
Marketable Securities: Valued using quoted prices in active markets for identical assets.
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
| Marketable securities at September 30, 2024 | $ | $ | $ | |||||||||
| Marketable securities at December 31, 2023 | $ | $ | $ | |||||||||
Marketable securities are classified as available for sale and are valued at fair market value.
As
of September 30, 2024 and December 31, 2023, the Company held certain mutual funds, which, under FASB ASC 321-10, were considered equity
investments. As such, the change in fair value in the three months ended September 30, 2024 and 2023 was a gain of $
Gains
and losses resulting from the sales of marketable securities were gain of $
Gains
and losses resulting from the sales of marketable securities were gains of $
Proceeds
from the sales of marketable securities in the nine months ended September 30, 2024 and 2023 were $
| 20 |
Fair Value on a Recurring Basis
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The estimated fair value of the warrant liabilities and bifurcated embedded derivatives represent Level 3 measurements. The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis as of September 30, 2024 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | September 30,2024 | ||||||
| Liabilities: | ||||||||
| Warrant liabilities (Note 1) | 3 | $ | ||||||
| Derivative liabilities (Note 1) | 3 | $ | ||||||
| Description | Level | December 31, 2023 | ||||||
| Liabilities: | ||||||||
| Warrant liabilities (Note 3) | 3 | $ | ||||||
| Derivative liabilities (Note 3) | 3 | $ | ||||||
The following table sets forth a summary of the change in the fair value of the warrant liabilities that is measured at fair value on a recurring basis for the nine months ended September 30, 2024:
| Balance on December 31, 2023 | $ | |||
| Issuance of warrants reported at fair value | ||||
| Change in fair value of warrant liabilities | ||||
| Reclassification of warrant liability to equity upon warrant modification | ( | ) | ||
| Balance on September 30, 2024 | $ |
The following table sets forth a summary of the change in the fair value of the derivative liabilities that is measured at fair value on a recurring basis for the nine months ended September 30, 2024:
| Balance on December 31, 2023 | $ | |||
| Issuance of convertible preferred stock with derivative liabilities | ||||
| Change in fair value of derivative liabilities | ||||
| Balance on September 30, 2024 | $ |
There were no assets or liabilities measured on a non-recurring basis as of September 30, 2024 or December 31, 2023.
| 21 |
(g) Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging.” If liability accounting is required, the Company’s derivative instruments are recorded at fair value at the issuance date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within twelve (12) months of the balance sheet date.
The Company has determined that the Series F Convertible Preferred Stock warrants are derivatives that are required to be accounted for as liabilities. The Company has also determined that the following embedded features in the preferred stock are not clearly and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption event, 2) make-whole interest upon a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in the Certificate of Designation), and 4) variable share-settled installment conversion and as such are bifurcated from the preferred stock and accounted for as liabilities. The fair value of the warrants and embedded features are estimated using internal valuation models. The Company’s valuation models utilize inputs and other assumptions and may not be reflective of the price at which they can be settled.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be liability classified and recorded at their initial fair value on the date of issuance and remeasured at fair value and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the Statements of Comprehensive Income (Loss).
Modification of warrants
The Company applies the guidance in ASC 815-40 to account for warrants that are liability classified that are subsequently modified resulting in a reclassification to equity. The warrants are remeasured at fair value on the modification date, the change in fair value is recognized as a non-cash gain or loss on the Statement of Comprehensive Income (Loss), and the warrants are reclassified to additional paid-in capital.
(h) Prepaid Expenses
Prepaid expenses represent expenses paid prior to the date that the related services are rendered or used are comprised principally of prepaid insurance and research and development expenses.
(i) Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions and accounts receivable. At times, the Company’s cash in banks exceeds the FDIC insurance limit. The Company has not experienced any loss because of these cash deposits. These cash balances are maintained with two banks as of September 30, 2024.
(j) Risk Management of Cash and Investments
It is the Company’s policy to minimize the Company’s capital resources to investment risks, prioritizing the preservation of capital over investment returns. Investments are maintained in securities, primarily publicly traded, short-term money market funds based on highly rated federal, state and corporate bonds, that minimize the risk to the Company’s capital resources and provide ready access to funds.
The Company’s investment portfolios are regularly monitored for risk and are held with one brokerage firm.
| 22 |
(k) Investments
Investments recorded using the cost method will be assessed for any decrease in value that has occurred that is other than temporary and the other than temporary decrease in value shall be recognized. As and when circumstances and facts change, the Company will evaluate the Company’s ability to significantly influence operational and financial policy to establish a basis for converting the investment accounted for using the cost method to the equity method of valuation in accordance with FASB ASC 323.
In accordance with FASB ASC 323, the Company recognizes investments in joint ventures based upon the Company’s ability to significantly influence the operational or financial policies of the joint venture. An objective judgment of the level of influence is made at the time of the investment based upon several factors including, but not limited to the following:
| a) | Representation on the Board of Directors | |
| b) | Participation in policy-making processes | |
| c) | Material intra-entity transactions | |
| d) | Interchange of management personnel | |
| e) | Technological dependencies | |
| f) | Extent of ownership and the ability to influence decision making based upon the makeup of other owners when the shareholder group is small. |
The Company follows the equity method for valuating investments in joint ventures when the existence of significant influence over operational and financial policy has been established, as determined by management; otherwise, the Company will valuate these investments using the cost method.
In accordance with FASB ASC 321-10-35-2, the Company has elected to measure its investment in Oravax Medical, Inc. (“Oravax”) (Note 3) as an equity security without a readily determinable fair value. Under this election, an equity security without a readily available fair value is reflected at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. At each reporting period, the Company is required to make a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. If deemed impaired, the Company is required to estimate the fair value of the investment and recognize an impairment loss equal to the difference between the fair value of the investment and its carry amount. As of September 30, 2024, the Company performed a qualitative assessment to evaluate whether the investment is impaired and determined that the investment was not impaired and thus no adjustment to fair market value was required as of September 30, 2024.
(l) Property, Plant and Equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within “other (income)/expense” in the Condensed Consolidated Statements of Comprehensive Loss.
Depreciation is recognized over the estimated useful lives of the property, plant and equipment. Leased assets are depreciated over the shorter of the lease term or their useful lives.
The estimated useful lives for the current and comparative periods are as follows:
| Useful Life | ||
| (in years) | ||
| Plant and equipment | ||
| Furniture and fixtures | ||
| Computer equipment & software | ||
| Leasehold Improvements |
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
(m) Intangible Assets
The Company’s long-lived intangible assets, other than goodwill, are assessed for impairment when events or circumstances indicate there may be an impairment. These assets were initially recorded at their estimated fair value at the time of acquisition and assets not acquired in acquisitions were recorded at historical cost. However, if their estimated fair value is less than the carrying amount, other intangible assets with indefinite lives are reduced to their estimated fair value through an impairment charge in the Condensed Consolidated Statements of Comprehensive Loss.
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Patents and Trade Secrets
Propriety protection for the Company’s products, technology and process is important to its competitive position. As of September 30, 2024, the Company has 18 issued U.S. patents, 69 foreign patents, 1 pending U.S. patent applications and 7 foreign patent applications pending in such jurisdictions as Australia, Canada, China, European Union, Israel, Japan and South Korea, which if issued are expected to expire between 2036 and 2041. Management intends to protect all other intellectual property (e.g. copyrights, trademarks, and trade secrets) using all legal remedies available to the Company.
The Company records expenses related to the application for and maintenance of patents as a component of research and development expenses on the Condensed Consolidated Statement of Comprehensive Loss.
Patent Costs
Patents may be purchased from third parties. The costs of acquiring the patent are capitalized as patent costs if it represents a future economic benefit to the Company. Once a patent is acquired it is amortized over its remaining useful life and assessed for impairment when necessary.
Other Intangible Assets
Other intangible assets that are acquired by the Company, which have definite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses.
Amortization
Amortization is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:
| Useful Life | ||
| (in years) | ||
| Patents and trademarks |
(n) Goodwill
Goodwill is evaluated annually for impairment or whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value below its carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, economic factors (for example, the loss of key personnel), supply costs, unanticipated competitive activities, and acts by governments and courts.
(o) Recoverability of Long-Lived Assets
In accordance with FASB ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment.
| 24 |
The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets.
(p) Right-of-Use Assets
The
Company leased a facility in Baltimore, Maryland (“2021 Wolfe St”) under an operating lease (“2021 Baltimore Lease”)
with annual rentals of $
The
Company leased a facility in Tampa, Florida (“Platt St”) under an operating lease (“Platt Street Lease”) with
annual rentals of $
The
Company leased a facility in Baltimore, Maryland (“2024 Wolfe St”) under an operating lease (“2024 Baltimore Lease”)
with annual rentals of $
| 25 |
In accordance with FASB ASC, Topic 842, Leases (“ASC 842”), which increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The guidance requires the recognition of the right-of-use (“ROU”) assets and related operating and finance lease liabilities on the balance sheet.
The Company utilizes the package of practical expedients permitted within the standard, which allows an entity to forgo reassessing (i) whether a contract contains a lease, (ii) classification of leases, and (iii) whether capitalized costs associated with a lease meet the definition of initial direct costs. Also, the Company elected the expedient allowing an entity to use hindsight to determine the lease term and impairment of ROU assets and the expedient to allow the Company to not have to separate lease and non-lease components. The Company has also elected the short-term lease accounting policy under which the Company would not recognize a lease liability or ROU asset for any lease that at the commencement date has a lease term of twelve months or less and does not include a purchase option that the Company is more than reasonably certain to exercise.
For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments. The Company generally uses its incremental borrowing rate as the discount rate for leases, unless an interest rate is implicitly stated in the lease. The present value of the lease payments is calculated using the incremental borrowing rate for operating leases, which was determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The lease term for all the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor. All ROU assets are reviewed for impairment.
Lease expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term.
The Company’s operating leases are comprised of the 2024 Baltimore Lease, the 2021 Baltimore Lease and the Platt Street Lease on the Condensed Consolidated Balance Sheets. The information related to these leases are presented below:
| As of September 30, 2024 | As of December 31, 2023 | |||||||||||||||||||||||||||
| Platt Street | 2021 Baltimore | 2024 Baltimore | Platt Street | 2021 Baltimore | ||||||||||||||||||||||||
| Balance Sheet Location | Lease | Lease | Lease | Total | Lease | Lease | Total | |||||||||||||||||||||
| Operating Lease | ||||||||||||||||||||||||||||
| Lease Right of Use | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Lease Payable, current | ||||||||||||||||||||||||||||
| Lease Payable - net of current | ||||||||||||||||||||||||||||
The following provides details of the Company’s lease expense:
For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||
| Platt Street | 2021 Baltimore | 2024 Baltimore | Platt Street | 2021 Baltimore | ||||||||||||||||||||||||
| Lease Expenses | Lease | Lease | Lease | Total | Lease | Lease | Total | |||||||||||||||||||||
| Operating Leases | ||||||||||||||||||||||||||||
| Lease Costs | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||
| Platt Street | 2021 Baltimore | 2024 Baltimore | Platt Street | 2021 Baltimore | ||||||||||||||||||||||||
| Lease Expenses | Lease | Lease | Lease | Total | Lease | Lease | Total | |||||||||||||||||||||
| Operating Leases | ||||||||||||||||||||||||||||
| Lease Costs | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| 26 |
Other information as of September 30, 2024 related to leases is presented below:
Platt Street | 2021 Baltimore | 2024 Baltimore | ||||||||||||||
| Other Information | Lease | Lease | Lease | Total | ||||||||||||
| Operating Leases | ||||||||||||||||
| Operating cash used | $ | $ | $ | $ | ||||||||||||
| Average remaining lease term | - | - | ||||||||||||||
| Average discount rate | % | % | % | % | ||||||||||||
As of September 30, 2024, the annual minimum lease payments of the Company’s operating lease liabilities were as follows:
Platt Street | 2021 Baltimore | 2024 Baltimore | ||||||||||||||
| Lease | Lease | Lease | Total | |||||||||||||
| For Years Ending December 31, | ||||||||||||||||
| 2024 | $ | $ | ||||||||||||||
| 2025 | ||||||||||||||||
| Total future minimum lease payments, undiscounted | $ | $ | $ | $ | ||||||||||||
| Less: Imputed interest | ||||||||||||||||
| Present value of future minimum lease payments | $ | $ | $ | $ | ||||||||||||
(q) Revenue Recognition
The Company will recognize revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:
| 1) | Identify the contract with the customer | |
| 2) | Identify the performance obligations in the contract | |
| 3) | Determine the transaction price | |
| 4) | Allocate the transaction price to the performance obligations in the contract | |
| 5) | Recognize revenue when the company satisfies a performance obligation |
(r) Income Taxes
The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse.
The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of September 30, 2024 and December 31, 2023, no liability for unrecognized tax benefits was required to be reported.
| 27 |
There was income tax benefit recorded for the losses for the three and nine months ended September 30, 2024 and 2023 since management determined that the realization of the net deferred tax assets is not more likely than not to be realized and has recorded a full valuation allowance on the net deferred tax assets.
The
Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general
and administrative expenses. There were
Tax years from 2020 through 2023 remain subject to examination by federal and state jurisdictions.
Basic earnings per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common stock plus dilutive common share equivalents outstanding during the period. Potential common stock that would have the effect of increasing diluted earnings per share are considered anti-dilutive.
