What changed in this filing

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Item 1. Financial Statements

2022-08-12 compared with 2022-05-12 · 314 added, 175 removed, 496 unchanged (50% of the section changed)

30 unchanged sentences

Stockholders’

Series C convertible preferred stock, $0.001 par value:

10,000 shares authorized;

10,000 and 0 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Common stock, $ 0.001 par value:

1,000,000,000 shares authorized:

2,038,392 and 2,038,185 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

2,038,914 and 2,038,185 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

15 unchanged sentences

Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Operating expenses:

2 unchanged sentences

$ 1,972,673  

$ 4,534,451  

$ 4,889,051  

General and administrative

2 unchanged sentences

4,265,878  

3,580,283  

23,755  

48,202  

Loss from operations

1 unchanged sentence

3,833,201  

8,800,329  

8,517,536  

Interest income

1 unchanged sentence

( 55,228 )  

( 83,187 )  

$ ( 4,190,501 )  

$ ( 3,777,973 )  

$ ( 8,717,142 )  

$ ( 8,421,892 )

2 unchanged sentences

$ ( 2.06 )  

$ ( 1.85 )  

$ ( 4.28 )  

Weighted average shares outstanding, basic and diluted

1 unchanged sentence

2,037,978  

2,038,529  

1,854,161  

Comprehensive loss:

$ ( 4,190,501 )  

$ ( 3,777,973 )  

$ ( 8,717,142 )  

$ ( 8,421,892 )

1 unchanged sentence

( 36,925 )  

( 86,583 )  

Comprehensive loss:

( 4,227,426 )  

( 3,777,973 )  

( 8,803,725 )  

( 8,421,892 )

1 unchanged sentence

Diffusion Pharmaceuticals Inc.

Consolidated Statements of Stockholders' Equity

Three Months Ended March 31, 2021 and 2022

Consolidated Statement of Changes in Stockholders' Equity

Three and Six Months Ended June 30, 2021 and 2022

Series C Convertible

Preferred Stock

Comprehensive

Stockholders'

2 unchanged sentences

Equity  

Balance at January 1, 2021

Balance at April 1, 2022

10,000  

3 unchanged sentences

$ 165,192,671  

Sale of common stock

$ ( 49,658 )  

1 unchanged sentence

$ 30,618,299  

Issuance of common stock upon exercise of warrants, net of issuance costs

Conversion of Series C preferred stock to common stock

( 10,000 )  

( 5,000 )  

Stock-based compensation expense and vesting of restricted stock units

278,130  

Stock-based compensation expense

278,130  

Unrealized loss on marketable securities

( 36,925 )  

1 unchanged sentence

( 4,190,501 )

Balance at March 31, 2021

Balance at June 30, 2022

2,038,914  

3 unchanged sentences

$ ( 138,722,253 )  

$ 26,669,003  

Series C Convertible

Preferred Stock

Accumulated Other Comprehensive

Comprehensive

Stockholders'

10 unchanged sentences

10,000  

Conversion of Series C preferred stock to common stock

( 10,000 )  

( 5,000 )  

Stock-based compensation expense and vesting of restricted stock units

5 unchanged sentences

( 8,717,142 )

Balance at March 31, 2022

Balance at June 30, 2022

2,038,914  

4 unchanged sentences

$ 26,669,003  

Stockholders' Equity

Stockholders'

Capital  

Deficit  

Equity  

Balance at April 1, 2021

2,037,978  

$ 2,038  

$ 164,198,560  

$ ( 110,553,303 )  

$ 53,647,295  

Sale of common stock and warrants, net of issuance costs

Issuance of common stock upon exercise of warrants

Stock-based compensation expense

297,280  

( 3,777,973 )  

Balance at June 30, 2021

2,037,978  

$ 2,038  

$ 164,495,840  

$ ( 114,331,276 )  

$ 50,166,602  

Stockholders' Equity

Stockholders'

Capital  

Deficit  

Equity  

Balance at January 1, 2021

1,280,207  

$ 1,280  

$ 130,722,286  

$ ( 105,909,384 )  

$ 24,814,182  

Sale of common stock and warrants, net of issuance costs

673,171  

31,093,629  

31,094,302  

Issuance of common stock upon exercise of warrants

84,600  

2,201,365  

2,201,450  

Stock-based compensation expense

478,560  

( 8,421,892 )  

Balance at June 30, 2021

2,037,978  

$ 2,038  

$ 164,495,840  

$ ( 114,331,276 )  

$ 50,166,602  

See accompanying notes to unaudited interim consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities:

16 unchanged sentences

( 8,503,774 )

Cash flows used in investing activities:

Purchases of marketable securities

Cash flows provided by investing activities:

Purchase of marketable securities

( 31,615,825 )  

