SEC Form 10-Q filed by Dogwood Therapeutics Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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As of May 6, 2025, there were
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PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
DOGWOOD THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, | December 31, | |||||
| 2025 |
| 2024 | |||
(Unaudited) | ||||||
Assets |
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Current assets: |
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Cash | $ | | $ | | ||
Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net | | | ||||
Right-of-use assets | | | ||||
Prepaid expenses, long-term | | | ||||
Goodwill | | | ||||
Intangible assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities, Series A Non-Voting Convertible Preferred Stock, and Stockholders' equity (deficit) |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued expenses |
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Lease liability, current portion | | | ||||
Total current liabilities |
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| — |
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Lease liability, long-term portion | | | ||||
Deferred tax liability | | | ||||
Total liabilities |
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Commitments and contingencies (Note 12) |
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Series A Non-Voting Convertible Preferred Stock, $ |
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Stockholders' equity (deficit): | ||||||
Common stock, $ | | | ||||
Series A-1 Non-Voting Convertible Preferred Stock, $ | | |||||
Preferred stock, $ | ||||||
Additional paid-in capital | | | ||||
Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive loss | ( | ( | ||||
| ( | |||||
Less: Treasury stock, | ( | ( | ||||
Total stockholders' equity (deficit) |
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| ( | ||
Total liabilities, Series A Non-Voting Convertible Preferred Stock and Stockholders' equity (deficit) | $ | | $ | | ||
See accompanying notes to the condensed consolidated financial statements.
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DOGWOOD THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
| 2025 |
| 2024 | |||
(As Adjusted) | ||||||
Revenue | $ | — | $ | — | ||
Operating expenses: | ||||||
Research and development |
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General and administrative expenses |
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Total operating expenses | | | ||||
Loss from operations |
| ( |
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Other (expense) income: | ||||||
Loss on debt conversion with related party | ( | — | ||||
Interest (expense) income, net |
| ( |
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Exchange loss, net | ( | — | ||||
Total other (expense) income | ( | | ||||
Loss before income taxes |
| ( |
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Deferred income tax expense |
| ( |
| — | ||
Net loss | ( | ( | ||||
Accrual of paid-in-kind dividends on Series A Non-Voting Convertible Preferred Stock | ( | — | ||||
Net loss attributable to common stockholders | $ | ( | $ | ( | ||
Net loss per common share, basic and diluted | $ | ( | $ | ( | ||
Weighted average number of shares outstanding – basic and diluted |
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Comprehensive loss | ||||||
Net loss | $ | ( | $ | ( | ||
Foreign currency translation adjustment | | — | ||||
Comprehensive loss | $ | ( | $ | ( | ||
See accompanying notes to the condensed consolidated financial statements.
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DOGWOOD THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A NON-VOTING CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
Series A Non-Voting | Series A-1 Non-Voting | Accumulated Other | Total | ||||||||||||||||||||||||||||
Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional |
| Accumulated | Comprehensive | Treasury |
| Stockholders' | ||||||||||||||||||||||
| Shares |
| Amount |
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| Shares |
| Par |
| Shares |
| Par |
| Paid-In Capital |
| Deficit |
| Loss |
| Stock |
| (Deficit) Equity | |||||||||
Balance, December 31, 2024 | | $ | | — | $ | — | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||
Conversion of loan payable plus interest into Series A-1 Non-Voting Convertible Preferred Stock | | | — | — | — | — | — | — | | ||||||||||||||||||||||
Proceeds from registered direct offering of common stock, net of offering costs | — | — | — | — | | | | — | — | — | | ||||||||||||||||||||
Accrual of paid-in-kind dividends on Series A Non-Voting Convertible Preferred Stock | — | | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||
Share-based compensation expense | — | — | — | — | — | — | | — | — | — | | ||||||||||||||||||||
Net loss | — | — | — | — | — | — | — |
| ( | — | — |
| ( | ||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | | — | | ||||||||||||||||||||
Balance, March 31, 2025 | | $ | | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | ||||||||||||
Series A Non-Voting | Series A-1 Non-Voting | Accumulated Other | Total | ||||||||||||||||||||||||||||
Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional |
| Accumulated | Comprehensive | Treasury |
| Stockholders' | ||||||||||||||||||||||
| Shares |
| Amount |
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| Amount |
| Shares |
| Par |
| Paid-In Capital |
| Deficit |
| Loss |
| Stock |
| Equity | |||||||||
Balance, December 31, 2023, as adjusted | — | $ | — | — | $ | — | | $ | | $ | | $ | ( | $ | — | $ | ( | $ | | ||||||||||||
Share-based compensation expense | — | — | — | — | — | — | | — | — | — | | ||||||||||||||||||||
Net loss | — | — | — | — | — | — | — |
| ( | — | — |
| ( | ||||||||||||||||||
Balance, March 31, 2024, as adjusted | — | $ | — | — | $ | — | | $ | | $ | | $ | ( | $ | — | $ | ( | $ | | ||||||||||||
See accompanying notes to the condensed consolidated financial statements.
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DOGWOOD THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | |||||
March 31, | ||||||
2025 |
| 2024 | ||||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Loss on foreign exchange | | — | ||||
Amortization of loan costs |
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Depreciation expense | | — | ||||
Loss on debt conversion with related party |
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Deferred tax expense | | — | ||||
Share-based compensation expense | | | ||||
Changes in operating assets and liabilities: |
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Decrease in prepaid expenses and other current assets |
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(Decrease) increase in accounts payable |
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(Decrease) increase in accrued expenses and other liabilities |
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Net cash used in operating activities |
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Cash flows from financing activities |
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Proceeds from registered direct offering of common stock, net of offering costs | | — | ||||
Proceeds from loan with related party | | — | ||||
Net cash provided by financing activities |
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Net increase in cash |
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| ( | ||
Cash, beginning of period |
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Effect of foreign currency translation on cash | | — | ||||
Cash, end of period | $ | | $ | | ||
Supplemental disclosure of non-cash financing and investing activities: | ||||||
Offering costs included in accounts payable and accrued expenses | $ | | $ | — | ||
Accrual of paid-in-kind dividends on Series A Non-Voting Convertible Preferred Stock | $ | | $ | — | ||
Conversion of debt with related party into Series A-1 Non-Voting Convertible Preferred Stock | $ | | $ | — | ||
Conversion of accrued interest on debt with related party into Series A-1 Non-Voting Convertible Preferred Stock | $ | | $ | — | ||
See accompanying notes to the condensed consolidated financial statements.