Diluted net loss per share is computed using the weighted average number of shares of Common Stock and dilutive potential Common Stock outstanding during the period.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net (Loss)/Income Attributable to Common Stockholders – Basic and Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares outstanding – basic | ||||||||||||||||
| Dilutive shares | ||||||||||||||||
| Stock Options | ||||||||||||||||
| Unvested Restricted Stock Units | ||||||||||||||||
| Warrants to purchase Common Stock | ||||||||||||||||
| Series C Convertible Preferred Stock Warrants | ||||||||||||||||
| Series D Convertible Preferred Stock | ||||||||||||||||
| Series F Convertible Preferred Stock | ||||||||||||||||
| Series F-1 Convertible Preferred Stock | ||||||||||||||||
| Series G Convertible Preferred Stock | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
As the Company reported a net loss for the three and nine months ended September 30, 2024 and the nine months ended September 30, 2023, Common Stock equivalents were anti-dilutive.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Stock Options | ||||||||||||||||
| Unvested Restricted Stock Units | ||||||||||||||||
| Warrants to purchase Common Stock | ||||||||||||||||
| Series C Convertible Preferred Stock Warrants | ||||||||||||||||
| Series D Convertible Preferred Stock | ||||||||||||||||
Series F Convertible Preferred Stock | ||||||||||||||||
| Series F-1 Convertible Preferred Stock | ||||||||||||||||
| Series G Convertible Preferred Stock | ||||||||||||||||
| Total potentially dilutive shares | ||||||||||||||||
The Company accounts for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, “Compensation - Stock Compensation”, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (the “2018 Update”). The amendments in the 2018 Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. Prior to the 2018 Update, Topic 718 applied only to share-based transactions to employees. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.
The Company has elected to account for forfeiture of stock-based awards as they occur.
| 28 |
(u) Research and Development Costs
In accordance with FASB ASC 730, research and development costs are expensed as incurred and consist of fees paid to third parties that conduct certain research and development activities on the Company’s behalf.
(v) Recently Issued Accounting Pronouncements
As of September 30, 2024 and for the three and nine months then ended, there were no recently issued accounting pronouncements that had a material effect on the Company’s consolidated financial statements.
Note 3 –Liquidity and Management’s Plans
As
of September 30, 2024, the Company’s cash on hand was $
During
the nine months ended September 30, 2024, the Company raised $
The Company evaluated the current cash requirements for operations in conjunction with management’s strategic plan and believes that the Company’s current financial resources as of the date of the issuance of these condensed consolidated financial statements are sufficient to fund its current operating budget and contractual obligations as of September 30, 2024 as they fall due within the next twelve-month period from the date of the issuance of these financial statements, alleviating any substantial doubt raised by the Company’s historical operating results and satisfying its estimated liquidity needs for twelve months from the issuance of these condensed consolidated financial statements.
| 29 |
Note 4 – Trade and Other Payables
Trade and other payables consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Accounts Payable – Trade | $ | $ | ||||||
| Accrued Expenses | ||||||||
| $ | $ | |||||||
Equity incentive Plans
2013 Stock Incentive Plan
On January 23, 2014, the Company adopted the 2013 Incentive Stock and Award Plan, which was subsequently Amended and Restated on January 9, 2015 (as amended, the “2013 Plan”). The 2013 Plan was amended by the Board on September 30, 2016, and such amendment was ratified by the Company’s stockholders on December 7, 2018. The 2013 Plan provided for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2024, grants of restricted stock and options to purchase shares of Common Stock have been issued pursuant to the 2013 Plan. In 2019, the 2013 Plan expired in accordance with its terms and no further awards have been or will be made under the 2013 Plan on or after such date. Any awards granted on or before such date will continue in accordance with the terms of the applicable award agreements and the 2013 Plan.
2016 Stock Incentive Plan
In 2016, pre-Merger MyMD Florida adopted the MyMD Pharmaceuticals, Inc. Amended and Restated 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan provided for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2024, no options were outstanding and no shares of Common Stock remain available for issuance under the 2016 Plan. Pursuant to the Merger Agreement, effective as of the effective time of the Merger, the Company assumed pre-Merger MyMD Florida’s Second Amendment to Amended and Restated 2016 Stock Incentive Plan (the pre-Merger MyMD Florida’s Second Amendment to Amended and Restated 2016 Incentive Plan together with the 2016 Plan, the “MyMD Florida Incentive Plan”), assuming all of pre-Merger MyMD Florida’s rights and obligations with respect to the options issued thereunder (except that the term of each options was amended to expire on the second-year anniversary of the effective time of closing). All such options expired on April 16, 2023.
2017 Stock Incentive Plan
On August 7, 2017, the Company’s stockholders approved, and the Company adopted the 2017 Stock Incentive Plan (“2017 Plan”). The 2017 Plan provides for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2024, grants of restricted stock and options to purchase shares of Common Stock have been issued pursuant to the 2017 Plan, and shares of Common Stock remain available for issuance.
2018 Stock Incentive Plan
On December 7, 2018, the Company’s stockholders approved, and the Company adopted the 2018 Stock Incentive Plan (“2018 Plan”). On August 27, 2020, the 2018 Plan was modified to increase the total authorized shares. The 2018 Plan, as amended, provides for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2024, grants of RSUs and restricted stock to purchase shares of Common Stock have been issued pursuant to the 2018 Plan, and shares of Common Stock remain available for issuance.
| 30 |
2021 Stock Incentive Plan
On April 15, 2021, the Company’s stockholders approved, and the Company adopted the 2021 Stock Incentive Plan (“2021 Plan”). The 2021 Plan provides for the issuance of up to shares of the Company’s Common Stock. As of September 30, 2024, grants of RSUs and stock options to purchase shares of Common Stock have been issued pursuant to the 2021 Plan, and shares of Common Stock remain available for issuance.
Stock Options
| Weighted | ||||||||||||||||||||
| Average | ||||||||||||||||||||
| Weighted | Weighted | Remaining | ||||||||||||||||||
| Average | Average | Contractual | Aggregate | |||||||||||||||||
| Number of | Exercise | Grant Date | Term | Intrinsic | ||||||||||||||||
| Shares | Price | Fair Value | (years) | Value | ||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | |||||||||||||||||
| Granted | - | - | ||||||||||||||||||
| Exercised | - | - | ||||||||||||||||||
| Forfeited | ( | ) | - | |||||||||||||||||
| Canceled/Expired | - | - | ||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | |||||||||||||||||
| Exercisable as of September 30, 2024 | $ | $ | $ | |||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $ for the Company’s Common Stock on September 30, 2024 and the closing stock price of $ for the Company’s Common Stock on December 31, 2023.
| 31 |
During
the three months ended September 30, 2024 and 2023, the Company recognized stock option expenses totaling $
The unamortized stock option expenses as of September 30, 2024 totaled $.
Restricted Stock Units
On October 14, 2021, the Compensation Committee of the Board of Directors approved grants totaling Restricted Stock Units to the Company’s six directors and seven key employees. Each RSU had a grant date fair value of $ which will be amortized upon vesting into administrative expenses within the Consolidated Statement of Comprehensive Loss. Such RSUs were granted under the 2021 Plan. Vesting of each RSU is:
| ● | ||
| ● | ||
| ● | ||
| ● | In the event that (i) a change in control occurs or (ii) the participant incurs a termination of service by the Company without cause or due to the participant’s death or total and permanent disability, then all unvested units shall become vested units immediately upon the occurrence of such event. |
As of September 30, 2024, none of the vesting milestones have been met.
As of the three and nine months ended September 30, 2024, respectively, the Company converted vested RSUs issued in September 2020 to a member of the Board of Directors, convertible into shares of Common Stock of the Company. Expenses related to these RSUs had been recognized by pre-merger Akers Biosciences, Inc. in 2021 and prior years.
| 32 |
The following is the status of outstanding unvested restricted stock units outstanding as of September 30, 2024 and the changes for the nine months ended September 30, 2024:
| Weighted | ||||||||
| Average | ||||||||
| Number of | Grant Date | |||||||
| RSUs | Fair Value | |||||||
| Balance at December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ( | ) | ||||||
| Canceled/Expired | ||||||||
| Balance at September 30, 2024 | $ | |||||||
As of September 30, 2024, the unamortized value of the RSUs was $.
Note 6 – Equity
Authorized Capital Stock
On July 24, 2024, the Company’s stockholders approved the adoption of the Certificate of Amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of the Company’s Common Stock from to (“Authorized Share Increase Amendment”) and to make a corresponding change to the number of authorized shares of capital stock. On July 25, 2024, the Company filed the Authorized Share Increase Amendment with the Secretary of State of Delaware (the “Secretary of State”). On June 17, 2024, the Company filed a Certificate of Amendment to the Series G Certificate of Designations with the Secretary of State to increase the number of authorized shares of Series G Preferred Stock from to .
As
of September 30, 2024, the Company’s authorized capital stock consisted of
Preferred Stock
The holders of preferred shares or preferred warrants are entitled to vote per share, as limited by the certificate of designation for each class of preferred shares or warrants, at meetings of the Company.
| 33 |
Series D Convertible Preferred Stock
The following are the principal terms of the Series D Preferred Stock:
Rank
The Series D Preferred Stock ranks (1) on parity with Common Stock on an “as converted” basis, (2) senior to any series of our capital stock hereafter created specifically ranking by its terms junior to the Series D Preferred Stock, (3) on parity with any series of our capital stock hereafter created specifically ranking by its terms on parity with the Series D Preferred Stock, and (4) junior to any series of our capital stock hereafter created specifically ranking by its terms senior to the Series D Preferred Stock in each case, as to dividends or distributions of assets upon our liquidation, dissolution or winding up whether voluntary or involuntary.
Conversion Rights
A
holder of Series D Preferred Stock is entitled at any time to convert any whole or partial number of shares of Series D Preferred Stock
into shares of our Common Stock, determined by dividing the stated value equal to $
Dividend Rights
In addition to stock dividends or distributions for which proportionate adjustments will be made, holders of Series D Preferred Stock are entitled to receive dividends on shares of Series D Preferred Stock equal, on an as-if-converted-to-common-stock basis, to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. No other dividends are payable on shares of Series D Preferred Stock.
Voting Rights
Subject to the Series D Beneficial Ownership Limitation, on any matter presented to our stockholders for their action or consideration at any meeting of our stockholders (or by written consent of stockholders in lieu of a meeting), each holder, in its capacity as such, shall be entitled to cast the number of votes equal to the number of whole shares of our Common Stock into which the Series D Preferred Stock beneficially owned by such holder are convertible as of the record date for determining stockholders entitled to vote on or consent to such matter (taking into account all Series D Preferred Stock beneficially owned by such holder). Except as otherwise required by law or by the other provisions of the Certificate of Designation of Series D Convertible Preferred Stock (the “Series D Certificate of Designation”), the holders of Series D Preferred Stock, in their capacity as such, shall vote together with the holders of our Common Stock and any other class or series of stock entitled to vote thereon as a single class.
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Liquidation Rights
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Series D Preferred Stock are entitled to receive, pari passu with the holders of Common Stock, out of the assets available for distribution to stockholders an amount equal to such amount per share as would have been payable had all shares of Series D Preferred Stock been converted into Common Stock immediately before such liquidation, dissolution or winding up, without giving effect to any limitation on conversion as a result of the Series D Beneficial Ownership Limitation, as described above.
Exchange Listing
Series D Preferred Stock is not listed on the Nasdaq, any national securities exchange or other nationally recognized trading system. Our Common Stock issuable upon conversion of the Series D Preferred Stock is listed on the Nasdaq under the symbol “TNFA”.
Failure to Deliver Conversion Shares
Compensation for Series D Buy-In on Failure to Timely Deliver Shares
If the Company fails to timely deliver the Series D Conversion Shares to the holder, and if after the required delivery date the holder is required by its broker to purchase (in an open market transaction or otherwise) or the holder or its brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the holder of the Series D Conversion Shares which the holder anticipated receiving upon such conversion or exercise (a “Series D Buy-In”), then the Company is obligated to (A) pay in cash to such holder (in addition to any other remedies available to or elected by such holder) the amount, if any, by which (x) such holder’s total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of Series D Conversion Shares that such holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such holder, either reissue (if surrendered) the shares of Series D Preferred Stock equal to the number of shares of Series D Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such holder the number of Series D Conversion Shares that would have been issued if the Company had timely complied with its delivery requirements.
As of September 30, 2024, the Company had shares of Series D Convertible Preferred Stock outstanding which represent underlying shares of the Company’s Common Stock.
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Series F Convertible Preferred Stock
The following are the principal terms of the Series F Preferred Stock:
Voting Rights
Except
as required by law (including without limitation, the Delaware General Corporation Law (the “DGCL”)), the holders of the
Series F Preferred Stock are entitled to vote with holders of the Common Stock on as as-converted basis, with the number of votes to
which each holder of Series F Preferred Stock is entitled to be calculated assuming a conversion price of $
Liquidation
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, each holder of shares of the Series F Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount per share of Series F Preferred Stock equal to the greater of (A) 125% of the stated value of such share of Series F Preferred Stock (plus any applicable make-whole amount, unpaid late charge or other applicable amount) on the date of such payment and (B) the amount per share such holder would receive if such holder converted such share of Series F Preferred Stock into Common Stock immediately prior to the date of such payment. All shares of capital stock of the Company shall be junior in rank to all shares of Series F Preferred Stock with respect to the preferences as to payments upon the liquidation.
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Optional Conversion
The Series F Preferred Stock can be converted at the option of the holder at any time and from time to time after the original issuance date. Holders shall effect conversions by providing us with the form of conversion notice (the “Series F Notice of Conversion”) specifying the number of shares of Series F Preferred Stock to be converted, the number of shares of Series F Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable holder delivers by email such Series F Notice of Conversion to us.