Maturities of marketable securities

9,000,000  

Net cash used in investing activities

1 unchanged sentence

Cash flows provided by financing activities:

Proceeds from the sale of common stock, net of issuance costs

Proceeds from the sale of preferred stock

Proceeds from the exercise of common stock warrants

2,201,450  

Proceeds received from the exercise of common stock warrants

Proceeds from the sale of common stock

31,094,302  

Proceeds from the sale of series C preferred stock to related parties

Net cash provided by financing activities

3 unchanged sentences

24,791,978  

Cash and cash equivalents at beginning of year

Cash and cash equivalents at beginning of period

37,313,558  

10 unchanged sentences

Organization and Description of Business

Diffusion Pharmaceuticals Inc., a Delaware corporation, is a biopharmaceutical company developing novel therapies that enhance the body’s ability to deliver oxygen to areas where it is needed most.

The Company’s lead product candidate, TSC, is being developed to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine’s most intractable and difficult-to-treat conditions, including hypoxic tumors.

Diffusion Pharmaceuticals Inc., a Delaware corporation, is a biopharmaceutical company developing novel therapies to enhance the body’s ability to deliver oxygen to areas where it is needed most.

The Company’s lead product candidate, TSC, is being investigated to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine’s most intractable and difficult-to-treat conditions, including hypoxic solid tumors.

On April 18, 2022, the Company effected a 1 -for- 50 reverse split of its common stock.

9 unchanged sentences

If the Company engages in collaborations, it may receive lower consideration upon commercialization of such products than if it had not entered such arrangements or if it entered into such arrangements at later stages in the product development process.

In July 2022, the Company entered into an at-the-market sales agreement (the "2022 Sales Agreement") with BTIG, LLC, ("BTIG") as agent, pursuant to which the Company may sell up to an aggregate of $ 20.0 million in shares of the Company’s common stock, from time to time through BTIG, by any method permitted that is deemed an “at the market offering”

as defined in Rule 415 (a)( 4 ) under the Securities Act of 1933, as amended.

Operations of the Company are subject to certain risks and uncertainties including various internal and external factors that will affect whether and when the Company’s product candidates become approved drugs and how significant their market share will be, some of which are outside of the Company’s control.

The length of time and cost of developing and commercializing these product candidates and/or failure of them at any stage of the drug approval process will materially affect the Company’s financial condition and future operations.

The Company expects that its existing cash, cash equivalents and marketable securities as of March 

31, 2022 will enable it to fund its operating expenses and capital expenditure requirements through 2023.

Basis of Presentation and Summary of Significant Accounting Policies

As of the date of this Quarterly Report, the Summary of Significant Accounting Policies included in the Company's Annual Report have not materially changed, except as set forth below.

The Company currently expects that its existing cash, cash equivalents and marketable securities as of June 

30, 2022 will enable it to fund its operating expenses and capital expenditure requirements into the first quarter of 2024, without giving effect to any business development activities we may undertake.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and Summary of Significant Accounting Policies

The Summary of Significant Accounting Policies included in the Company's Annual Report for the year ended December 31, 2021 have not materially changed.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information as found in the ASC and ASUs of the FASB, and with the instructions to Form 10 -Q and Article 10 of Regulation S- X promulgated by the SEC.

In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the unaudited interim consolidated financial statements) considered necessary to present fairly the Company’s financial position as of 

31, 2022, and its results of operations and cash flows for the three months ended March 

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information as found in the ASC and ASUs of the FASB, and with the instructions to Form 10 -Q and Article 10 of Regulation S- X promulgated by the SEC.

In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the unaudited interim consolidated financial statements) considered necessary to present fairly the Company’s financial position as of 

30, 2022, and its results of operations for the three and six months ended June 

30, 2022 and 2021 and cash flows for the six months ended June 

30, 2022 and 2021.

Operating results for the three months ended 

Operating results for the six months ended 

30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 

The unaudited interim consolidated financial statements presented herein do not contain the required disclosures under GAAP for annual financial statements.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 

31, 2021 filed with the SEC as part of the Annual Report.

The accompanying unaudited consolidated interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 

31, 2021 filed with the SEC as part of the Company's Annual Report.

Use of Estimates

5 unchanged sentences

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash equivalents and accounts payable approximate fair value due to the short-term nature of those instruments.         

Concentration of Credit Risk

2 unchanged sentences

The Company considers any highly-liquid investments, such as money market funds and commercial paper with an original maturity of three months or less to be cash and cash equivalents.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Marketable Securities

2 unchanged sentences

The Company considers its marketable securities as available for use in current operations, and therefore classify these securities as current assets on the consolidated balance sheet.