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DOGWOOD THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1Organization and Nature of Business
Dogwood Therapeutics, Inc. (the “Company”), formerly known as Virios Therapeutics, Inc., was incorporated under the laws of the State of Delaware on December 16, 2020 through a corporate conversion (the “Corporate Conversion”) just prior to the Company’s initial public offering (“IPO”). The Company was originally formed on February 28, 2012 as a limited liability company (“LLC”) under the laws of the State of Alabama as Innovative Med Concepts, LLC. On July 23, 2020, the Company changed its name from Innovative Med Concepts, LLC to Virios Therapeutics, LLC. On October 7, 2024, the Company acquired Pharmagesic (Holdings) Inc., a Canadian corporation (“Pharmagesic”) and the parent company of Wex Pharmaceuticals, Inc. (“Wex”), through a business combination, and changed its name from Virios Therapeutics, Inc. to Dogwood Therapeutics, Inc. (the “Name Change”) on October 9, 2024. Prior to the business combination, Pharmagesic was a wholly-owned subsidiary of Sealbond Limited and an indirect wholly-owned subsidiary of CK Life Sciences Int’l., (Holdings) Inc. (“CKLS”), a listed entity on the Main Board of the Hong Kong Stock Exchange.
The Company operates in
Going Concern
Since its founding, the Company has been engaged in research and development activities, as well as organizational activities, including raising capital. The Company has not generated any revenues to date. As such, the Company is subject to all of the risks associated with any development-stage biotechnology company that has substantial expenditures for research and development. Since inception, the Company has incurred losses and negative cash flows from operating activities. The Company has funded its losses primarily through issuance of members’ interests, convertible debt instruments and issuance of equity securities. For the three months ended March 31, 2025 and 2024, the Company incurred net losses of $
Concurrent with the Combination discussed below, on October 7, 2024, the Company entered into a Loan Agreement (the “Loan Agreement”) with Conjoint Inc., a Delaware corporation (“Lender”) and an affiliate of CKLS. Pursuant to the Loan Agreement, the Lender agreed to make a loan to the Company in the aggregate principal amount of $
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Voting Convertible Preferred Stock, par value $
On March 12, 2025, the Company entered into an agreement with Maxim Group LLC as placement agent in connection with the issuance and sale by the Company in a registered direct offering of
As of the issuance date of these condensed consolidated financial statements, the Company’s cash is not sufficient to fund operating expenses and capital requirements for at least the next 12 months. Dogwood will need to secure additional financing to fund its ongoing clinical trials and operations beyond the first quarter of 2026 to continue to execute its strategy. Management plans to explore various dilutive and non-dilutive sources of funding, including equity financings, debt financings, collaboration and licensing arrangements or other financing alternatives. There is no assurance that such financings will be available when needed or on acceptable terms. Accordingly, there is
Nasdaq Listing
As previously reported, on November 15, 2024, we received a notification letter (the “Notice”) from the Nasdaq Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that the amount of our stockholders’ equity had fallen below the $2,500,000 required minimum for continued listing under Listing Rule 5550(b) (the “Rule”). The Notice also noted that we did not meet the alternatives of market value of listed securities or net income from continuing operations and, therefore, no longer comply with the Nasdaq Listing Rules. The Notice provided that we had until December 30, 2024 to provide Nasdaq with a specific plan to achieve and sustain compliance, which the Company duly submitted to Nasdaq. On February 2, 2025, the Company received a letter from Nasdaq granting it until May 14, 2025 to regain compliance with the Nasdaq Listing Rule 5550(b)(1). As previously reported, on April 3, 2025, we issued a Form 8-K announcing that pursuant to the Debt Exchange and Cancellation Agreement and the March 2025 Offering, discussed above, we believe we had regained compliance with the stockholders’ equity requirement set forth in Nasdaq Listing Rule 5550(b)(1).
On April 8, 2025, we received a letter from Nasdaq stating that based on our Form 8-K dated April 3, 2025, we had regained compliance with the Nasdaq Listing Rule 5550(b)(1).
2Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed interim consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. These unaudited condensed interim financial statements should be read in conjunction with the audited financial statements and accompanying notes as found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 31, 2025 (the “2024 Annual Report on Form 10-K”). In the opinion of management, the unaudited condensed interim consolidated financial statements reflect all the adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim
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periods presented. The interim consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. The December 31, 2024 balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures, including notes, required by U.S. GAAP for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Pharmagesic, including Pharmagesic’s wholly owned subsidiary, Wex, and Wex’s wholly owned subsidiaries, IWT Bio, Inc. (“IWT”), Wex Medical Corporation (“WMC”), and Wex Medical Limited (“WML”). All intercompany accounts and transactions have been eliminated in consolidation. The Company has determined the functional currency of Pharmagesic, Wex, IWT and WMC and WML to be the Canadian dollar. The Company translates assets and liabilities of Pharmagesic, Wex, IWT, WMC and WML at exchange rates in effect at the balance sheet date with the resulting translation adjustments directly recorded as a separate component of accumulated other comprehensive income. Income and expense accounts are translated at average exchange rates for the period. Transactions which are not in the functional currency are remeasured into the functional currency and gains and losses resulting from the remeasurement are recorded in foreign currency exchange and other gain (loss), net.
Reverse Stock Split
On October 9, 2024, the Company effected a reverse stock split of
Use of Estimates
The preparation of these interim condensed consolidated financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company's significant estimates and assumptions include estimated work performed but not yet billed by contract manufacturers, engineers and research organizations, the valuation of equity and stock-based related instruments, the valuation allowance related to deferred taxes, the estimated fair value of the net assets acquired in connection with the business combination of Pharmagesic, and the estimated fair value of the contingent value rights (“CVRs”) given to common stockholders at the time of the business combination. Some of these judgments can be subjective and complex, and, consequently, actual results could differ from those estimates. Although the Company believes that its estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Actual results could differ from those estimates.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources in assessing performance. The Company has
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therapeutics for pain and fatigue illness. The Company’s chief operating decision maker (“CODM”) is the chief executive officer.
The accounting policies of the segment are the same as those described in the summary of significant accounting policies. The CODM assesses performance for the segment based on net loss, which is reported on the income statement as consolidated net loss. The measure of segment assets is reported on the balance sheet as total consolidated assets.
To date, the Company has not generated any product revenue. The Company expects to continue to incur significant expenses and operating losses for the foreseeable future as it advances product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. As such, the CODM uses cash forecast models in deciding how to invest into the segment. Such cash forecast models are reviewed to assess the entity-wide operating results and performance. Net loss is used to monitor budget versus actual results. Monitoring budgeted versus actual results is used in assessing performance of the segment and in establishing management’s compensation, along with cash forecast models.
The table below summarizes the significant expense categories regularly reviewed by the CODM for the three months ended March 31, 2025 and 2024:
| Three Months Ended | |||||
March 31, | March 31, | |||||
| 2025 |
| 2024 | |||
Operating expenses: | ||||||
Clinical | $ | | $ | | ||
Chemical, manufacturing and controls | | | ||||
Research and preclinical | | | ||||
Regulatory | | ( | ||||
Other research and development costs | | | ||||
Total research and development | | | ||||
General and administrative expenses | | | ||||
Total operating expenses | $ | | $ | | ||
Loss on debt conversion with related party | | — | ||||
Interest expense (income), net | | ( | ||||
Exchange loss, net |
| |
| — | ||
Net loss before income taxes | $ | | $ | | ||
Concentrations of Credit Risk
Cash is potentially subject to concentrations of credit risk. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held.