Mandatory Conversion
Beneficial Ownership Limitation
Series F-1 Preferred Stock
The following are the principal terms of the Series F-1 Preferred Stock:
Dividends
The
holders of the Series F-1 Preferred Stock are entitled to dividends of
Voting Rights
Except
as required by law (including without limitation, the Delaware General Corporation Law (the “DGCL”)), the holders of the
Series F-1 Preferred Stock are entitled to vote with holders of the Common Stock on as as-converted basis, with the number of votes to
which each holder of Series F-1 Preferred Stock is entitled to be calculated assuming a conversion price of $
Liquidation
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, each holder of shares of the Series F-1 Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount per share of Series F-1 Preferred Stock equal to the greater of (A) 125% of the stated value of such share of Series F-1 Preferred Stock (plus any applicable make-whole amount, unpaid late charge or other applicable amount) on the date of such payment and (B) the amount per share such holder would receive if such holder converted such share of Series F-1 Preferred Stock into Common Stock immediately prior to the date of such payment. All shares of capital stock of the Company shall be junior in rank to all shares of Series F-1 Preferred Stock with respect to the preferences as to payments upon the liquidation.
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Exchange Cap
The
Company was initially restricted from issuing shares of Common Stock upon conversion of the Series F-1 Preferred Stock and Series G Preferred
Stock or exercise of the associated warrants in excess of
Optional Conversion
The Series F-1 Preferred Stock can be converted at the option of the holder at any time and from time to time after the original issuance date. Holders shall effect conversions by providing us with the form of conversion notice (the “Notice of Conversion”) specifying the number of shares of Series F-1 Preferred Stock to be converted, the number of shares of Series F-1 Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable holder delivers by email such Notice of Conversion to us.
Mandatory Conversion
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Beneficial Ownership Limitation
Series G Preferred Stock
The following are the principal terms of the Series G Preferred Stock:
Voting Rights
Except
as required by law (including without limitation, the Delaware General Corporation Law (the “DGCL”)), the holders of the
Series G Preferred Stock are entitled to vote with holders of the Common Stock on as as-converted basis, with the number of votes to
which each holder of Series G Preferred Stock is entitled to be calculated assuming a conversion price of $
Liquidation
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, each holder of shares of the Series G Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount per share of Series G Preferred Stock equal to the greater of (A) 125% of the stated value of such share of Series G Preferred Stock (plus any applicable make-whole amount, unpaid late charge or other applicable amount) on the date of such payment and (B) the amount per share such holder would receive if such holder converted such share of Series G Preferred Stock into Common Stock immediately prior to the date of such payment. All shares of capital stock of the Company shall be junior in rank to all shares of Series G Preferred Stock with respect to the preferences as to payments upon the liquidation.
Exchange Cap
The
Company was initially restricted from issuing shares of Common Stock upon conversion of the Series F-1 Preferred Stock and Series G Preferred
Stock or exercise of the associated warrants in excess of
Optional Conversion
The Series G Preferred Stock can be converted at the option of the holder at any time and from time to time after the original issuance date. Holders shall effect conversions by providing us with the form of conversion notice (the “Notice of Conversion”) specifying the number of shares of Series G Preferred Stock to be converted, the number of shares of Series G Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable holder delivers by email such Notice of Conversion to us.
Beneficial Ownership Limitation
Common Stock
The holders of Common Stock are entitled to one vote per share at meetings of the Company.
As of September 30, 2024, the Company had shares of Common Stock issued and outstanding. During the nine months ended September 30, 2024, the Company issued shares of Common Stock in connection with amortization payments or make-whole payments for the Series F Preferred Stock.
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Common Stock Warrants
The table below summarizes the warrant activity for the nine months ended September 30, 2024:
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Warrants | Price | Term (years) | Value | |||||||||||||
| Balance at December 31, 2023 | $ | $ | ||||||||||||||
| Issued | - | |||||||||||||||
| Series F Modification | ||||||||||||||||
| Removed | ( | ) | - | |||||||||||||
| Re-issued | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | - | - | ||||||||||||||
| Canceled/Expired | - | - | ||||||||||||||
| Balance at September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2024 | $ | $ | ||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $ for the Company’s Common Stock on September 30, 2024 and the closing stock price of $ for the Company’s Common Stock on December 31, 2023.
The
Series F Exercise Price and the number of shares issuable upon exercise of the Series F Warrants are subject to customary adjustments
for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet”
basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price
below the then-applicable Series F Exercise Price (subject to certain exceptions). Upon any such price-based adjustment to the Series
F Exercise Price, the number of shares issuable upon exercise of the Series F Warrants will be increased proportionately. Pursuant to
the February 2023 Offering, the Company issued to investors the Series F Warrants to purchase
Series C Convertible Preferred Stock Warrants
The table below summarizes the warrant activity for the nine months ended September 30, 2024:
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Warrants | Price | Term (years) | Value | |||||||||||||
| Balance at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | - | - | ||||||||||||||
| Cancelled/Expired | - | - | ||||||||||||||
| Balance at September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2024 | $ | $ | ||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of $ for the Company’s Common Stock on September 30, 2024 and the closing stock price of $ for the Company’s Common Stock on December 31, 2023. All Series C Convertible Preferred Stock Warrants were vested on date of grant.
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Note 7 – Commitments and Contingencies
Litigation and Settlements
Raymond Akers Actions
On April 14, 2021, Raymond F. Akers, Jr., Ph.D. filed a lawsuit against the Company (f/k/a Akers Biosciences, Inc.) in the Superior Court of New Jersey, Law Division, Gloucester County (the “First Raymond Akers Action”). Mr. Akers asserts one common law whistleblower retaliation claim against the Company.
On September 23, 2021, the Court granted the Company’s Motion to Dismiss Plaintiff’s Amended Complaint and dismissed Plaintiff’s Amended Complaint. The Court indicated that Mr. Akers is “free to file another complaint, however, tort-based ‘Pierce’ allegations, and/or CEPA claims are barred by the statute of limitations.”
On March 1, 2022, Mr. Akers filed a second action against the Company in the Superior Court of New Jersey, Law Division, Gloucester County (the “Second Raymond Akers Action”) again asserting one common law whistleblower retaliation claim against the Company. The Company believes that the Second Raymond Akers Action is without merit and, moreover, was filed against the Court’s specific admonition that Plaintiff does not attempt to circumvent the statute of limitations.
On May 27, 2022, the Court granted-in-part and denied-in-part the Company’s Motion to Dismiss Plaintiff’s Complaint. The Court reaffirmed the ruling in the First Raymond Akers Action that any tort-based Pierce claims are time-barred. However, the Court denied the Motion as it pertained to Plaintiff’s contract-based Pierce claim and “Repayment of Monies Owed” claim. On July 29, 2022, the Company filed its Answer, which included affirmative defenses. As of September 30, 2024, the Second Raymond Akers Action is in the discovery phase.
All legal fees incurred were expensed as and when incurred. While no assurance can be provided, the Company does not believe that the current litigation will have a material impact on its financial condition or results of operations.
Note 8 – Related Parties
SRQ Patent Holdings and SRQ Patent Holdings II
The Company is a party to two Amended and Restated Confirmatory Patent Assignment and Royalty Agreements, both dated November 11, 2020, with SRQ Patent Holdings and SRQ Patent Holdings II, under which the Company (or its successor) will be obligated to pay to SRQ Patent Holdings or SRQ Patent Holdings II (or its designees) certain royalties on product sales or other revenue received on products that incorporate or are covered by the intellectual property that was assigned to the Company. The royalty is equal to 8% of the net sales price on product sales and, without duplication, 8% of milestone revenue or sublicense compensation. SRQ Patent Holdings and SRQ Patent Holdings II are affiliates of Mr. Jonnie Williams, Sr. No revenue has been recognized subject to these agreements for the three and nine months ended September 30, 2024 and 2023.
MIRA Pharmaceuticals Limited License Agreement
The Company is a party to an Amended and Restated Limited License Agreement, dated June 27, 2022 and amended on April 20, 2023, with MIRA Pharmaceuticals, Inc. (Nasdaq: MIRA), under which the parties agreed to share technical information and know-how pertaining to the synthetic manufacture and formulation of the parties’ respective Supera-CBD™ and MIRA1a™ product candidates. The Company, which holds patent rights to MIRA1a™ in 22 foreign countries, was granted a perpetual, non-exclusive, royalty-free license to use improvements to MIRA1a™ made under the agreement, and MIRA was granted a limited, perpetual, worldwide, non-exclusive, royalty-free license to use Supera-CBD™ as a synthetic intermediate in the manufacture of MIRA1a™.
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Series G Preferred Stock Issuance
On
May 20, 2024, the Company entered into the Series G Purchase Agreement with the Series G Investors, including PharmaCyte Biotech, Inc.
(“Pharmacyte”), pursuant to which it agreed to sell to the Series G Investors (i) an aggregate of Series G Preferred
Stock, initially convertible into up to shares of the Company’s Common Stock, at a conversion price of $
Note 9 – Employee Benefit Plan
The
Company maintains a defined contribution benefit plan under section 401(k) of the Internal Revenue Code covering substantially all qualified
employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company matches
The
Company made matching contributions to the 401(k) Plan during the three and nine months ended September 30, 2024 of $
The
Company made matching contributions to the 401(k) Plan during the three and nine months ended September 30, 2023 of $
Note 10—Patent Assignment and Royalty Agreement
In November 2016, the Company entered into an agreement with the holders of certain intellectual property relating to the Company’s current product candidate. Under the terms of the agreement, the counterparty assigned its rights and interest in certain patents to the Company in exchange for future royalty payments based on a fixed percentage of future revenues, as defined. The agreement is effective until the later of (1) the date of expiration of the assigned patents or (2) the date of expiration of the last strategic partnership or licensing agreement including the assigned patents. No revenue has been received subject to this agreement for the three and nine months ended September 30, 2024 and 2023, respectively.
Note 11—Subsequent Events
Prevail Partners Stock Purchase Agreement
On
October 1, 2024, the Company, entered into a Stock Purchase Agreement, dated as of October 1, 2024 (the “Purchase Agreement”),
by and between the Company and Prevail Partners, LLC (“Prevail”), pursuant to which, the Company agreed to sell to Prevail
shares of the Company’s Common Stock,
at a price per share equal to $,
which was
The Purchase Agreement contains certain representations and warranties and indemnification provisions customary for similar transactions. The gross proceeds to the Company from the Private Placement were $
Appointment of Auditors
On September 30, 2024, in conjunction with its exit from providing audit services to publicly traded companies, Morison Cogen LLP resigned from its role as independent registered public accounting firm for the Company. On October 3, 2024, the Audit Committee of the Company engaged Stephano Slack LLC as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2024, effective immediately.
Series F Preferred Shares
On November 7, 2024, each holder of the Series F Preferred Shares agreed that payment by the Company of any Installment Amounts (as defined in the Series F Certificate of Designations) that are accrued and are unredeemed, unconverted and/or otherwise unpaid as of November 7, 2024, will be deferred until December 1, 2024.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The information set forth below should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission on April 1, 2024. This discussion and analysis contains forward-looking statements based on our current expectations, assumptions, estimates and projections. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, including those discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q, entitled “Risk Factors.” References in this discussion and analysis to “us,” “we,” “our,” or “the Company” refer collectively to TNF Pharmaceuticals, Inc.