These securities are carried at fair market value, with unrealized gains and losses reported in comprehensive loss and accumulated other comprehensive loss within stockholders’

These securities are carried at fair value, with unrealized gains and losses reported in comprehensive loss and accumulated other comprehensive loss within stockholders’

Gains or losses on marketable securities sold will be based on the specific identification method.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Reverse Stock Split

On April 18, 2022, the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to effect the Reverse Stock Split at a ratio of 1 -to- 50 .

On April 18, 2022, the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to implement the Reverse Stock Split at a ratio of 1 -to- 50 .

No fractional shares were issued in connection with the Reverse Stock Split.

Stockholders who otherwise would have been entitled to receive fractional shares of common stock are entitled to receive an amount in cash (without interest or deduction) equal to the fraction of one share to which such stockholder would otherwise be entitled multiplied by $ 12.93 , representing the split-adjusted average closing price of the Company’s common stock on the Nasdaq Capital Market for the five consecutive trading days immediately preceding the effective date of the Reverse Stock Split.

Proportional adjustments were made to the Company’s outstanding warrants, stock options and other equity securities and to the 2015 Equity Plan to reflect the Reverse Stock Split, in each case, in accordance with the terms thereof.

Unless the context otherwise requires, all share and per share amounts in this Quarterly Report have been adjusted to reflect the Reverse Stock Split.

Stockholders who otherwise would have been entitled to receive fractional shares of common stock became entitled to receive an amount in cash (without interest or deduction) equal to the fraction of one share to which such stockholder would otherwise be entitled multiplied by $ 12.93 , representing the split-adjusted average closing price of the Company’s common stock on the Nasdaq Capital Market for the five consecutive trading days immediately preceding the effective date of the Reverse Stock Split.

Proportional adjustments were made to the Company’s outstanding warrants, stock options, and other equity securities, as well as to the reserve of shares available for future issuance under the 2015 Equity Plan, to reflect the Reverse Stock Split, in each case, in accordance with the respective terms thereof.

Net Loss Per Common Share

2 unchanged sentences

In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities outstanding as of March 

The following potentially dilutive securities outstanding as of June 

30, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

As of June 30,

Common stock warrants

7 unchanged sentences

194,107  

Recently Adopted Accounting Pronouncements

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments —

4 unchanged sentences

This new guidance is effective for the Company as of January 1, 2023.

The Company is currently evaluating the impact of this ASU but does 

not  expect that adoption of this standard will have a material impact on the consolidated financial statements and related disclosures.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company is currently evaluating the impact of this ASU but does not expect that adoption of this standard will have a material impact on the consolidated financial statements and related disclosures.

Cash, cash equivalents and marketable securities

The following is a summary of the Company's cash and cash equivalents as of the date indicated:

March 31, 2022

The following is a summary of the Company's cash and cash equivalents as of the dates indicated:

June 30, 2022

December 31, 2021

9 unchanged sentences

$ 37,313,558  

The following is a summary of the Company's marketable securities as of March 31, 2022:

The following is a summary of the Company's marketable securities as of June 

Amortized cost

12 unchanged sentences

$ 22,574,681  

The Company did not have marketable securities as of December 31, 2021.

The Company did not have any marketable securities as of December 31, 2021.

The Company's marketable securities generally have contractual maturity dates between 3 and 12 months.

Most of the Company’s marketable securities are in an unrealized loss position at March 31, 2022.

Unrealized losses on marketable securities as of March 31, 2022 were not significant and were primarily due to changes in interest rates, and not due to increased credit risks associated with specific securities.

Accordingly, no other-than-temporary impairment was recorded for the three months ended March 31, 2022 and there were no realized gains or losses recorded during the three months ended March 31, 2022.

Most of the Company’s marketable securities are in an unrealized loss position at June 

Unrealized losses on marketable securities as of June 

30, 2022 were not significant and were primarily due to changes in interest rates, and not due to increased credit risks associated with specific securities.

Accordingly, no other-than-temporary impairment was recorded for the six months ended June 

30, 2022 and there were no realized gains or losses recorded during the six months ended June 

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

18 unchanged sentences

observable inputs

unobservable inputs

March 31, 2022:

inputs (Level 3)

June 30, 2022:

Cash equivalents:

3 unchanged sentences

994,427  

Total cash and cash equivalents

Total cash equivalents

$ 3,886,704  

9 unchanged sentences

$ 23,569,108  

The fair value of the Company’s Level 2 marketable securities are estimated primarily based on benchmark yields, reported trades, market-based quotes, issuer spreads, two -sided markets, benchmark securities, bids, offers, and reference data including market research publications, which represent a market approach.

The fair values of the Company’s Level 2 marketable securities are estimated primarily based on benchmark yields, reported trades, market-based quotes, issuer spreads, two -sided markets, benchmark securities, bids, offers, and reference data including market research publications, which represent a market approach.