Fair Value Measurements
The fair value of the Company’s interim condensed consolidated financial instruments is determined and disclosed in accordance with the three-tier fair value hierarchy specified in ASC Topic 820, Fair Value Measurements. The Company is required to disclose the estimated fair value of its consolidated financial instruments. As of March 31, 2025 and December 31, 2024, the Company’s consolidated financial instruments included cash, miscellaneous receivables, accounts payable, and accrued expenses which all approximate their fair values. See Notes 3, 9, and 10 below.
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Business Combinations
The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in ASU 2017-01, Business Combinations (ASC 805), which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, Business Combinations, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.
Cash
Cash is maintained in bank deposit accounts, which exceed the federally insured limits of $
Property and Equipment
Property and equipment are carried at acquisition cost less accumulated depreciation, subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable as described further under the heading "Impairment of Long-Lived Assets" below.
Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized . Office equipment and furniture are depreciated over
When an asset is disposed of, the associated cost and accumulated depreciation is removed from the related accounts on the Company’s consolidated balance sheet with any resulting gain or loss included in the Company's consolidated statement of operations.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets consist of In-Process Research and Development (“IPR&D”). The fair values of IPR&D project assets acquired in business combinations are capitalized. The Company generally utilizes the Multi-Period Excess Earning Method to determine the estimated fair value of the IPR&D assets acquired in a business combination. The projections used in this valuation approach are based on many factors, such as relevant market size, the estimated probability of regulatory success rates, anticipated patent protection, expected pricing, expected treated population, and estimated payments (e.g., royalty). The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate.
Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually. However, an entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived
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intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company considers many factors in evaluating whether the value of our intangible assets with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of equity and debt capital, general economic conditions, outlook and market performance of the Company’s industry and recent and forecasted financial performance.
The Company evaluates indefinite-lived intangible assets for impairment at least annually on October 1 and whenever facts and circumstances indicate that their carrying amounts may not be recoverable. For the three months ended March 31, 2025, the Company determined that there was
Goodwill
Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of the Company’s business acquisitions accounted for using the acquisition method of accounting. The intangible assets acquired represented the fair value of IPR&D which has been recorded on the accompanying consolidated balance sheet as indefinite-lived intangible assets. A deferred tax liability was recorded for the difference between the fair value of the acquired IPR&D and its tax basis which was recognized as goodwill in applying the purchase method of accounting. Goodwill is not amortized and is subject to impairment testing at a reporting unit level on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is impaired. An entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting units is less than its carrying amount.
The Company evaluates goodwill for impairment at least annually on October 1 and whenever facts and circumstances indicate that their carrying amounts may not be recoverable. For the three months ended March 31, 2025, the Company determined that there was
Operating Lease Right-of-use Asset and Lease Liability
The Company accounts for leases under ASC 842, Leases. Operating leases are included in “Right-of-use assets” within the Company’s consolidated balance sheets and represent the Company’s right to use an underlying asset for the lease term. The Company’s related obligation to make lease payments are included in “Lease liability” and “Lease liability, net of current portion” within the Company’s consolidated balance sheets. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The ROU assets are tested for impairment according to ASC 360, Property, Plant, and Equipment (“ASC 360”). Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term.
As of March 31, 2025 and December 31, 2024, the Company’s operating lease ROU assets and corresponding short-term and long-term lease liabilities primarily relate to the operating lease for an office in Vancouver, British Columbia, that was acquired as part of the Combination with Pharmagesic. The office lease expires on August 31, 2028.
Impairment of Long-Lived Assets
In accordance with ASC 360-10-35, Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable (i.e., impaired). Once an impairment is determined, the actual
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impairment recognized is the difference between the carrying amount and the fair value (less costs to sell for assets to be disposed of) as estimated using one of the following approaches: income, cost, and/or market. Fair value using the income approach is determined primarily using a discounted cash flow model that uses the estimated cash flows associated with the asset or asset group under review, discounted at a rate commensurate with the risk involved. Fair value utilizing the cost approach is determined based on the replacement cost of the asset reduced for, among other things, depreciation and obsolescence. Fair value, utilizing the market approach, benchmarks the fair value against the carrying amount.
Redeemable and Convertible Preferred Stock
The Company applies ASC 480 when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ (deficit) equity. See Note 10 to these consolidated financial statements.
Net Income (Loss) per Common Share Applicable to Common Stockholders
The Company uses the two-class method to compute net income per common share during periods the Company realizes net income and has securities outstanding (e.g., redeemable convertible preferred stock) that entitle the holder to participate in dividends and earnings of the Company. In addition, the Company analyzes the potential dilutive effect of outstanding redeemable convertible preferred stock under the "if-converted" method when calculating diluted earnings per share and reports the more dilutive of the approaches (two class or "if-converted"). The two-class method is not applicable during periods with a net loss, as the holders of the redeemable convertible preferred stock have no obligation to fund losses. The Company also analyzes the potential dilutive effect of outstanding stock options and warrants under the treasury stock method (as applicable), during periods of income.
Basic and Diluted Net Loss per Share
Basic net loss per common share (“EPS”) is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted EPS reflects potential dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if all potential common shares had been issued and were dilutive. However, potentially dilutive securities are excluded from the computation of diluted EPS to the extent that their effect is anti-dilutive. For the three months ended March 31, 2025 and 2024, the Company had options to purchase
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided by the JOBS Act. As a result, these interim condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
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Recently Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures (Topic 740), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid. This change is effective for annual periods beginning after December 15, 2024. This change will apply on a prospective basis to annual financial statements for periods beginning after the effective date. However, retrospective application in all prior periods presented is permitted. The Company is currently evaluating the impact of this ASU on its financial statements.
Subsequent Event
Per the Series A Certificate of Designation, holders of Series A Preferred Stock were entitled to receive a payment-in-kind (“PIK”) dividend accruing at a rate equal to five percent (
3 | Business Combination |
On October 7, 2024, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with Sealbond Limited, a British Virgin Islands corporation (“Sealbond”), pursuant to which the Company acquired
Under the terms of the Exchange Agreement, on October 7, 2024 (the “Closing”), in exchange for all of the outstanding common shares of Pharmagesic immediately prior to the Effective Time, as defined in the Exchange Agreement, the Company issued to Sealbond, as sole shareholder of Pharmagesic, an aggregate of (A)
The Board of Directors of the Company (the “Board”) approved the Exchange Agreement and the related transactions, and the consummation of the Combination was not subject to approval of Company stockholders. Pursuant to the Exchange Agreement, the Company agreed to hold a stockholders’ meeting to submit the certain matters to its stockholders for their consideration, including: (i) the approval of the conversion of shares of Series A Preferred Stock into shares of Common Stock in accordance with the rules of the Nasdaq Stock Market LLC (the “Conversion Proposal”) and (ii) the approval of a “change of control” under Nasdaq Listing Rules 5110 and 5635(b) (the “Change of Control Proposal”); and together with the Conversion Proposal, the “Meeting Proposals”). In connection with these matters, the Company agreed to file a proxy statement on Schedule 14A with the SEC at any time between the interim analysis readout of the Phase 2b study for Halneuron® and June 30, 2026, or earlier, if mutually agreed upon by both parties.