Our financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the Securities and Exchange Commission (the “SEC” and such reports, collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:
| ● | fluctuation and volatility in market price of our Common Stock due to market and industry factors, as well as general economic, political and market conditions; | |
| ● | the impact of dilution on our stockholders; | |
| ● | our ability to realize the intended benefits of the Merger (as defined below) and the Contribution Agreement (as defined below); | |
| ● | holders of our Series F Preferred Shares (as defined herein), Series F-1 Preferred Shares (as defined herein) and Series G Preferred Shares (as defined herein) are entitled to certain payments that may be paid in cash or in shares of Common Stock, as applicable and depending on the circumstances, if we make these payments in cash, we may be required to expend a substantial portion of our cash resources, and if we make these payments in Common Stock, it may result in substantial dilution to the holders of our Common Stock; | |
| ● | the certificate of designations for each of the Series D Convertible Preferred Stock, Series F Preferred Shares, Series F-1 Preferred Shares and Series G Preferred Shares and the warrants issued concurrently therewith, as applicable, contain anti-dilution provisions and other adjustment provisions that have resulted in the reduction of the conversion price of such preferred stock and the exercise price of such warrants and may do so again in the future. These features may increase the number of shares of common stock issuable upon conversion of such preferred stock or upon the exercise of the warrants; |
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| ● | the impact of our ability to realize the anticipated tax impact of the Merger; | |
| ● | the outcome of litigation or other proceedings we may become subject to in the future; | |
| ● | delisting of our Common Stock from the Nasdaq; | |
| ● | our availability and ability to continue to obtain sufficient funding to conduct planned research and development efforts and realize potential profits; | |
| ● | our ability to develop and commercialize our product candidates, including MYMD-1, Supera-CBD and other future product candidates; | |
| ● | the impact of the complexity of the regulatory landscape on our ability to seek and obtain regulatory approval for our product candidates, both within and outside of the U.S.; | |
| ● | the required investment of substantial time, resources and effort for successful clinical development and marketization of our product candidates; | |
| ● | challenges we may face with maintaining regulatory approval, if achieved; | |
| ● | the potential impact of changes in the legal and regulatory landscape, both within and outside of the U.S.; | |
| ● | the impact of COVID-19 and potential future pandemics on the administration, funding and policies of regulatory authorities, both within and outside of the U.S.; | |
| ● | our dependence on third parties to conduct pre-clinical and clinical trials and manufacture its product candidates; | |
| ● | the impact of COVID-19 and potential future pandemics on our results of operations, business plan and the global economy; | |
| ● | challenges we may face with respect to our product candidates achieving market acceptance by providers, patients, patient advocacy groups, third party payors and the general medical community; | |
| ● | the impact of pricing, insurance coverage and reimbursement status of our product candidates; | |
| ● | emerging competition and rapidly advancing technology in our industry; | |
| ● | our ability to obtain, maintain and protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on its proprietary rights; | |
| ● | our ability to maintain adequate cyber security and information systems; | |
| ● | our ability to achieve the expected benefits and costs of the transactions related to the acquisition of Supera Pharmaceuticals, Inc. (“Supera”); | |
| ● | our ability to effectively execute and deliver our plans related to commercialization, marketing and manufacturing capabilities and strategy; | |
| ● | our ability to obtain adequate financing in the future on reasonable terms, as and when we need it; | |
| ● | challenges we may face in identifying, acquiring and operating new business opportunities; | |
| ● | our ability to retain and attract senior management and other key employees; | |
| ● | our ability to quickly and effectively respond to new technological developments; | |
| ● | changes in political, economic or regulatory conditions generally and in the markets in which we operate; and | |
| ● | our compliance with all laws, rules, and regulations applicable to our business. |
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Overview
The Company is focused on developing and commercializing two therapeutic platforms based on well-defined therapeutic targets: MYMD-1 and Supera-CBD:
| ● | MYMD-1 is a clinical stage small molecule that is being developed to treat age-related illnesses such as frailty and sarcopenia. MYMD-1 works by regulating the release of numerous pro-inflammatory cytokines, such as TNF-α, interleukin 6 (“IL-6”) and interleukin 17 (“IL-17”). MYMD-1 currently is being evaluated in patients with sarcopenia (age-related muscle loss). By regulating the immunometabolic system, MYMD-1 can also treat autoimmune disease, including (but not limited to) multiple sclerosis, diabetes, rheumatoid arthritis, and inflammatory bowel disease. The Company has significant intellectual property coverage to protect these autoimmune indications, as well as therapy as an anti-aging product; | |
| ● | The Company is advancing MYMD-1 in sarcopenia based on positive clinical data from its Phase II trial and previous research findings. This previous clinical trial supported the safety profile, including no serious adverse events and no patient dropouts due to an adverse event. Serum analysis confirmed the mechanism of action in patients with sarcopenia aged 65-75 years old. These data support the protocol in development to assess clinical outcomes in patients with sarcopenia; | |
| ● | In preparation for future studies, the Company and partner Charles River Laboratories completed the dosing in an FDA-required 90-day oral gavage electroencephalogram (EEG) safety study in an animal model. This 90-day dog study was designed to complement the GLP chronic toxicology studies that have been completed and reported to FDA. This complete toxicology package will inform the duration and dosing of future clinical studies; | |
| ● | An Annual Report is in preparation for submission to FDA; | |
| ● | Supera-CBD is a synthetic analog of cannabidiol (“CBD”) being developed to treat various conditions, including, but not limited to, epilepsy, pain, and anxiety/depression, through its effects on the CB2 receptor, and a monoamine oxidase enzyme (“MAO”) type B. Supera-CBD has shown promise in treating neuroinflammatory and neurodegenerative diseases, and may benefit from the recent re-classification of cannabis-derived products by FDA; | |
| ● | In a pre-clinical evaluation of Supera-CBD for pain (Johns Hopkins University School of Medicine - Division of Behavioral Biology), Supera-CBD decreased pain, indicating beneficial effects on inflammatory-induced thermal pain sensitivity at all doses tested; | |
| ● | The Company is currently preparing several scientific papers for publication in 2024, including an abstract for submission in the fourth quarter 2024 related to the Phase 2 study of MYMD-1 in sarcopenia/frailty to a peer-reviewed publication; | |
| ● | The Company’s new management is seeking appropriate speaking opportunities to present the Company;
| |
| ● | The Company is exploring non-dilutive opportunities to evaluate MYMD-1 in additional indications not previously considered. |
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Reverse Stock Split
On February 14, 2024, the Company effected a 1-for-30 reverse stock split (the “Reverse Stock Split”). Simultaneously with the Reverse Stock Split, number of shares of the Company’s common stock authorized for issuance was reduced from 500,000,000 shares to 16,666,666 shares, and our authorized capital stock was reduced from 550,000,000 shares to 66,666,666 shares. The Reverse Stock Split reduced the total number of issued and outstanding shares of Common Stock, including shares held by the Company as treasury shares. All share amounts have been retroactively adjusted for the Reverse Stock Split, except as stated otherwise.
2021 Merger and Milestone Payments
On April 16, 2021, pursuant to the previously announced Agreement and Plan of Merger and Reorganization, dated November 11, 2020 (as subsequently amended, the “Merger Agreement”), by and among the Company, previously known as Akers Biosciences, Inc., XYZ Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), and MyMD Pharmaceuticals (Florida), Inc., a Florida corporation previously known as MyMD Pharmaceuticals, Inc. (“MyMD Florida”), Merger Sub was merged with and into MyMD Florida, with MyMD Florida continuing after the merger as the surviving entity and a wholly owned subsidiary of the Company (the “Merger”). The Merger consideration included potential milestone payments to the pre-Merger MyMD Florida stockholders (the “Milestone Payments”) payable in shares of the Company’s Common Stock upon the achievement of certain market capitalization milestone events (the “Milestone Events”) during the 36-month period immediately following the closing of the Merger (the “Milestone Period”). On April 16, 2024, the Milestone Period expired and accordingly, the pre-Merger MyMD Florida stockholders are no longer entitled to any potential Milestone Payments pursuant to the Merger Agreement.
The Company previously owned, through its subsidiary Cystron Biotech, LLC (“Cystron”), an exclusive license from Premas Biotech PVT Ltd. (“Premas”) with respect to Premas’ vaccine platform for the development of a vaccine against COVID-19 and other coronavirus infections. On April 16, 2021, pursuant to the Contribution and Assignment Agreement, dated March 18, 2021 (the “Contribution Agreement”) by and among the Company, Cystron, Oravax Medical, Inc. (“Oravax”) and, for the limited purpose set forth therein, Premas, the Company caused Cystron to contribute substantially all of the assets associated with its business of developing and manufacturing Cystron’s COVID-19 vaccine candidate to Oravax. Oravax is pursuing the development of the COVID-19 vaccine candidate. The Company’s interest in Oravax consists of 13% of Oravax’s outstanding shares of capital stock and the rights to a 2.5% royalty on all future net sales. The Company has evaluated several options with respect to its interest in Oravax, including a potential distribution of Oravax shares to the Company’s stockholders. This would make Oravax a publicly held company. In addition, the Company currently has the right to designate a member of the board of directors of Oravax, pursuant to which Mr. Joshua Silverman, our Chairman of the Board, has been designated to serve as a director of Oravax.
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Financial Operations Overview
We will not generate revenue from product sales unless and until we successfully complete clinical development, obtain regulatory approval for, and successfully commercialize our MYMD-1 and Supera-CBD product candidates. The lengthy process of securing marketing approvals for new drugs requires the expenditure of substantial resources. Any significant delay or failure to obtain regulatory approvals would materially adversely affect our product candidate’s development efforts and our business overall. In addition, if we obtain regulatory approval for MYMD-1 and/or Supera-CBD, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.
We anticipate that our expenses will increase significantly as we:
| ● | advance the development of our MYMD-1 and Supera-CBD; | |
| ● | initiate and continue research and preclinical and clinical development of potential new product candidates; | |
| ● | maintain, expand and protect our intellectual property as it pertains to MYMD-1 and Supera-CBD; | |
| ● | expand our infrastructure and facilities to accommodate ongoing development activities; | |
| ● | establish agreements with contract research organizations, or CROs, and third-party contract manufacturing organizations, or CMOs, in connection with our Supera-CBD preclinical studies, MYMD-1 ongoing and planned clinical trials, Supera-CBD clinical trials and the development of our manufacturing capabilities for MYMD-1 and Supera-CBD; | |
| ● | develop the large-scale manufacturing processes and capabilities for the commercialization of our MYMD-1 and Supera-CBD drug products; | |
| ● | seek marketing approvals for our MYMD-1 and Supera-CBD product candidates that successfully complete clinical trials and | |
| ● | establish a sales, marketing and distribution infrastructure to commercialize MYMD-1 and Supera-CBD should we obtain marketing approval. |
As a result of these anticipated expenditures, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.
| 47 |
Components of our Results of Operations
Revenue
We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our research and development efforts with MYMD-1 and Supera-CBD are successful, we may generate revenue from product sales or through license agreements with third parties.
Operating Expenses
Our operating expenses are broken into several components, including research and development and general and administrative costs.
We expect operating expenses to increase as we progress through the various clinical trials in the development of MYMD-1 and Supera-CBD.
Research and Development
Our research and development expenses primarily consist of costs associated with the development of MYMD-1 and Supera-CBD. These costs include, but are not limited to:
| ● | Salaries, wages and benefits of the research and development staff; | |
| ● | Contractual agreements with third parties including contract research organizations, preclinical activities and clinical trials; | |
| ● | Outside consultants including fees and expenses; | |
| ● | Laboratory supplies and equipment; | |
| ● | Regulatory compliance; and | |
| ● | Patent application and maintenance costs to protect our intellectual property. |
We utilize third party contractors and consultants with expertise in specific research or development activities to perform work under the supervision of our researchers. We believe this allows us to control costs and to progress through the development cycle and to utilize our staff more efficiently.
It is difficult to project with absolute accuracy the duration or final cost of the development of MYMD-1 and Super-CBD or if revenue will be generated from the commercialization of these components. The process of achieving regulatory approval is very costly and time consuming. A few of the many factors that contribute to costs of duration include:
| ● | Size and scope of pre-clinical trials; | |
| ● | The phases of clinical development and the stage of our product candidates in the cycle; | |
| ● | Per subject trial costs; | |
| ● | The number of sites required for the trials and the availability of appropriate sites to perform the trials; | |
| ● | The time that is required to enroll the appropriate number of trial participants; and | |
| ● | The time required to achieve the approval of regulatory agencies. |
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General and Administrative
General and administrative expenses primarily consist of salaries, wages and benefits for our employees in the executive, legal and accounting functions and third-party costs for legal, accounting, insurance, investor relations, stock market and board expenses.
Although treated as components of general and administrative expenses, we have chosen to disclose the following significant items separately:
Stock Based Compensation
Stock-based compensation includes the fair market value, as determined using the Black-Scholes options pricing model, of stock options issued to key staff and consultants.
Warrant Issuance Expenses
Warrant issuance expenses represent the portion of the fees and offering expenses incurred in connection with the February 2023 Offering attributable to the issuance of the Series F Warrants.
Other Income (Expense), net
Other income (expense), net consists of interest and dividends earned on our cash, cash equivalents, and investments, gains/(losses) on the sale of marketable securities, gains/(losses) on the changes of fair value of equity investments, gains/(losses) on the changes of fair value of warrant liabilities, gains/(losses) on the changes of fair value of derivative liabilities, and an uninsured casualty loss.
Results of Operations
Summary of Statements of Consolidated Operations for the Three Months Ended September 30, 2024 and 2023
We are focused on developing and commercializing two therapeutic platforms based on well-defined therapeutic targets, MYMD-1 and Supera-CBD. The following table summarized the results of consolidated operations for the three months ended September 30, 2024 and 2023.
| For the Three Months Ended September 30, | ||||||||
| Description | 2024 | 2023 | ||||||
| Operating Expenses | ||||||||
| General and Administrative | $ | 1,104,130 | $ | 1,334,690 | ||||
| Research and Development | 707,747 | 1,912,322 | ||||||
| Stock-Based Compensation | 13,762 | 595,576 | ||||||
| Total Operating Expenses | 1,825,639 | 3,842,588 | ||||||
| Loss from Operations | (1,825,639 | ) | (3,842,588 | ) | ||||
| Other Income (Expense), net | 103,762 | 7,885,582 | ||||||
| Net Income/(Loss) | $ | (1,929,391 | ) | $ | 4,042,994 | |||
Revenue
We had no revenue from operations during the three months ended September 30, 2024 and 2023.
General and Administrative Expenses
The table below summarizes our general and administrative expenses for the three months ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, | ||||||||
| Description | 2024 | 2023 | ||||||
| Personnel Costs | $ | 151,585 | $ | 337,948 | ||||
| Professional Service Costs | 332,241 | 351,430 | ||||||
| Stock Market & Investor Relations Costs | 272,478 | 257,740 | ||||||
| Other Administrative Costs | 347,826 | 387,572 | ||||||
| Total General and Administrative Expenses | $ | 1,104,130 | $ | 1,334,690 | ||||
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Personnel costs decreased $186,363 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The decrease is related to the Company initiatives relating to reducing the number of employees that was implemented during the fourth quarter of 2023.
Professional services costs decreased $19,189 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. These costs included legal and accounting and specialized consulting services regularly incurred in the normal course of business.
Stock market and investor relations costs increased $14,738 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. These costs include the annual Nasdaq listing fees, activities related to keeping the shareholder base informed through press releases, presentations and other communication efforts and the costs of annual stockholder meetings.
Other administrative expenses decreased $39,746 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. These costs include Board expenses, business insurance, corporate travel and other general operating expenses.
Stock-Based Compensation
Stock-based compensation decreased $581,814 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The decrease is related to the accelerated vesting of the stock options issued on June 7, 2023 that occurred in the fourth quarter of 2023 which reduced the periodic recognition of costs, to the final vesting of the second tranche of the June 7, 2023 stock options, and to the reversal of recognized costs for forfeitures of unvested stock options related to a separated employee.