The Combination was accounted for under the acquisition method of accounting. Under the acquisition method, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on the fair values as of the date of the acquisition. Consideration
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paid is comprised of the estimated fair value of various securities issued including the Series A Preferred Stock and Common Stock issued to Sealbond, the sole shareholder of Pharmagesic.
The fair value of the consideration totaled approximately $
|
| ||
Fair value of common stock issued | $ | | |
Fair value of preferred stock issued | | ||
Total Consideration Paid | $ | |
The Company recorded the assets acquired and liabilities assumed as of the date of the Combination based on the information available at that date. The following table presents the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the Combination date:
Assets acquired: | |||
Cash | $ | | |
Prepaid expenses and other current assets | | ||
Property and equipment | | ||
In-process research and development assets | | ||
Goodwill | | ||
Right-of-use asset - operating leases | | ||
Total assets acquired | $ | | |
Liabilities assumed: |
|
| |
Accounts payable | $ | | |
Accrued expenses and other current liabilities |
| | |
Deferred tax liability | | ||
Operating lease liabilities | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | |
The fair value of IPR&D was capitalized as of the date of the Combination and accounted for as indefinite-lived intangible assets until completion or disposition of the assets or abandonment of the associated research and development efforts. Upon successful completion of the development efforts, the useful lives of the IPR&D assets will be determined based on the anticipated period of regulatory exclusivity and will be amortized within operating expenses. Until that time, the IPR&D assets will be subject to impairment testing and will not be amortized. The goodwill recorded related to the acquisition is the excess of the fair value of the consideration transferred by the acquirer over the fair value of the net identifiable assets acquired and liabilities assumed at the date of the Combination. The goodwill recorded is not deductible for tax purposes.
The following summarizes the Company’s intangible assets and goodwill acquired in connection with the Combination and their carrying value as of March 31, 2025.
| Carrying Value | |||||||||||
| as of | |||||||||||
Combination Date |
| March 31, | ||||||||||
| Fair Value |
| Impairment |
| Translation Adj |
| 2025 | |||||
Halneuron® for Cancer Related Pain | $ | | $ | — | $ | ( | $ | | ||||
Halneuron® for Chemotherapy Induced Neuropathic Pain |
| | — |
| ( |
| | |||||
Total in-process research and development (IPR&D) | $ | | $ | — | $ | ( | $ | | ||||
|
| |||||||||||
Goodwill | $ | | $ | — | $ | ( | $ | | ||||
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Intangible asset fair values for the two IPR&D programs were determined using the Multi-Period Excess Earnings Method (“MPEEM”) which is a form of the income approach. Under the MPEEM, the fair value of an intangible asset is equal to the present value of the asset's incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory assets (contributory charge) over its remaining useful life. To calculate fair value of acquired IPR&D programs under the MPEEM, the Company uses probability-weighted cash flows discounted at a rate considered appropriate given the significant inherent risks associated with drug development by development-stage companies. Cash flows were calculated based on estimated projections of revenues and expenses related to each program and then reduced by a contributory charge on requisite assets employed. Contributory assets included debt-free working capital, net fixed assets and assembled workforce. Rates of return on the contributory assets were based on rates used for comparable market participants. Cash flows were assumed to extend through the market exclusivity period estimated to be provided by trade-secrets and patents for the synthetic manufacture of drug product. The resultant cash flows were then discounted to present value using a weighted-average cost of equity capital for companies with profiles substantially similar to that of each acquired IPR&D program, which the Company believes represents the rate that market participants would use to value the assets. The Company compensated for the phase of development of each program by probability-adjusting its estimation of the expected future cash flows. The projected cash flows were based on significant assumptions, such as the time and resources needed to complete the development and approval of each IPR&D program, estimates of revenue and operating profit related to the program considering its stage of development, the life of the potential commercialized product and associated risks, including the inherent difficulties and uncertainties in drug development, such as obtaining marketing approval from the FDA and other regulatory agencies, and risks related to the viability of and potential alternative treatments in any future target markets.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information reflects the consolidated results of operations of the Company for the three ended March 31, 2024 as if the Combination had taken place on January 1, 2024. The unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date.
| March 31, | ||
(In thousands) |
| 2024 | |
Net revenues | $ | — | |
Net loss before taxes | $ | ( | |
4 | Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets consist of the following:
| March 31, |
| December 31, | |||
| 2025 |
| 2024 | |||
Prepaid insurance | $ | $ | | |||
Prepaid clinical research costs | | |||||
Prepaid travel | | |||||
Prepaid accounting fees | — | | ||||
Prepaid services | | |||||
Other miscellaneous current assets |
|
| | |||
| | |||||
Long-term | ||||||
Security deposit on leased premises | | |||||
$ | | $ | | |||
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5 Property and Equipment
Property and equipment consist of the following:
| March 31, |
| December 31, | |||
| 2025 |
| 2024 | |||
Computer equipment | $ | | $ | | ||
Office furniture and equipment | | | ||||
Total property and equipment, at cost | | | ||||
Less: Accumulated depreciation and amortization | ( | ( | ||||
Property and equipment, net | $ | | $ | | ||
6License Agreement
The Company entered into a Know-How License Agreement (the “Agreement”) with the University of Alabama (“UA”) in 2012. In consideration for the Agreement, UA received a
7Accrued Expenses
Accrued expenses consist of the following:
| March 31, |
| December 31, | |||
| 2025 |
| 2024 | |||
Accrued interest on preferred members’ interests and related party loan | $ | $ | | |||
Accrued compensation | | |||||
Accrued clinical research costs | | |||||
Accrued professional fees |
|
| | |||
Accrued director fees | | |||||
Other miscellaneous accrued expenses |
|
| | |||
$ | | $ | | |||
8Leases
In connection with the Combination, the Company acquired a right-of-use asset which was revalued at the date of the Combination. Pharmagesic has obtained the right to control the use of office premises for a period of time through a lease arrangement. The lease arrangement was negotiated on an individual basis and contains a wide range of different terms and conditions including lease payments and remaining lease terms to August 31, 2028. The lease arrangement does not impose any covenants other than the security interests in the leased asset that is held by the lessor. The Company maintains a security deposit totaling $
There were
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The following table presents the components of the lease costs included in general and administrative expenses in the statements of operations for the three months ended March 31, 2025:
| |||
March 31, | |||
Component of lease cost |
| 2025 | |
Operating lease cost | $ | | |
Variable lease cost | | ||
Total lease expense | $ | | |
Future minimum annual commitments under the operating leases are as follows:
Year ending March 31, | |||
2025 | $ | | |
2026 | | ||
2027 | | ||
2028 | | ||
Total lease payments | | ||
Less: amount representing interest | ( | ||
Present value of net minimum lease payments | $ | | |
Less: current obligations |
| ( | |
Long-term obligations under leases | $ | |
Other information related to this operating lease and the calculation of related right-of-use assets and operating lease liabilities consists of the following:
March 31, | |||
| 2025 | ||
Cash paid for amounts included in the measurement of lease liabilities | $ | ||
Weighted-average remaining lease term (in years) - operating leases | |||
Weighted-average discount rate - operating leases | |||
9Promissory Note with Related Party
On October 7, 2024, in connection with the Exchange Agreement, the Company entered into a Loan Agreement (the “Loan Agreement”) with Conjoint Inc., a Delaware corporation (“Lender”) and an affiliate of CKLS. Pursuant to the Loan Agreement, Lender agreed to make a loan to the Company in the aggregate principal amount of $
On March 12, 2025, the Company entered into the Exchange and Cancellation Agreement with the Lender. Pursuant to the Exchange and Cancellation Agreement, the principal amount of all loans made to the Company under the Loan Agreement, along with accrued interest through March 12, 2025 (as of such date, an aggregate of $
18
$
The Company evaluated the transaction in accordance with ASC 470-50-40 Debt Modifications and Extinguishment. As such, the Company recognized a loss on the debt extinguishment that was charged to other expense in the accompanying condensed consolidated statements of operations and comprehensive income of $
As of December 31, 2024, the Company evaluated the fair value of its related party note payable by analyzing the terms of the instrument in comparison to a synthetic credit rating and implied market cost of debt rate. Based on this evaluation, which included consideration of current rates and other terms available to the Company for similar debt instruments, the Company believes the fair value of the note is approximately $
10Stockholders’ Equity
Preferred Stock
The restated certificate of incorporation, as amended, of the Company permits its Board of Directors to issue up to
After given affect to the designation of Series A Preferred Stock and Series A-1 Preferred Stock, discussed below, the Company had
Series A Preferred Stock
In October 2024, the Board of Directors designated
Except as otherwise required by law, the Series A Preferred Stock do not have voting rights. However, as long as any shares of Series A Preferred Stock are outstanding, the Company may not, without the affirmative vote of the holders of a majority of the then-outstanding shares of the Series A Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend the Series A Preferred Stock Certificate of Designation (“Series A Certificate of Designation”), amend or repeal any provision of, or add any provision to, the Charter or Amended and Restated Bylaws of the Company, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of Preferred Stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series A Preferred Stock, regardless of whether any of the foregoing actions shall be by means of amendment to the Charter or by merger, consolidation, recapitalization, reclassification, conversion or otherwise, (ii) issue further shares of Series A Preferred Stock, or increase or decrease (other than by conversion) the number of authorized shares of Series A Preferred Stock, (iii) prior to the Stockholder Approval (as defined in the Series A Certificate of Designation) or at any time while at least
19
any Fundamental Transaction (as defined in the Series A Certificate of Designation) or (B) any merger or consolidation of the Company with or into another entity or any stock sale to, or other business combination in which the stockholders of the Company immediately before such transaction do not hold at least a majority of the capital stock of the Company immediately after such transaction, or (iv) enter into any agreement with respect to any of the foregoing.
The Series A Preferred Stock shall rank on parity with the Common Stock as to distributions of assets upon liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily.
Following stockholder approval of the Conversion Proposal, each share of Series A Preferred Stock will automatically convert into
Per the Series A Certificate of Designation, holders of Series A Preferred Stock were entitled to receive a PIK dividend accruing at a rate equal to five percent (
Form of Repurchase Agreement
The terms of the Exchange Agreement provides that Sealbond has the right to exercise an option, but not an obligation, after the Closing and upon the occurrence of certain conditional events including continued listing requirements, to acquire all of the Company’s and its direct and indirect subsidiaries’ intellectual property, rights, title, regulatory submissions, assignment of contracts, data and interests, as of the time of such acquisition, in and to tetrodotoxin and Halneuron®, in accordance with the terms and conditions of the form of Repurchase Agreement attached to the Exchange Agreement for a cash settlement value as defined in the agreement.
Contingent Value Rights Agreement
Concurrently with the Closing of the Combination, the Company entered into a contingent value rights agreement (the “CVR Agreement”) with a rights agent (the “Rights Agent”), pursuant to which each holder of Common Stock as of October 17, 2024, including those holders receiving shares of Common Stock in connection with the Combination, was entitled to
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Each contingent value right entitles the holders (the “CVR Holders”) thereof, in the aggregate, to
The distributions in respect of the CVRs that become payable will be made on a quarterly basis and will be subject to a number of deductions, subject to certain exceptions or limitations, including but not limited to for certain taxes and certain out-of-pocket expenses incurred by the Company.
Under the CVR Agreement, the Rights Agent has, and CVR Holders of at least
The Company determined that the fair value of the CVRs were immaterial on the date of issuance as well as at March 31, 2025 and December 31, 2024, as there were no imminent transactions to indicate value. The Company will evaluate the fair value of the CVRs at least annually on October 1 and whenever facts and circumstances indicate that their carrying amounts may have changed.
Series A-1 Preferred Stock
In March 2025, the Board of Directors designated
The Series A-1 Preferred Stock shall rank on parity with the Common Stock as to distributions of assets upon liquidation, dissolution or winding-up of the Company, whether voluntarily or involuntarily.