Research and Development Expenses
The table below summarizes our research and development expenses for the three months ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, | ||||||||
| Description | 2024 | 2023 | ||||||
| Salaries and Wages | $ | 81,096 | $ | 575,772 | ||||
| Development Programs | 534,953 | 1,153,178 | ||||||
| Professional Services | 81,551 | 95,010 | ||||||
| Regulatory Expenses | - | 12,684 | ||||||
| Other Research and Development Expenses | 10,147 | 75,678 | ||||||
| Total Research and Development Expenses | $ | 707,747 | $ | 1,912,322 | ||||
Salaries and wages decreased $494,676 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The decrease was associated with Company initiatives relating to reducing the number of employees implemented during the fourth quarter of 2023 and due to employee resignations during the three months ended September 30, 2024.
Development program costs include those associated with pre-clinical development, clinical trials and other material and development programs. Costs decreased $618,225 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023 primarily due to the completion of the Phase II study for Sarcopenia during the year ended December 31, 2023.
Professional services costs decreased $13,459 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. These costs are primarily related to consulting services not related to a specific development program and legal and maintenance fees associated with the protection of our intellectual property.
Regulatory expenses decreased $12,684 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. These expenses were related to the close-out of a multi-site protocol.
Other research and development expenses decreased $65,531 during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. These expenses include laboratory supplies, training and travel for department personnel while working with third-party trial sites. The decrease during the three months ended September 30, 2024 is primarily related to expenses for seminars and travel.
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Other Income and Expense
The table below summarizes our other income and expenses for the three months ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, | ||||||||
| Description | 2024 | 2023 | ||||||
| Interest and Dividend Income | $ | (163,951 | ) | $ | (139,056 | ) | ||
| (Gain)/Loss on Sale of Marketable Securities | (551 | ) | 500 | |||||
| Gain on changes in fair value of Marketable Securities | (4,746 | ) | (2,324 | ) | ||||
| Gain on changes in fair value of Derivative Liabilities | 356,000 | (2,566,900 | ) | |||||
| (Gain)/Loss on changes in fair value of Warrant Liabilities | 17,000 | (5,356,000 | ) | |||||
| Casualty (Gain)/Loss | (100,000 | ) | 178,198 | |||||
| Total Other (Income)/Expense | $ | 103.,752 | $ | (7,885,582 | ) | |||
Other expense, net of income, totaled $103,752 for the three months ended September 30, 2024, and other income, net of expenses, totaled $7,885,582 for the three months ended September 30, 2023.
During the three months ended September 30, 2024 interest and dividend income increased $24,895 primarily related to the availability of cash for investment.
During the three months ended September 30, 2024, we recorded a loss of $17,000 related to the change in fair value of the warrant liabilities as follows:
| ● | For the Series F-1 Short-Term Warrants (as defined herein), we recorded a gain of $22,000, The fair value of the Series F-1 Short-Term warrants of approximately $2,660,000 was estimated at July 25, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 1.33 years; equity volatility of 115.0%; and a risk-free interest rate of 4.70%. | |
| ● | For the Series F-1 Long-Term Warrants (as defined herein), we recorded a loss of $28,000, The fair value of the Series F-1 Long-Term warrants of approximately $34,305,000 was estimated at July 25, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 4.83 years; equity volatility of 120.0%; and a risk-free interest rate of 4.10%. | |
| ● | For the Series G Short-Term Warrants (as defined herein), we recorded a gain of $39,000, The fair value of the Series G Short-Term warrants of approximately $4,713,000 was estimated at July 25, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 1.33 years; equity volatility of 115.0%; and a risk-free interest rate of 4.70%. | |
| ● | For the Series G Long-Term Warrants (as defined herein), we recorded a loss of $50,000, The fair value of the Series G Long-Term warrants of approximately $7,630,000 was estimated at July 25, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 4.83 years; equity volatility of 120.0%; and a risk-free interest rate of 4.10%. |
During the three months ended September 30, 2024, we recorded a loss of $356,000 related to the change in fair value of the Series F-1 Derivative liabilities, which is recorded in other income (expense) on the Statements of Operations. We estimated the $1,282,000 fair value of the bifurcated embedded derivative at September 30, 2024 using a Monte Carlo simulation model, with the following inputs: the fair value of our common stock of $1.62 on the valuation date, estimated equity volatility of 100 .0%, estimated traded volume volatility of 275.0%, the time to maturity of 1 year, a discounted market interest rate of 4.18%, dividend rate of 10.0%, a penalty dividend rate of 15.0%, and probability of default of 5.2%.
During the three months ended September 30, 2024, we received an insurance settlement of $100,000 for the casualty loss that occurred in July 2023.
Summary of Statements of Consolidated Operations for the Nine Months Ended September 30, 2024 and 2023
We are focused on developing and commercializing two therapeutic platforms based on well-defined therapeutic targets, MYMD-1 and Supera-CBD. The following table summarized the results of consolidated operations for the nine months ended September 30, 2024 and 2023.
| For the Nine Months Ended September 30, | ||||||||
| Description | 2024 | 2023 | ||||||
| Operating Expenses | ||||||||
| General and Administrative | $ | 3,192,762 | $ | 4,202,594 | ||||
| Research and Development | 2,307,789 | 4,907,196 | ||||||
| Stock-Based Compensation | 970,754 | 2,341,915 | ||||||
| Warrant Issuance Expenses | 1,508,602 | 762,834 | ||||||
| Total Operating Expenses | 7,979,907 | 12,214,539 | ||||||
| Loss from Operations | (7,979,907 | ) | (12,214,539 | ) | ||||
| Other Income (Expense), net | (13,315,173 | ) | 10,578,148 | |||||
| Net Loss | $ | (21,295,080 | ) | $ | (1,636,391 | ) | ||
Revenue
We had no revenue from operations during the nine months ended September 30, 2024 and 2023, respectively.
General and Administrative Expenses
The table below summarizes our general and administrative expenses for the nine months ended September 30, 2024 and 2023:
| For the Nine Months Ended September 30, | ||||||||
| Description | 2024 | 2023 | ||||||
| Personnel Costs | $ | 548,853 | $ | 1,022,522 | ||||
| Professional Service Costs | 1,055,228 | 799,320 | ||||||
| Stock Market & Investor Relations Costs | 459,854 | 667,101 | ||||||
| Other Administrative Costs | 1,128,827 | 1,713,651 | ||||||
| Total General and Administrative Expense | $ | 3,192,762 | $ | 4,202,594 | ||||
| 51 |
Personnel costs decreased $473,669 during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease is related to the Company initiatives relating to reducing the number of employees implemented during the fourth quarter of 2023 and an employee separation during the nine months ended September 30, 2024.
Professional services costs increased $255,908 during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. These costs included legal and accounting and specialized consulting services regularly incurred in the normal course of business. The increase is primarily related to an increase in fees for specialized accounting services related to the fair market valuations for the various convertible preferred stock series.
Stock market and investor relations costs decreased $207,747 during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. These costs include the annual Nasdaq listing fees, activities related to keeping the shareholder base informed through press releases, presentations and other communication efforts and the costs of shareholder meetings. The decrease is primarily due to the preparation costs associated with the 2023 annual shareholder meeting.
Other administrative expenses decreased $584,824 during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. These costs include Board expenses, business insurance, corporate travel and other general operating expenses. The decrease is associated with a reimbursement of expenses to a related party as authorized by the Board of Directors in April 2023.
Stock-Based Compensation
Stock-based compensation decreased $1,371,161 during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease is related to the accelerated vesting of the June 7, 2023 stock options that occurred in the fourth quarter of 2023 which reduced the periodic recognition of costs, to the final vesting of the second tranche of the June 7, 2023 stock option, and to the reversal of recognized costs for forfeitures of unvested stock options related to a separated employee.
Warrant Issuance Expenses
Warrant issuance expenses associated with the issuance of the Series F-1 Preferred Stock and the Series G Preferred Stock and Series G Warrants (as defined herein) and Series F-1 Warrants (as defined herein) totaled $1,508,602. These costs included placement agent, legal, and accounting fees.
Research and Development Expenses
The table below summarizes our research and development expenses for the nine months ended September 30, 2024 and 2023:
| For the Nine Months Ended September 30, | ||||||||
| Description | 2024 | 2023 | ||||||
| Salaries and Wages | $ | 634,315 | $ | 1,365,490 | ||||
| Development Programs | 1,489,040 | 3,148,782 | ||||||
| Professional Services | 160,957 | 231,634 | ||||||
| Regulatory Expenses | 390 | 19,784 | ||||||
| Other Research and Development Expenses | 23,087 | 141,506 | ||||||
| Total Research and Development Expenses | $ | 2,307,789 | $ | 4,907,196 | ||||
Salaries and wages decreased $731,175 during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease was associated with the Company initiatives relating to reducing the number of employees implemented during the fourth quarter of 2023 and to separations due to resignations during the nine months ended September 30, 2024.
Development program costs include those associated with pre-clinical development, clinical trials and other material and development programs. Costs decreased $1,659,742 during nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 primarily due to the completion of the Phase II study for Sarcopenia during the year ended December 31, 2023.
Professional services costs decreased $70,677 during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. These costs are primarily related to consulting services not related to a specific development program and legal and maintenance fees associated with the protection of our intellectual property.
Regulatory expenses decreased $19,394 during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. These costs are associated with the development and management of the protocols used in various studies.
Other research and development expenses decreased $118,419 during the nine months September 30, 2024, compared to the nine months ended September 30, 2023. These expenses include laboratory supplies, training and travel for department personnel while working with third-party trial sites. The decrease during the nine months ended September 30, 2024 is primarily related to expenses for seminars and travel.
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Other Income and Expense
The table below summarizes our other income and expenses for the nine months ended September 30, 2024 and 2023:
| For the Nine Months Ended September 30, | ||||||||
| Description | 2024 | 2023 | ||||||
| Interest and Dividend Income | $ | (203,405 | ) | $ | (339,731 | ) | ||
| Loss on Sale of Marketable Securities | (651 | ) | 714 | |||||
| Loss on changes in fair value of Marketable Securities | (3,771 | ) | 371 | |||||
| Loss on changes in fair value of Derivative Liabilities | 367,000 | (2,251,700 | ) | |||||
| Gain on changes in fair value of Warrant Liabilities | 4,410,000 | (8,166,000 | ) | |||||
| Loss on issuance of preferred stock | 8,846,000 | - | ||||||
| Casualty (Gain)/Loss | (100,000 | ) | 178,198 | |||||
| Total Other (Income), net of expenses | $ | 13,315,173 | $ | (10,578,148 | ) | |||
Other expenses, net of income, totaled $13,315,173 for the nine months ended September 30, 2024, and other income, net of expense, totaled $10,578,148 for the nine months ended September 30, 2023.
During the nine months ended September 30, 2024 interest and dividend income decreased $136,326 compared to the nine months ended September 30, 2023 primarily related to the availability of cash for investment.
During the nine months ended September 30, 2024, we recorded a loss of $4,410,000 related to the change in fair value of the warrant liabilities as follows:
| ● | For the Series F Warrants (as defined herein), we recorded a loss of $7,094,000, The fair value of the Series F warrants of approximately $7,194,000 was estimated at March 31, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 3.90 years; equity volatility of 110.0%; and a risk-free interest rate of 4.31%. | |
| ● | For the Series F-1 Short-Term Warrants (as defined herein), we recorded a gain of $646,000, The fair value of the Series F-1 Short-Term warrants of approximately $2,660,000 was estimated at July 25, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 1.33 years; equity volatility of 115.0%; and a risk-free interest rate of 4.70%. | |
| ● | For the Series F-1 Long-Term Warrants (as defined herein), we recorded a gain of $322,000, The fair value of the Series F-1 Long-Term warrants of approximately $34,305,000 was estimated at July 25, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 4.83 years; equity volatility of 120.0%; and a risk-free interest rate of 4.10%. | |
| ● | For the Series G Short-Term Warrants (as defined herein), we recorded a gain of $1,146,000, The fair value of the Series G Short-Term warrants of approximately $4,713,000 was estimated at July 25, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 1.33 years; equity volatility of 115.0%; and a risk-free interest rate of 4.70%. | |
| ● | For the Series G Long-Term Warrants (as defined herein), we recorded a gain of $570,000, The fair value of the Series G Long-Term warrants of approximately $7,630,000 was estimated at July 25, 2024 utilizing the Black Scholes Model using the following weighted average assumptions: dividend yield 0%; remaining term of 4.83 years; equity volatility of 120.0%; and a risk-free interest rate of 4.10%. |
| 53 |
During the nine months ended September 30, 2024, we recorded a loss of $11,000 related to the change in fair value of the derivative liabilities as follows:
| ● | For the Series F Derivative (as defined herein), we recorded a gain of $61,000 , We estimated the $0 fair value of the bifurcated embedded derivative at September 30, 2024 using a Monte Carlo simulation model, with the following inputs: the fair value of our common stock of $1.62 on the valuation date, estimated equity volatility of 80.0%, estimated traded volume volatility of 330.0%, the time to maturity of 0.25 year, a discounted market interest rate of 12.5%, dividend rate of 10.0%, a penalty dividend rate of 15.0%, and probability of default of 7.4%. | |
| ● | For the Series F-1 Derivative (as defined herein), we recorded a loss of $428,000. We estimated the $1,282,000 fair value of the bifurcated embedded derivative at September 30, 2024 using a Monte Carlo simulation model, with the following inputs: the fair value of our common stock of $1.62 on the valuation date, estimated equity volatility of 100.0%, estimated traded volume volatility of 275.0%, the time to maturity of 1 year, a discounted market interest rate of 4.18%, dividend rate of 10.0%, a penalty dividend rate of 15.0%, and probability of default of 5.2%. |
During the nine months ended September 30, 2024, we recorded a loss associated with the issuance of the Series F-1 Preferred Stock totaling $3,737,000 and the Series G Preferred Stock totaling $5,109,000. The losses resulted from the fair market value of the issued warrants exceeding the sum of the gross proceeds, discount and derivative derived from the placement of the preferred shares.