Except as otherwise required by law, the Series A-1 Preferred Stock does not have voting rights. However, as long as any shares of Series A-1 Preferred Stock are outstanding, the Company may not, without the affirmative vote of the holders of a majority of the then-outstanding shares of the Series A-1 Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series A-1 Preferred Stock or alter or amend the Series A-1 Certificate of Designation, amend or repeal any provision of, or add any provision to, the Charter or Amended and Restated Bylaws of the Company, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of Preferred Stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series A-1 Preferred Stock, regardless of whether any of the foregoing actions shall be by means of amendment to the Charter or by merger, consolidation, recapitalization, reclassification, conversion or otherwise, (ii) issue further shares of Series A-1 Preferred Stock, or increase or decrease (other than by conversion) the number of authorized shares of Series A-1 Preferred Stock, (iii) prior to the Stockholder Approval (as defined in the Series A-1 Certificate of Designation) or at any time while at least
Following the stockholder approval of the conversion of Series A-1 Preferred Stock into shares of Common Stock in accordance with the listing rules of the Nasdaq Stock Market, each share of Series A-1 Preferred Stock will automatically convert into
21
Common Stock
The Company’s certificate of incorporation, adopted on December 16, 2020, authorizes the issuance of
Registered Direct Offering
On March 12, 2025, the Company entered into an agreement with Maxim Group LLC as placement agent in connection with the issuance and sale by the Company in a registered direct offering of
11Related Parties
The Company uses Gendreau Consulting, LLC, a consulting firm (“Gendreau”), for drug development, clinical trial design and planning, implementation and execution of contracted activities with the clinical research organization. Gendreau’s managing member is the Company’s Chief Medical Officer (“CMO”). From time to time, the Company contracts the services of the CMO’s spouse through Gendreau to perform certain activities in connection with the Company’s ongoing clinical development of its product candidates. In the past, the Company has contracted the CMO’s spouse to serve as the Company’s Medical Monitor. Currently, the Company has contracted the services of the CMO’s spouse to serve as the Company’s Chief Safety Officer for the HALT-CINP-203 clinical trial. In addition, the Company has contracted the services of the CMO’s daughter to serve as an assistant for various clinical site related activities. During the three months ended March 31, 2025 and 2024, the Company paid Gendreau $
12Commitments and Contingencies
Litigation and Other
The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows. Although the results of litigation and claims cannot be predicted with certainty, we do not currently have any pending or ongoing litigation to which we are a party or to which our property is subject that we believe to be material.
13Share-based compensation
Equity Incentive Plan
On June 16, 2022, the stockholders of the Company approved the Amended and Restated 2020 Equity Incentive Plan (the “Plan”) to increase the total number of shares of Common Stock reserved for issuance under the Plan by
22
The table below sets forth the outstanding options to purchase shares of Common Stock under the Plan:
|
|
|
|
| Weighted | ||
| Average | ||||||
| Weighted |
| Remaining | ||||
| Average |
| Contractual | ||||
| Number of |
| Exercise |
| Term | ||
| Shares |
| Price |
| (Years) | ||
Outstanding at December 31, 2024 |
| | $ | |
| ||
Granted |
| — |
| — |
| — | |
Exercised |
| — |
| — |
| — | |
Outstanding at March 31, 2025 |
| | $ | |
| ||
Exercisable at March 31, 2025 | | $ | | ||||
|
| ||||||
There were
During the three months ended March 31, 2024, the Company granted certain individuals options to purchase
As of March 31, 2025 the aggregate intrinsic value of options outstanding was $
The Company recognized share-based compensation expense related to stock options during the three months ended March 31, 2025 and 2024, of $
Stock Options for Unregistered Securities
In addition to the stock options issued under the Plan, and in conjunction with the IPO, the Company granted non-qualified stock options to purchase
Underwriters Warrants
In conjunction with the IPO, the Company granted the underwriters warrants to purchase
23
In conjunction with the Offering in September 2022, the Company granted the Underwriter warrants to purchase
There were
The table below sets forth the outstanding warrants to purchase common shares:
|
|
|
|
| Weighted | ||
| Average | ||||||
| Weighted |
| Remaining | ||||
| Average |
| Contractual | ||||
| Number of |
| Exercise |
| Term | ||
| Shares |
| Price |
| (Years) | ||
Outstanding at December 31, 2024 |
| | $ | |
| ||
Granted |
| — |
| — |
| — | |
Outstanding at March 31, 2025 |
| | $ | |
| ||
Exercisable at March 31, 2025 |
| | $ | |
| ||
As of March 31, 2025, the aggregate intrinsic value of the warrants outstanding was $
14Income Taxes
As of result of the Combination discussed above, the Company acquired operations in Canada. The foreign loss before taxes and the deferred tax expense disclosed below relates to the Company’s new operations in Canada.
For the three months ended March 31, 2025 and 2024, the domestic and foreign components of net loss before income taxes are as follows:
| Three Months Ended | |||||
March 31, | ||||||
| 2025 |
| 2024 | |||
United States | $ | ( | $ | ( | ||
Foreign | ( | — | ||||
Loss before income taxes | $ | ( | $ | ( | ||
The Company recorded a deferred tax expense of $
| Three Months Ended | |||||
March 31, | ||||||
| 2025 |
| 2024 | |||
Domestic | $ | — | $ | — | ||
Foreign | | — | ||||
$ | | $ | — | |||
As of December 31, 2024, the Company had U.S. federal net operating loss carryforwards of approximately $
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Security and Exchange Commission (“SEC”) on March 31, 2025 (the “2024 Annual Report on Form 10K”), under “Risk Factors”, available on the SEC EDGAR website at www.sec.gov, Part II, and Item 1A of the report, for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those risks noted above.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements”, within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements, including the risks set forth in the 2024 Annual Report on Form 10-K. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.
The forward-looking statements contained in this Quarterly Report on Form 10-Q include, among other things, statements about:
| ● | our business strategies; |
| ● | our ability to obtain regulatory approval of our product candidate and any other product candidates we may develop, and the labeling under any regulatory approval we may obtain; |
| ● | risks relating to the timing and costs of clinical trials and the timing and costs of other expenses; |
| ● | timing and likelihood of success of our clinical trials and regulatory approval of our product candidates; |
| ● | risks associated with our reliance on third-party organizations; |
| ● | our competitive position; |
| ● | assumptions regarding the size of the available market, product pricing and timing of commercialization of our product candidates, if approved; |
| ● | our intellectual property position and our ability to maintain and protect our intellectual property rights; |
| ● | our results of operations, financial condition, liquidity, prospects, and growth strategies; |
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| ● | our strategies to maintain the listing of our common stock; |
| ● | our cash needs and financing plans; |
| ● | the fluctuations in the exchange rates in the United States dollar versus the Canadian dollar; |
| ● | the industry in which we operate; and |
| ● | the economic trends that may affect the industry or us. |
Overview
We are a pre-revenue, development-stage biopharmaceutical company focused on developing new medicines to treat pain and fatigue-related disorders. Our pipeline is focused on two separate pillars: Nav 1.7 modulation to treat chronic and acute pain disorders and combination antiviral therapies targeting reactivated herpes virus mediated illnesses. The proprietary non-opioid NaV 1.7 analgesic program is centered on our lead development candidate Halneuron®, which is a voltage-gated sodium channel modulator, a mechanism known to be effective for reducing pain. The antiviral program includes IMC-1 and IMC-2, which are novel, proprietary, fixed dose combinations of nucleoside analog, anti-herpes antivirals and the anti-inflammatory agent celecoxib for the treatment of FM and LC.
Nav 1.7 Non-Opioid Analgesic Program
Our lead product candidate, Halneuron®, is in Phase 2 clinical development for the treatment of CINP. The active pharmaceutical ingredient is highly purified Tetrodotoxin (“TTX”), a potent sodium channel modulator found in the ovaries of puffer fish and several other marine animals. Halneuron® works as an analgesic by modulating the activity of Nav1.7, a key sodium channel located in the peripheral nervous system involved in pain signal transmission. By reducing the activity of the Nav1.7 channel, Halneuron® has the potential to reduce pain associated with conditions involving neuropathic pain, chronic pain and acute forms of pain.
In the first quarter of 2025, we commenced dosing of patients in the HALT-CINP-203 clinical trial in the United States. HALT-CINP-203 is a double-blind, placebo controlled clinical trial to access the efficacy and safety of Halneuron® in 200 patients with moderate to severe neuropathic pain caused by previous platinum and/or taxane chemotherapy. The primary efficacy endpoint is the change from baseline at week 4 in the weekly average of daily 24-hour recall pain intensity scores, comparing Halneuron® to the placebo. The secondary endpoints are patient global impression of change, PROMIS regarding fatigue, PROMIS related to sleep, PROMIS-29, pain interference, hospital anxiety and depression scale and neuropathic pain symptom inventory. We expect to conduct an interim analysis of data from approximately 40-50% of the patients enrolled in HALT-CINP-203 in the fourth quarter of 2025. The planned interim analysis is designed to explore one of four possible outcomes, (i) early stopping due to achievement of statistically significant pain reduction with the smaller sample size, (ii) a futility determination, (iii) a recommendation to continue the study to the planned sample size of 200 total patients, or (iv) a recommendation to increase the HALT-CINP patients sample size based on the Halneuron® observed treatment effect size versus placebo at the interim analysis. Top-line data from the trial are expected in the second-half of 2026.
Antiviral Program
We are presently exploring the best options to continue development of IMC-1 and IMC-2 which are novel, proprietary, fixed dose combinations of nucleoside analog, anti-herpes antivirals and the anti-inflammatory agent celecoxib. IMC-1 is a novel combination of famciclovir and celecoxib intended to synergistically suppress herpesvirus activation and replication, with the end goal of reducing a patient’s viral mediated disease burden. IMC-2 is a combination of valacyclovir and celecoxib that like IMC-1, is intended to synergistically suppress
26
herpesvirus activation and replication with a more specific activity against the Epstein-Barr virus (herpesvirus HHV-4).
The following chart reflects our current pipeline and the development stage of each product candidate.
Exchange and Cancellation Agreement
On October 7, 2024, the Company entered into a Loan Agreement (the “Loan Agreement”) with Conjoint Inc., a Delaware corporation (“Lender”). Pursuant to the Loan Agreement, Lender agreed to make a loan to the Company in the aggregate principal amount of $19,500,000, of which (i) $16,500,000 was disbursed on October 7, 2024 and (ii) $3,000,000 was disbursed on February 18, 2025. Prior to the Debt Exchange and Cancellation Transaction described below, the Loan Agreement bore interest at the Secured Overnight Financing Rate (“SOFR”) plus 2.00%. The Loan Agreement was payable in full with principal and accrued interest on October 7, 2027.
On March 12, 2025, we entered into a Debt Exchange and Cancellation Agreement (the “Exchange and Cancellation Agreement”) with Lender. Pursuant to the Exchange and Cancellation Agreement, the principal amount of all loans made to the Company under the Loan Agreement, along with accrued interest through March 12, 2025, was deemed repaid and all of the Company’s obligations satisfied in full and cancelled in exchange for 284.2638 shares of the Company’s Series A-1 Non-Voting Convertible Preferred Stock, par value $0.0001 (“Series A-1 Preferred Stock” and such transaction, the “Debt Exchange and Cancellation Transaction”). Following the stockholder approval of the conversion of Series A-1 Preferred Stock into shares of Common Stock in accordance with the listing rules of the Nasdaq Stock Market, each share of Series A-1 Preferred Stock will automatically convert into 10,000 shares of Common Stock.
Registered Direct Offering
On March 12, 2025, we entered into an agreement with Maxim Group LLC as placement agent in connection with the issuance and sale by the Company in a registered direct offering of 578,950 shares of our Common Stock at a price of $8.26 per share (the “March 2025 Offering”), pursuant to an effective shelf registration statement on Form S-3 (File No. 333-263700). The March 2025 Offering closed on March 14, 2025, and the gross proceeds from the March 2025 Offering were approximately $4.78 million. The net proceeds of the March 2025 Offering were approximately $4.25 million after deducting placement agent fees and offering expenses payable by the Company.
Recent Developments
As previously reported, on November 15, 2024, we received a notification letter (the “Notice”) from the Nasdaq Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that
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the amount of our stockholders’ equity had fallen below the $2,500,000 required minimum for continued listing under Listing Rule 5550(b) (the “Rule”). The Notice also noted that we did not meet the alternatives of market value of listed securities or net income from continuing operations and, therefore, no longer comply with the Nasdaq Listing Rules. The Notice provided that we had until December 30, 2024 to provide Nasdaq with a specific plan to achieve and sustain compliance, which the Company duly submitted to Nasdaq. On February 2, 2025, the Company received a letter from Nasdaq granting it until May 14, 2025 to regain compliance with the Nasdaq Listing Rule 5550(b)(1). As previously reported, on April 3, 2025, we issued a Form 8-K announcing that pursuant to the Debt Exchange and Cancellation Agreement and the March 2025 Offering, discussed above, we believe we had regained compliance with the stockholders’ equity requirement set forth in Nasdaq Listing Rule 5550(b)(1).
On April 8, 2025, we received a letter from Nasdaq stating that based on our Form 8-K dated April 3, 2025, we had regained compliance with the Nasdaq Listing Rule 5550(b)(1).
Results of Operations
Below is a summary of the results of operations:
| Three Months Ended |
| |||||
| March 31, |
| |||||
| 2025 |
| 2024 |
| |||
Operating expenses: | (Unaudited) | ||||||
Research and development | $ | 2,436,998 | $ | 343,717 | |||
General and administrative |
| 1,992,928 |
| 970,384 | |||
Total operating expenses | $ | 4,429,926 | $ | 1,314,101 | |||
Three Months Ended March 31, 2025 and 2024
Research and Development Expenses
Research and development expenses increased by $2.1 million to $2.4 million for the three months ended March 31, 2025 from $0.3 million for the three months ended March 31, 2024. The increase was primarily due to the impact of the Combination including increases in expenses for clinical trials of $1.8 million related to the HALT-CINP-203 study, drug development and manufacturing costs of $0.1 million and salaries and related personnel costs of $0.2 million.
General and Administrative Expenses
General and administrative expenses increased by $1.0 million to $2.0 million for the three months ended March 31, 2025, from $1.0 million for the three months ended March 31, 2024. The increase was primarily due to increases in expenses for legal and professional fees of $0.6 million related to the Combination, franchise tax fees of $0.2 million, salaries and related personnel costs of $0.2 million and other general and administrative costs of $0.1 million offset by lower insurance expenses associated with being a public company of $0.1 million.