During the nine months ended September 30, 2024, we received an insurance settlement of $100,000 for the casualty loss that occurred in July 2023.
Liquidity and Capital Resources
As of September 30, 2024, the Company’s cash on hand was $1,192,351 and marketable securities were $9,449,483. The Company has incurred a total net loss attributable to stockholders of $24,025,339 for the nine months ended September 30, 2024. As of September 30, 2024, the Company had working capital of $5,038,212 and stockholders’ equity of $16,777,343, including an accumulated deficit of $126,002,406. During the nine months ended September 30, 2024, cash flows used in operating activities were $8,212,233, consisting primarily of a net loss of $21,296,80, a decrease in prepaid expenses of $491,875, a decrease in deferred compensation payable of $100,538, and an increase in dividends payables of $1,356,709 offset by non-cash losses for the issuance of preferred stock of $8,846,000, the change in fair value of warrants of $4,410,000, the change in fair value of derivatives of $367,000, and stock-based compensation of $970,754, and an increase in trade and other payables of $444,119. Since its inception, the Company has met its liquidity requirements principally through the sale of its Common Stock and preferred stock in public and private offerings of its securities.
Holders of the Company’s Series F Preferred Shares (as defined below) are entitled to certain dividends and amortization payments as described in the section titled “Series F Preferred Shares” below. Each payment may be made in cash or, at the Company’s option and subject to certain conditions, either in shares of Common Stock in an amount based on the Conversion Price (as defined below) in effect at the time that such payment is due or in a combination of cash and shares of Common Stock. If the Company elects to make all payments to the holders of the Series F Preferred Shares that fall due within the twelve-month period following June 30, 2023 in cash, the Company estimates that it will pay to the holders of the Series F Preferred Shares up to $14.3 million, assuming that a Triggering Event (as defined in the Certificate of Designation) has not occurred. The dividend rate is subject to adjustment, and the actual amount due to the holders of the Series F Preferred Shares may exceed such amount. If the Company elects to make all such payments in shares of Common Stock, based on the Conversion Price of $2.255 per share of Common Stock in effect as of June 30, 2023 and 12,500 shares of Series F Preferred Stock outstanding as of June 30, 2023, the Company estimates that it will issue to the holders of the Series F Preferred Shares up to 6.3 million shares of Common Stock. The Conversion Price is subject to adjustment, including based on the market price of the Company’s Common Stock during the thirty trading day period immediately prior to the date on which a payment is due to the holders of the Series F Preferred Shares, and the actual number of shares issuable to the holders of the Series F Preferred Shares may exceed such number. For more information regarding payments due to the holders of the Series F Preferred Shares, see the section titled “Series F Preferred Shares” below.
Management has evaluated the Company’s current cash requirements for operations in conjunction with management’s strategic plan and believes that the Company’s current financial resources as of the date of the issuance of these condensed consolidated financial statements, are sufficient to fund its current operating budget and contractual obligations as of September 30, 2024 as they fall due within the next twelve-month period, alleviating any substantial doubt raised by the Company’s historical operating results and satisfying its estimated liquidity needs for twelve months from the issuance of these condensed consolidated financial statements.
Operating Activities
During the nine months ended September 30, 2024, cash flows used in operating activities were $8,212,233, consisting primarily of a net loss of $21,296,80, a decrease in prepaid expenses of $491,875, a decrease in deferred compensation payable of $100,538, and an increase in dividends payables of $1,356,709 offset by non-cash losses for the issuance of preferred stock of $8,846,000, the change in fair value of warrants of $4,410,000, the change in fair value of derivatives of $367,000, and stock-based compensation of $970,754, and an increase in trade and other payables of $444,119.
During the nine months ended September 30, 2023, cash flows used in operating activities were $11,047,995 consisting primarily of a net loss of $1,636,391, an increase in prepaid expenses of $697,691, a reduction in trade and other payables of $639,381 and a non-cash change in the fair value of the warrant and derivative liabilities of $10,417,700 offset by non-cash stock based compensation of $2,341,915.
| 54 |
Investing Activities
Our net cash consumed by investing activities totaled $7,202,955 for the nine months ended September 30, 2024 as compared to $4,088,466 during the nine months ended September 30, 2023. During the nine months ended September 30, 2024, we purchased securities totaling $12,539,405 and sold securities totaling $5,500,450. During the nine months ended September 30, 2023, we purchased securities totaling $13,338,466 and sold securities totaling $9,250,000.
Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2024 was $13,926,528 which consisted of payments for the redemption of Series F Preferred Stock and the related dividends and premiums and the proceeds from the sale of the Series F-1 Preferred Stock and the Series G Preferred Stock. Net cash provided by financing activities during the nine months ended September 30, 2023 was $14,685,689, which consisted of the net proceeds from the sale of Series F Convertible Preferred Stock, net of offering costs.
February 2023 Offering
On February 21, 2023, we entered into a Securities Purchase Agreement (the “February 2023 SPA”) with certain accredited investors (the “Series F Investors”), pursuant to which we agreed to sell in a registered direct offering (the “February 2023 Offering”) (i) an aggregate of 15,000 shares (the “Series F Preferred Shares”) of our newly-designated Series F Convertible Preferred Stock, with a stated value of $1,000 per Preferred Share (the “Series F Preferred Stock”), convertible into shares of Common Stock (the “Series F Conversion Shares”) pursuant to the terms of the Certificate of Designations of the Series F Preferred Stock, which was subsequently amended and restated by the filing of the Amended and Restated Certificate of Designations of Series F Convertible Preferred Stock, effective April 8, 2024 (as amended and restated, the “Series F Certificate of Designation”), and (ii) warrants (the “Series F Warrants”) to acquire up to an aggregate of 6,651,885 shares of Common Stock (pre-split), subject to adjustment (the “Series F Warrant Shares”). The Series F Conversion Price (as defined below) is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Series F Conversion Price (subject to certain exceptions). Following the Reverse Stock Split, (i) the Series F Conversion Price was adjusted to $3.18 per share pursuant to the terms of the Series F Certificate of Designations, and (ii) the Series F Exercise Price (as defined below) was adjusted to $3.18 per share and the number of Series F Warrant Shares was adjusted proportionately to 4,716,904 shares pursuant to the terms of the Series F Warrants. In connection with the Private Placements (as defined herein), (i) the Series F Conversion Price of the Series F Preferred Stock was adjusted to $1.816 per share pursuant to the full ratchet anti-dilution provisions contained in the Series F Certificate of Designations and, (ii) the Series F Exercise Price of the Series F Warrants was adjusted to $1.816 per share and the number of shares of Common Stock issuable upon exercise of the Series F Warrants was adjusted proportionally to 8,259,911 shares pursuant to the full ratchet anti-dilution provisions contained in the Series F Warrants.
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At closing, we received net proceeds from the February 2023 Offering of approximately $14.1 million, after deducting various fees and expenses. We have used and intend to continue to use the net proceeds from this offering for general corporate purposes.
On November 7, 2024, each holder of the Series F Preferred Shares agreed that payment by the Company of any Installment Amounts (as defined in the Series F Certificate of Designations) that are accrued and are unredeemed, unconverted and/or otherwise unpaid as of November 7, 2024, will be deferred until December 1, 2024.
As of September 30, 2024, there were 4,675 Series F Preferred Shares outstanding and Series F Warrants outstanding to purchase up to 8,259,911 shares of Common Stock.
Series F Preferred Shares
The terms of the Series F Preferred Shares are as set forth in the form of Certificate of Designation. The Series F Preferred Shares became convertible upon issuance into the Series F Conversion Shares at the election of the holder at any time at an initial conversion price of $2.255 (pre-split) (the “Series F Conversion Price”). The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). Following the Reverse Stock Split, the Series F Conversion Price was adjusted to $3.18 per share pursuant to the terms of the Series F Certificate of Designations. The Series F Conversion Price was further adjusted to $1.816 per share pursuant to the full ratchet anti-dilutive provisions contained in the Series F Certificate of Designations in connection with the Private Placements (as defined herein).
Prior to the Series F Certificate of Amendment (as defined below), the Company was initially required to redeem the Series F Preferred Shares in 12 equal monthly installments, commencing on July 1, 2023. The amortization payments due upon such redemption are payable, at the Company’s election, in cash, or subject to certain limitations, in shares of Common Stock valued at the lower of (i) the Series F Conversion Price then in effect and (ii) the greater of (A) 80% of the average of the three lowest closing prices of the Company’s Common Stock during the thirty trading day period immediately prior to the date the amortization payment is due or (B) the Floor Price (as defined below). For purposes of the Series F Certificate of Designation, the “Floor Price” means $6.60 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Stock Market.
On April 5, 2024, the Company entered into an Omnibus Waiver and Amendment (the “Omnibus Agreement”) with the Required Holders (as defined in the Certificate of Designation). Pursuant to the Omnibus Agreement, the Required Holders agreed (i) to defer payment of the installment amounts due on March 1, 2024, and April 1, 2024 (the “Installments”), under Section 9(a) of the Series F Certificate of Designations, until May 1, 2024, and (ii) to waive any breach or violation of the February 2023 SPA, the Series F Certificate of Designations, or the Series F Warrants resulting from missing the Installments. The Company may require holders to convert their Series F Preferred Shares into Series F Conversion Shares if the closing price of the Company’s Common Stock exceeds $6.765 (as adjusted for the Reverse Stock Split) per share (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) for 20 consecutive trading days and the daily dollar trading volume of the Company’s Common Stock exceeds $3,000,000 per day during the same period and certain equity conditions described in the Series F Certificate of Designations are satisfied.
On May 20, 2024, the Company entered into an Omnibus Waiver, Consent, Notice and Amendment (the “Series F Agreement”) with the Required Holders (as defined in the Series F Certificate of Designations). Pursuant to the Series F Agreement, the Required Holders agreed to (i) amend the Series F Purchase Agreement to amend certain terms relating to purchase rights thereunder, (ii) waive certain rights under the Series F Purchase Agreement and Series F Certificate of Designations in respect of the issuance of the Company’s Series F-1 Convertible Preferred Stock, with a par value of $0.001 per share and a stated value of $1,000 per share (“Series F-1 Preferred Stock”), the Company’s Series G Convertible Preferred Stock, with a par value of $0.001 per share and a stated value of $1,000 per share (“Series G Preferred Stock”), and entrance by the Company into the Purchase Agreements (as defined herein), (iii) waive the requirement that the Company reserve for issuance a sufficient number of shares of Common Stock as required by the Series F Certificate of Designations, the Series F Purchase Agreement and Series F Warrants, until such time as the Company obtains the Stockholder Approval (as defined herein), and (iv) consent to the issuance of the Series F-1 Preferred Stock and Series G Preferred Stock as required pursuant to certain terms of the Series F Certificate of Designations, the Series F Purchase Agreement and the Series F Warrants, as applicable. The Company and the Required Holders further agreed pursuant to the Series F Agreement, to amend the Series F Certificate of Designations by filing a Certificate of Amendment to the Series F Certificate of Designations (the “Series F Certificate of Amendment”) with the Secretary of State of the State of Delaware. The Series F Certificate of Amendment amends the Series F Certificate of Designations to (i) extend the maturity date to December 31, 2024, (ii) permit and modify certain procedures related to the payment of installment amounts with respect to the Installment Dates (as defined in the Series F Certificate of Designations) falling between (and including) July 1, 2024, and (and including) August 1, 2024, thereunder, and (iii) modify the schedule of Installment Dates.
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The holders of the Series F Preferred Shares are entitled to dividends of 10% per annum, compounded monthly, which are payable in cash or shares of the Company’s Common Stock at the Company’s option, in accordance with the terms of the Series F Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Series F Certificate of Designations), the Series F Preferred Shares accrue dividends at the rate of 15% per annum. In connection with a Triggering Event, each holder of Series F Preferred Shares is able to require the Company to redeem in cash any or all of the holder’s Series F Preferred Shares at a premium set forth in the Certificate of Designation. Upon conversion or redemption, the holders of the Series F Preferred Shares are also entitled to receive a dividend make-whole payment. Except as required by applicable law, the holders of the Series F Preferred Shares are entitled to vote with holders of the Common Stock on as as-converted basis, with the number of votes to which each holder of Series F Preferred Shares is entitled to be calculated assuming a conversion price of $60.21 per share, which was the Minimum Price (as defined in Rule 5635 of the Rule of the Nasdaq Stock Market) applicable immediately before the execution and delivery of the February 2023 SPA, subject to certain beneficial ownership limitations as set forth in the Certificate of Designation. The Series F Certificate of Designations further provides that the holders of record of the Series F Preferred Shares, exclusively and as a separate class, shall be entitled to elect one director of the Company one time on or before June 30, 2024.
The Company is subject to certain affirmative and negative covenants regarding the incurrence of indebtedness, acquisition and investment transactions, the existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends (other than dividends pursuant to the Series F Certificate of Designations), distributions or redemptions, and the transfer of assets, among other matters. There is no established public trading market for the Series F Preferred Shares and the Company does not intend to list the Series F Preferred Shares on any national securities exchange or nationally recognized trading system.