Liquidity and Capital Resources
Since our inception, we have financed our operations through public offerings of common stock and proceeds from private placements of membership interests and convertible promissory notes. To date, we have not generated any revenue from the sale of products and we do not anticipate generating any revenue from the sales of products for the foreseeable future. We have incurred losses and generated negative cash flows from operations since inception. As of March 31, 2025, our principal source of liquidity was our cash, which totaled $17.5 million.
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The global economy, including credit and financial markets, has experienced extreme volatility and disruptions including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates and uncertainty about economic stability. For example, the ongoing conflicts between Israel-Hamas and Ukraine-Russia, the effect of these wars and the resulting sanctions by the U.S. and European governments, has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, if at all.
Equity Financings
On March 14, 2025, we closed a registered direct offering of 578,950 shares of our Common Stock, raising gross proceeds of approximately $4.8 million and net proceeds of approximately $4.25 million, after deducting placement agent fees and offering expenses.
There were no equity financings during the three months ended March 31, 2024.
Debt Financings
On February 18, 2025, we received $3,000,000 in loan proceeds pursuant the Loan Agreement dated October 7, 2024 with the Lender. There were no debt financings during the three months ended March 31, 2024. There was no debt outstanding at March 31, 2025 due to the Debt Exchange and Cancellation Transaction discussed above. At December 31, 2024, the debt with related party, net of issuance costs was $15,381,077.
Future Capital Requirements
We anticipate our cash on hand at March 31, 2025 of approximately $17.5 million will fund operations through the first quarter of 2026. The Company will need to secure additional financing to fund its ongoing clinical trials and operations beyond the first quarter of 2026 to continue to execute its strategy. We will need to finance our cash needs through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. To the extent that we raise additional funds by issuing equity or equity-linked securities, our shareholders will experience dilution. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. As a result, substantial doubt exists regarding our ability to continue as a going concern 12 months from the issuance of this Quarterly Report on Form 10-Q. Failure to secure the necessary financing in a timely manner and on favorable terms could have a material adverse effect on the Company’s strategy and value and could require the delay of product development and clinical trial plans.
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Summary of Cash Flows
The following table summarizes our cash flows for the three months ended March 31, 2025 and 2024, respectively:
| Three Months Ended | |||||
| March 31, | |||||
| 2025 |
| 2024 | |||
| (Unaudited) | |||||
Statement of Cash Flows Data: |
|
|
|
| ||
Net cash (used in) provided by: |
|
|
|
| ||
Operating activities | $ | (4,682,554) | $ | (937,414) | ||
Financing activities |
| 7,372,378 |
| — | ||
Increase (decrease) in cash | $ | 2,689,824 | $ | (937,414) | ||
Cash Flows for the Three Months Ended March 31, 2025 and 2024
Operating Activities
For the three months ended March 31, 2025, net cash used in operations was $4.7 million and consisted of a net loss of $10.9 million and a net change in operating assets and liabilities of $0.2 million attributable to a decrease in accounts payable and accrued liabilities of $0.3 million offset by a decrease in prepaid expenses and other current assets of $0.1 million further offset by non-cash items of $6.4 million attributable to loss on conversion of debt with related party of $6.1 million, deferred tax expense of $0.2 million and share-based compensation, depreciation and amortization of $0.1 million.
For the three months ended March 31, 2024, net cash used in operations was $0.9 million and consisted of a net loss of $1.3 million offset by a net change in operating assets and liabilities of $0.2 million attributable to an increase in accounts payable and accrued liabilities of $0.2 million and non-cash items of $0.2 million attributable to share-based compensation.
Financing Activities
Net cash provided by financing activities during the three months ended March 31, 2025 was $7.4 million and was attributable to cash proceeds from the Loan Agreement of $3.0 million and gross proceeds from our registered direct offering in March 2025 of $4.8 million, net of placement agent fees and offering costs paid by us during the three months ended March 2025 of $0.4 million.
There were no financing activities during the three months ended March 31, 2024.
Off-Balance Sheet Arrangements
As of March 31, 2025, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.
Discussion of Critical Accounting Policies and Significant Judgements and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in making certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require difficult, subjective and complex judgments by management in order to make estimates about the effect of matters that are inherently uncertain. During the three months ended March 31, 2025, there were no
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significant changes to our critical accounting policies from those described in our annual financial statements for the year ended December 31, 2024, which we included in our 2024 Annual Report on Form 10-K.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply until the last day of the fiscal year following the fifth anniversary of the completion of our IPO or until we no longer meet the requirements for being an “emerging growth company,” whichever occurs first.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
This item is not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective in ensuring that the 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 rules, regulations and forms of the SEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(f) of the Exchange Act that occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is 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 may be involved in claims that arise during the ordinary course of business. Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting our overall operations. Although the results of litigation and claims cannot be predicted with certainty, we do not currently have any pending or ongoing litigation to which we are a party or to which our property is subject that we believe to be material.
Item 1A. Risk Factors
You should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our 2024 Annual Report on Form 10-K which could materially affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Arrangements
During the three months ended March 31, 2025, no director or “officer” (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated any “Rule
Ratification
On May 8, 2025, the board of directors of the Company adopted resolutions (the “Resolutions”) approving the ratification pursuant to Section 204 of the Delaware General Corporation Law of the previously disclosed required payment of a dividend of 55.345 shares of Series A Preferred Stock to holders of Series A Preferred Stock (the “Ratification”). A copy of the Resolutions adopted by the board of directors setting forth the information with respect to the Ratification required under Section 204 of the Delaware General Corporation Law is set forth in Exhibit 99.1 to this Quarterly Report on Form 10-Q. Any claim that any defective corporate act or putative stock ratified pursuant to the Ratification is void or voidable due to the failure of authorization specified in the Resolutions or that the Delaware Court of Chancery should declare in its discretion that the Ratification in accordance with Section 204 of the Delaware General Corporation Law not be effective or be effective only on certain conditions must be brought within 120 days from the giving of this notice (which is deemed to be given on the date that this Quarterly Report on Form 10-Q is filed with the SEC).
Item 6. Exhibits
See Exhibit Index.
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EXHIBIT INDEX
Exhibit |
| Description |
3.1 | ||
3.2† | ||
4.1 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
31.1† | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2† | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1† | ||
32.2† | ||
99.1† | ||
101.INS† | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH† | XBRL Taxonomy Extension Schema Document | |
101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF† | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB† | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document | |
104† | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
† | Filed 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, duly authorized.
Date: May 9, 2025
DOGWOOD THERAPEUTICS, INC. | ||
By: | /s/ Greg Duncan | |
Name: | Greg Duncan | |
Title: | Chairman of the Board of Directors and Chief Executive Officer | |
(Principal Executive Officer) | ||
By: | /s/ Angela Walsh | |
Name: | Angela Walsh | |
Title: | Chief Financial Officer, Corporate Secretary and Treasurer | |
(Principal Financial and Accounting Officer) | ||
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