Series F Warrants
The Series F Warrants became exercisable immediately upon issuance, have an exercise price of $2.255 per share (pre-split) (as adjusted, the “Series F Exercise Price”) and expire five years from the date of issuance. The Series F Exercise Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of the Company’s Common Stock, or securities convertible, exercisable or exchangeable for the Company’s Common Stock, at a price below the then-applicable Exercise Price (subject to certain exceptions). Upon any such price-based adjustment to the Series F Exercise Price, the number of February 2023 Warrant Shares issuable upon exercise of the Series F Warrants will be increased proportionately. The Series F Warrants were issued with an initial Exercise Price of $2.255 per share (pre-split). Following the Reverse Stock Split, the Exercise Price for the Series F Warrants was adjusted to $3.18 per share and the number of February 2023 Warrant Shares was adjusted to 4,716,904 shares pursuant to the terms of the Series F Warrants. There is no established public trading market for the Series F Warrants and the Company does not intend to list the Series F Warrants on any national securities exchange or nationally recognized trading system. In connection with the Private Placements (as defined herein), the Series F Exercise Price was adjusted to $1.816 per share and the number of shares of Common Stock issuable upon exercise of the Series F Warrants was adjusted proportionally to 8,259,911 shares pursuant to the full ratchet anti-dilution provisions contained in the Series F Warrants.
On May 14, 2024, the Company entered into an Amendment (the “Series F Amendment”) with the Investors in the February 2023 Offering, effective as of March 31, 2024. The Series F Amendment amended certain terms of the Series F Warrants relating to the rights of the holders of the Series F Warrants to provide that, in the event of a Fundamental Transaction (as defined in the Series F Warrants) that is not within our control, including not approved by the Company’s Board of Directors, the holder of a Series F Warrant shall only be entitled to receive from the Company or any successor entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of such Series F Warrant, that is being offered and paid to the holders of our common stock in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the successor entity (which such successor entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction..
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May 2024 Private Placements
Series F-1 Private Placement
On May 20, 2024, the Company entered into a Securities Purchase Agreement (the “Series F-1 Purchase Agreement”) with certain accredited investors (the “Series F-1 Investors”) pursuant to which it agreed to sell to the Series F-1 Investors (i) an aggregate of 5,050 shares of the Company’s newly-designated Series F-1 Preferred Stock, initially convertible into up to 2,780,839 shares of Common Stock at a conversion price of $1.816 per share, (ii) short-term warrants to acquire up to an aggregate of 2,780,839 shares of Common Stock (the “Series F-1 Short-Term Warrants”) at an exercise price of $1.816 per share, and (iii) warrants to acquire up to an aggregate of 2,780,839 shares of Common Stock (the “Series F-1 Long-Term Warrants,” and collectively with the Series F-1 Short-Term Warrants, the “Series F-1 Warrants”) at an exercise price of $1.816 per share (collectively, the “Series F-1 Private Placement”). The closing of the Series F-1 Private Placements occurred on May 23, 2024 (the “Series F-1 Closing Date”).
Series F-1 Preferred Stock
The Series F-1 Preferred Stock became convertible upon issuance into Common Stock (the “Series F-1 Conversion Shares”) at the election of the holder at any time at an initial conversion price of $1.816 (the “Series F-1 Conversion Price”). The Series F-1 Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Series F-1 Conversion Price (subject to certain exceptions).
The Company is required to redeem the Series F-1 Preferred Stock in seven (7) equal monthly installments, commencing on December 1, 2024. The amortization payments due upon such redemption are payable, at the Company’s election, in cash at 105% of the applicable Installment Redemption Amount (as defined in the Series F-1 Certificate of Designations), or subject to certain limitations, in shares of Common Stock valued at the lower of (i) the Series F-1 Conversion Price then in effect and (ii) the greater of (A) 80% of the average of the three lowest closing prices of the Company’s Common Stock during the thirty consecutive trading day period ending and including the trading day immediately prior to the date the amortization payment is due or (B) $0.364, which is 20% of the “Minimum Price” (as defined in Nasdaq Stock Market Rule 5635) on the date in which the Series F-1 Stockholder Approval (as defined herein) was obtained or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Capital Market, and, in each case, subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events, which amortization amounts are subject to certain adjustments as set forth in the Series F-1 Certificate of Designations (the “Series F-1 Floor Price”).
The holders of the Series F-1 Preferred Stock are entitled to dividends of 10% per annum, compounded monthly, which are payable in arrears monthly in cash or shares of Common Stock at the Company’s option, in accordance with the terms of the Series F-1 Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Series F-1 Certificate of Designations), the Series F-1 Preferred Stock will accrue dividends at the rate of 15% per annum. Upon conversion or redemption, the holders of the Series F-1 Preferred Stock are also entitled to receive a dividend make-whole payment. The holders of the Series F-1 Preferred Stock are entitled to vote with holders of the Common Stock on as as-converted basis, with the number of votes to which each holder of Series F-1 Preferred Stock is entitled to be calculated assuming a conversion price of $2.253 per share, which was the Minimum Price applicable immediately before the execution and delivery of the Series F-1 Purchase Agreement, subject to certain beneficial ownership limitations as set forth in the Series F-1 Certificate of Designations.
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Notwithstanding the foregoing, the Company’s ability to settle conversions and make amortization and dividend make-whole payments using shares of Common Stock is subject to certain limitations set forth in the Series F-1 Certificate of Designations. Further, the Series F-1 Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares of Common Stock issuable upon conversion of, or as part of any amortization payment or dividend make-whole payment under, the Series F-1 Certificate of Designations or Series F-1 Warrants.
Series F-1 Warrants
Pursuant to the Series F-1 Private Placement, the Company issued to investors (i) the Series F-1 Long-Term Warrants to purchase 2,780,839 shares of Common Stock, with an exercise price of $1.816 per share (subject to adjustment), for a period of five years from the date of issuance and (ii) the Series F-1 Short-Term Warrants to purchase 2,780,839 shares of Common Stock, with an exercise price of $1.816 per share (subject to adjustment), for a period of eighteen months from the date of issuance.
The exercise price of the Series F-1 Warrants and the number of shares issuable upon exercise of the Series F-1 Warrants are subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable exercise price (subject to certain exceptions). Upon any such price-based adjustment to the exercise price, the number of shares issuable upon exercise of the Series F-1 Warrants will be increased proportionately.
On August 16, 2024, the Company entered into (i) an Amendment (the “Series F-1 Long Term Warrant Amendment”) with the Series F-1 Investors, effective as of June 30, 2024 relating to the Series F-1 Long Term Warrants, and (ii) an Amendment (the “Series F-1 Short-Term Warrant Amendment” and, together with the Series F-1 Long Term Warrant Amendment, the “Series F-1 Warrant Amendments”) with the Series F-1 Investors, effective as of June 30, 2024 relating to the Series F-1 Short Term Warrants. The Series F-1 Warrant Amendments modified certain terms of the Series F-1 Warrants relating to the rights of the holders of the Series F-1 Warrants to provide that, in the event of a Fundamental Transaction (as defined in the Series F-1 Warrants) that is not within the Company’s control, including the Fundamental Transaction not being approved by the Company’s Board of Directors, the holder of the Series F-1 Warrant shall only be entitled to receive from the Company or any successor entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value (as defined in the Series F-1 Warrants) of the unexercised portion of such Series F-1 Warrant, that is being offered and paid to the holders of the Company’s Common Stock in connection with the Fundamental Transaction. Additionally, the Series F-1 Warrant Amendments amend the definition of Black Scholes Value related to the volatility input which is now an expected volatility equal to the 30 day volatility, obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization factor) as of the trading day immediately following the earliest to occur of (1) the public disclosure of the applicable Fundamental Transaction and (2) the date of a holder’s request. The modification resulted in the reclassification of the Series F-1 Warrants to be considered equity classified as they were no longer in the scope of ASC 815. In accordance with ASC 815-40, the Company remeasured the Series F-1 Warrants at fair value as of July 25, 2024, the effective date of the modifications, and recognized the change in fair value as a non-cash loss and reclassified the Series F-1 Warrants to additional paid-in capital as of July 25, 2024.
Series G Private Placement
On May 20, 2024, the Company entered into a Securities Purchase Agreement (the “Series G Purchase Agreement”) and collectively with the Series F-1 Purchase Agreement, each a “Purchase Agreement” and collectively, the “Purchase Agreements”) with certain accredited investors (the “Series G Investors” and collectively with the Series F-1 Investors, the “Investors”), pursuant to which it agreed to sell to the Series G Investors (i) an aggregate of 8,950 shares of the Company’s newly-designated Series G Preferred Stock, initially convertible into up to 4,928,416 shares of the Company’s Common Stock, at a conversion price of $1.816 per share (ii) short-term warrants to acquire up to an aggregate of 4,928,416 shares of Common Stock (the “Series G Short-Term Warrants”) at an exercise price of $1.816 per share, and (iii) warrants to acquire up to an aggregate of 4,928,416 shares of Common Stock (the “Series G Long-Term Warrants,” and collectively with the Series G Short-Term Warrants, the “Series G Warrants”) at an exercise price of $1.816 per share (collectively, the “Series G Private Placement” and collectively with the Series F-1 Private Placement, each a “Private Placement” and collectively, the “Private Placements”). The closing of the Series G Private Placement occurred on May 23, 2024 (the “Series G Closing Date” and, together with the Series F-1 Closing Date, the “Closing Date”)).
Series G Preferred Stock
The Series G Preferred Shares became convertible upon issuance into Common Stock (the “Series G Conversion Shares”) at the election of the holder at any time at an initial conversion price of $1.816 (the “Series G Conversion Price”). The Series G Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Series G Conversion Price (subject to certain exceptions). At any time after the issuance date of the Series G Preferred Shares, the Company has the option to redeem in cash all or any portion of the shares of Series G Preferred Shares then outstanding at a premium upon notice by the Company to all holders of the Series G Preferred Shares.
The holders of the Series G Preferred Shares will be entitled to dividends of 10% per annum, compounded monthly, which will be payable in arrears monthly at the holder’s option (i) in cash, (ii) “in kind” in the form of additional shares of Series G Preferred Shares (the “PIK Shares”) or (iii) in combination thereof, in each case, in accordance with the terms of the Certificate of Designations of the Series G Preferred Shares (the “Series G Certificate of Designations”). Upon the occurrence and during the continuance of a Triggering Event (as defined in the Series G Certificate of Designations), the Series G Preferred Stock will accrue dividends at the rate of 15% per annum. Upon conversion or redemption, the holders of the Series G Preferred Shares are also entitled to receive a dividend make-whole payment. The holders of the Series G Preferred Shares will be entitled to vote with holders of the Common Stock on as as-converted basis, with the number of votes to which each holder of Series G Preferred Share is entitled to be calculated assuming a conversion price of $2.253 per share, which was the Minimum Price (as defined in Rule 5635 of the Rule of the Nasdaq Stock Market) applicable immediately before the execution and delivery of the Series G Purchase Agreement, subject to certain beneficial ownership limitations as set forth in the Series G Certificate of Designations.
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Notwithstanding the foregoing, the Company’s ability to settle conversions and make dividend make-whole payments using shares of Common Stock is subject to certain limitations set forth in the Series G Certificate of Designations. Further, the Series G Certificate of Designations contains a certain beneficial ownership limitation, which applies to each Series G Investor other than PharmaCyte Biotech, Inc., after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Series G Preferred Shares or as part of any dividend make-whole payment under the Series G Certificate of Designations.
On June 17, 2024, the Company entered into an Amendment Agreement (the “Series G Amendment”) with the Required Holders (as defined in the Series G Certificate of Designations). Pursuant to the Series G Amendment, the Required Holders agreed to amend the Series G Certificate of Designations by filing a Certificate of Amendment (“Series G Certificate of Amendment”) to the Series G Certificate of Designations with the Secretary of State of the State of Delaware (the “Secretary of State”) to increase the number of authorized shares of Series G Preferred Stock from 8,950 to 12,826,273, in order to authorize a sufficient number of shares of Series G Preferred Stock for the payment of PIK Shares. On June 17, 2024, the Company filed the Series G Certificate of Amendment with the Secretary of State, thereby amending the Series G Certificate of Designations. The Series G Certificate of Amendment became effective with the Secretary of State upon filing.
On August 8, 2024, the Company entered into an Amendment Agreement (the “August Series G Amendment”) with the Required Holders (as defined in the Series G Certificate of Designations). Pursuant to the August Series G Amendment, the Required Holders agreed to amend the Series G Certificate of Designations by filing a Certificate of Amendment (“August Series G Certificate of Amendment”) to the Series G Certificate of Designations with the Secretary of State to adjust the calculation of the PIK Shares. On August 8, 2024, the Company filed the August Series G Certificate of Amendment with the Secretary of State, thereby amending the Series G Certificate of Designations. The August Series G Certificate of Amendment became effective with the Secretary of State upon filing.
Series G Warrants
Pursuant to the Series G Private Placement, the Company issued to investors (i) the Series G Long-Term Warrants to purchase 4,928,416 shares of Common Stock, with an exercise price of $1.816 per share (subject to adjustment), for a period of five years from the date of issuance and (ii) the Series G Short-Term Warrants to purchase 4,928,416 shares of Common Stock, with an exercise price of $1.816 per share (subject to adjustment), for a period of eighteen months from the date of issuance.
The exercise price of the Series G Warrants and the number of shares issuable upon exercise of the Series G Warrants are subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable exercise price (subject to certain exceptions). Upon any such price-based adjustment to the exercise price, the number of shares issuable upon exercise of the Series G Warrants will be increased proportionately.
On August 16, 2024, the Company entered into (i) an Amendment (the “Series G Long Term Warrant Amendment”) with the Series G Investors, effective as of June 30, 2024 relating to the Series G Long Term Warrants, and (ii) an Amendment (the “Series G Short Term Warrant Amendment” and, together with the Series G Long Term Warrant Amendment, the “Series G Warrant Amendments”) with the Series G Investors, effective as of June 30, 2024 relating to the Series G Short Term Warrants. The Series G Warrant Amendments modified certain terms of the Series G Warrants relating to the rights of the holders of the Series G Warrants to provide that, in the event of a Fundamental Transaction (as defined in the Series G Warrants) that is not within the Company’s control, including the Fundamental Transaction not being approved by the Company’s Board of Directors, the holder of the Series G Warrant shall only be entitled to receive from the Company or any successor entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value (as defined in the Series G Warrants) of the unexercised portion of such Series G Warrant, that is being offered and paid to the holders of the Company’s Common Stock in connection with the Fundamental Transaction. Additionally, the Series G Warrant Amendments amend the definition of Black Scholes Value related to the volatility input which is now an expected volatility equal to the 60 day volatility, obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization factor) as of the trading day immediately following the earliest to occur of (1) the public disclosure of the applicable Fundamental Transaction and (2) the date of a holder’s request. The modification resulted in the reclassification of the Series G Warrants to be considered equity classified as they were no longer in the scope of ASC 815. In accordance with ASC 815-40, the Company remeasured the Series G Warrants at fair value as of July 25, 2024, the effective date of the modifications, and recognized the change in fair value as a non-cash gain and reclassified the warrant liability to additional paid-in capital as of July 25, 2024.
Private Placement Warrants
In connection with the Private Placements, pursuant to (A) an engagement letter (the “GPN Agreement”) with GP Nurmenkari Inc. (“GPN”) and (B) an engagement letter (the “Palladium Agreement,” and collectively with the GPN Agreement, the “Engagement Letters”) with Palladium Capital Group, LLC (“Palladium,” and collectively with GPN, the “Placement Agents”), the Company engaged the Placement Agents to act as non-exclusive placement agents in connection with each Private Placement, pursuant to which, the Company agreed to (i) pay the Placement Agents a cash fee equal to 3% of the gross proceeds of each Private Placement (including any cash proceeds realized by the Company from the exercise of the Series F Warrants), (ii) reimbursement and payment of certain expenses, and (iii) issue to the Placement Agents on the Closing Date, warrants to purchase up to an aggregate of 693,833 of shares of Common Stock to each Placement Agent, which is equal to 3% of the aggregate number of shares of Common Stock underlying the securities issued in each Private Placement, including upon exercise of any Series F Warrants, with terms identical to the Series G Long-Term Warrants and Series F-1 Long-Term Warrants.
Registration Rights Agreements
In connection with the Series G Private Placement, we entered into a Registration Rights Agreement with the Series G Investors (the “Series G Registration Rights Agreement”), pursuant to which we agreed to file a resale registration statement (the “Series G Registration Statement”) with the SEC to register for resale (A) 200% of the Series G Conversion Shares, (B) 200% of the shares of common stock issuable upon conversion of the PIK Shares, and (C) 200% of the Series G Warrant Shares promptly following the Closing Date, but in no event later than 30 calendar days after the Closing Date, and to have such Series G Registration Statement declared effective by the Effectiveness Deadline (as defined in the Series G Registration Rights Agreement).
In connection with the Series F-1 Private Placement, we entered into a Registration Rights Agreement with the Series F-1 Investors (the “Series F-1 Registration Rights Agreement,” and, together with the Series G Registration Rights Agreement, the “Registration Rights Agreements”), pursuant to which we agreed to file a resale registration statement (the “Series F-1 Registration Statement”) with the SEC to register for resale (A) 200% of the Series F-1 Conversion Shares and (B) 200% of the Series F-1 Warrant Shares promptly following the Closing Date, but in no event later than 30 calendar days after the Closing Date, and to have such Series F-1 Registration Statement declared effective by the Effectiveness Deadline (as defined in the Series F-1 Registration Rights Agreement).
In connection with the Registration Rights Agreements, the Company filed a registration statement on Form S-3 covering such securities, which registration statement was filed on June 21, 2024, amended on August 8, 2024 and declared effective by the SEC on August 12, 2024. Under the Series F-1 Registration Rights Agreement, we are obligated to pay certain liquidated damages to the Series F-1 Investors if the Company, among other things, fails to maintain the effectiveness of the Series F-1 Registration Statement.
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Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the determinations of the fair-market value of the preferred stock, stock-based compensation, and the impairment analysis of intangibles.
Our financial position, results of operations and cash flows are impacted by the accounting policies we have adopted. In order to get a full understanding of our financial statements, one must have a clear understanding of the accounting policies employed. A summary of our critical accounting policies is presented within the notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may materially differ from these estimates under different assumptions or conditions.
Our critical accounting estimates have not changed materially from those previously reported in our Annual Report for the year ended December 31, 2023, on Form 10-K, as filed with the SEC on April 1, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and 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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we are party to litigation and subject to claims incident to the ordinary course of business. Future litigation may be necessary to defend ourselves and our customers by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights. For a description of certain legal proceedings, please read Note 7 to the interim condensed consolidated financial statements, which information is incorporated herein by reference.
Item 1A. Risk Factors
The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our Annual Report for the year ended December 31, 2023 on Form 10-K, as filed with the SEC on April 1, 2024. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price.
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.
Holders of our Series F Preferred Stock, Series F-1 Preferred Stock and Series G Preferred Stock are entitled to certain payments under the applicable Certificate of Designations that may be paid in cash, in shares of Common Stock or in additional shares of Series G Preferred Stock depending on the circumstances. If we make these payments in cash, it may require the expenditure of a substantial portion of our cash resources. If we make these payments in Common Stock, it may result in substantial dilution to the holders of our Common Stock.
Under the Series F Certificate of Designations and Series F-1 Certificate of Designations, we are required to redeem the shares of the shares of the Series F Preferred Stock and Series F-1 Preferred Stock in equal monthly installments commencing July 1, 2023, and December 1, 2024, respectively. Such holders are also entitled to receive dividends, payable in arrears monthly, and dividends payable on installment dates shall be paid as part of the applicable installment amount. Installment amounts are payable, at the Company’s election, in shares of Common Stock or, subject to certain limitations, in cash. Installment amounts paid in cash must be paid in the amount of 105% of the applicable payment amount due.
Our ability to make payments due to the holders of our Series F Preferred Stock and Series F-1 Preferred Stock using shares of Common Stock is subject to certain limitations set forth in the applicable Certificate of Designations. If we are unable to make installment payments in shares of Common Stock, we may be forced to make such payments in cash. Additionally, the holders of the Series G Preferred Stock are entitled to dividends of 10% per annum, compounded monthly, which are payable in arrears monthly, at the holder’s sole discretion, in cash, or “in kind” in the form of additional Series G Preferred Stock, or a combination thereof. If we do not have sufficient cash resources to make these payments, we may need to raise additional equity or debt capital, and we cannot provide any assurance that we will be successful in doing so. If are unable to raise sufficient capital to meet our payment obligations, we may need to delay, reduce or eliminate certain research and development programs or other operations, sell some or all of our assets or merge with another entity.
Our ability to make payments due to the holders of our Series F Preferred Stock, Series G Preferred Stock, Series F-1 Preferred Stock using cash is also limited by the amount of cash we have on hand at the time such payments are due as well as certain provisions of the Delaware General Corporation Law (the “DGCL”). Further, we intend to make the installment payments due to holders of Series F Preferred Stock and Series F-1 Preferred Stock in the form of Common Stock to the extent allowed under the applicable Certificate of Designation and applicable law in order to preserve our cash resources. The issuance of shares of Common Stock to the holders of our Series F Preferred Stock and Series F-1 Preferred Stock with increase the number of shares of Common Stock outstanding and could result in substantial dilution to the existing holders of our Common Stock.
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The Certificate of Designations for the Series F Preferred Stock, Series F-1 Preferred Stock and Series G Preferred Stock and the warrants issued concurrently therewith contain anti-dilution provisions that may result in the reduction of the conversion price of the applicable preferred stock or the exercise price of such warrants in the future. These features may increase the number of shares of Common Stock being issuable upon conversion of the Series F Preferred Stock, Series F-1 Preferred Stock and Series G Preferred Stock or upon the exercise of the warrants.
The Series F Certificate of Designations, Series F-1 Certificate of Designations and Series G Certificate of Designations and the warrants issued concurrently therewith, contain anti-dilution provisions, which provisions require the lowering of the applicable conversion price or exercise, as then in effect, to the purchase price of equity or equity-linked securities issued in subsequent offerings. If in the future, while any of our Series F Preferred Stock, Series F-1 Preferred Stock, Series G Preferred Stock, Series F Warrants, Series F-1 Warrants or Series G Warrants are outstanding, we issue securities for a consideration per share of Common Stock (the “New Issuance Price”) that is less than the applicable conversion price of our preferred stock or the exercise price of the Series F Warrants, Series F-1 Warrants or Series G Warrants, as then in effect, we will be required, subject to certain limitations and adjustments as provided in the applicable Certificate of Designations or the applicable warrants, to reduce the conversion price or the exercise price to be equal to the New Issuance Price, which will result in a greater number of shares of Common Stock being issuable upon conversion or exercise, as applicable, which in turn will increase the dilutive effect of such conversion or exercise on existing holders of our Common Stock. It is possible that we will not have a sufficient number of shares available to satisfy the conversion of the Series F Preferred Stock, Series F-1 Preferred Stock or Series G Preferred Stock or the exercise of the Series F Warrants, Series F-1 Warrants or Series G Warrants if we enter into a future transaction that reduces the applicable conversion price or exercise price. If we do not have a sufficient number of available shares for any such conversions or any such warrant exercises, we may need to seek shareholder approval to increase the number of authorized shares of our Common Stock, which may not be possible and will be time consuming and expensive. The potential for such additional issuances may depress the price of our Common Stock regardless of our business performance and may make it difficult for us to raise additional equity capital while any of our Series F Preferred Stock, Series F-1 Preferred Stock, Series G Preferred Stock or Series F Warrants, Series F-1 Warrants or Series G Warrants are outstanding.
Under the February 2023 SPA and Purchase Agreements, we are subject to certain restrictive covenants that may make it difficult to procure additional financing.
The February 2023 SPA, pursuant to which we issued the Series F Preferred Stock, contains, among others, the following restrictive covenants: (i) until all of the Series F Warrants are exercised, we agreed not to enter into any variable rate transactions; and (ii) until the later of no shares of Series F Preferred Stock being outstanding and the maturity date of the Series F Preferred Stock, the opportunity to participate in any subsequent securities offerings by us. The Series F-1 Purchase Agreement, pursuant to which we issued the Series F-1 Preferred Stock, contains, among others, the following restrictive covenants: (i) until all of the Series F-1 Warrants are exercised, we agreed not to enter into any variable rate transactions; and (ii) until the later of no shares of Series F-1 Preferred Stock being outstanding and the maturity date, the opportunity to participate in any subsequent securities offerings by us. The Series G Purchase Agreement, pursuant to which we issued the Series G Preferred Stock, contains, among others, the following restrictive covenants: (i) until all of the Series G Warrants are exercised, we agreed not to enter into any variable rate transactions; and (ii) until the later of no shares of Series G Preferred Stock being outstanding and the second anniversary of the Series G Closing Date, the opportunity to participate in any subsequent securities offerings by us.
If we require additional funding while these restrictive covenants remain in effect, we may be unable to effect a financing transaction while remaining in compliance with the terms of the February 2023 SPA or Purchase Agreements, or we may be forced to seek a waiver from the investors party to the February 2023 SPA and Purchase Agreements.
We may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position.
Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We will primarily rely on patent, copyright, trademark, and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies or processes. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose proprietary technologies and processes, despite efforts by the us to protect our proprietary technologies and processes. While we hold rights in several patents, there can be no assurances that any additional patents will be issued, or additional rights will be granted, to us. Even if new patents are issued, the claims allowed may not be sufficiently broad to adequately protect our technology and processes. Our competitors may also be able to develop similar technology independently or design around the patents to which we have rights.
Currently, the Company has 17 issued U.S. patents, 68 foreign patents, two pending U.S. patent applications and 7 foreign patent applications pending in such jurisdictions as Australia, Canada, China, European Union, Israel, Japan, and South Korea and one pending international patent application, which if issued are expected to expire between 2036 and 2041. Although we expect to obtain additional patents and in-licenses in the future, there is no guarantee that we will be able to successfully obtain such patents or in-licenses in a timely manner or at all. Further, any of our rights to existing patents, and any future patents issued to us, may be challenged, invalidated, or circumvented. As such, any rights granted under these patents may not provide us with meaningful protection. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. If our patents or rights to patents do not adequately protect our technology or processes, competitors may be able to offer products similar to our products.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of the Company’s equity securities during the three months ended September 30, 2024, other than those previously reported in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information.
None.
Item 6. Exhibits.
+ Filed herewith
* Furnished herewith
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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.
| TNF PHARMACEUTICALS, INC. | ||
| Date: November 14, 2024 | By: | /s/ Mitchell Glass |
| Name: | Mitchell Glass | |
| Title: | President, Chief Medical Officer, and Director | |
| (Principal Executive Officer) | ||
| Date: November 14, 2024 | By: | /s/ Ian Rhodes |
| Name: | Ian Rhodes | |
| Title: | Interim Chief Financial Officer | |
| (Principal Financial Officer) | ||
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