In general, a market approach is utilized if there is readily available and relevant market activity for an individual security.

2 unchanged sentences

Accrued expenses and other current liabilities consisted of the following as of the dates indicated below:

June 30, 2022

December 31, 2021

Accrued payroll and payroll related expenses

7 unchanged sentences

786,579  

Other accrued expenses

77,744  

2 unchanged sentences

$ 1,980,189  

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Stockholders' Equity and Common Stock Warrants

3 unchanged sentences

Elder, its General Counsel & Corporate Secretary, an aggregate of 10,000 shares of Series C Preferred Stock at an offering price of $ 0.50 per share, representing 100% of the stated value per share of the Series C Preferred Stock, for aggregate gross proceeds of $5,000.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Series C Certificate provides that, among other things, (i) each share of Series C Preferred Stock is convertible into 0.02 shares of the Company's common stock, representing a conversion price of $ 25.00 per share, subject to certain conditions, (ii) each share of Series C Preferred Stock outstanding is counted on an as converted basis, together with the Company’s common stock as a single class, for purposes of determining the presence of a quorum at any meeting at which holders are asked to vote on matters related to the Reverse Stock Split (subject to any applicable exchange listing rules), (iii) each share of Series C Preferred Stock outstanding has the right to cast 1,600 votes per share of Series C Preferred Stock on the Reverse Stock Split on a “mirrored”

4 unchanged sentences

votes cast by the holders of the Company’s common stock are voted on the Amendment (excluding, for the avoidance of doubt, any shares of common stock that are not voted), and (iv) the holders of outstanding shares of Series C Preferred Stock are entitled to dividends, on an as converted basis, equal to dividends actually paid, if any, on shares of common stock and participate in any liquidation of the Company on an as converted basis.

On April 18, 2022, following approval of the Reverse Stock Split by the Company's stockholders, all 10,000 shares of Series C Preferred Stock were converted into an aggregate of 200 shares of the Company's common stock in accordance with the terms of the Series C Certificate.

5 unchanged sentences

The warrants do meet the definition of a derivative instrument under ASC 815, but are eligible for the scope exception as they are indexed to the Company’s own stock and would be classified in permanent equity if freestanding.

As of March 

As of June 

30, 2022, the Company had the following warrants outstanding to acquire shares of its common stock:

2 unchanged sentences

Expiration dates

Common stock warrants issued related to the January 2018 common stock offering

23,639  

- $ 749.76  

Common stock warrants issued related to the May 2019 common stock offering

Common stock warrants issued in 2018 related to the January 2018 Offering

23,639  

599.71 1 749.76 76

January 2023  

Common stock warrants issued related to the May 2019 Offering

27,648  

250.09 9 306.04 04

May and December 2024

Common stock warrants issued related to the November 2019 common stock offering

$ 17.51  

Common stock warrants issued related to the December 2019 common stock offering

Common stock warrants issued related to the November 2019 Offering

$ 17.51  

November 2024

Common stock warrants issued related to the December 2019 Offering

21.68 8 34.92 92

December 2024 and June 2025

Common stock warrants issued related to the May 2020 common stock offering

Common stock warrants issued related to the May 2020 Offering

11,424  

$ 65.65  

Common stock warrants issued related to the May 2020 investor warrant exercise

Common stock warrants issued related to May 2020 Investor Warrant Exercise

$ 29.7  

November 2025

Common stock warrants issued related to the February 2021 common stock offering

Common stock warrants issued related to the February 2021 Offering

33,649  

2 unchanged sentences

111,891  

During the three months ended March 

31, 2022, 18,077 warrants expired.

During the six months ended June 30, 2022, 18,077 warrants expired.

DIFFUSION PHARMACEUTICALS INC.

4 unchanged sentences

Accordingly, 81,531 shares were added to the reserve as of January 1, 2022, which shares may be issued in connection with the grant of stock-based awards, including stock options, restricted stock, restricted stock units, stock appreciation rights and other types of awards as deemed appropriate, in each case, in accordance with the terms of the 2015 Equity Plan.

As of March 31, 2022, there were 49,039 shares available for future issuance under the 2015 Equity Plan.

As of June 

30, 2022, there were 42,461 shares available for future issuance under the 2015 Equity Plan.

The Company recorded stock-based compensation expense in the following expense categories of its unaudited interim consolidated statements of operations for the periods indicated:

Three Months Ended

Six Months Ended

Research and development

1 unchanged sentence

$ 59,567  

$ 117,785  

$ 92,567  

General and administrative

1 unchanged sentence

237,713  

438,476  

385,993  

Total stock-based compensation expense

1 unchanged sentence

$ 297,280  

The following table summarizes the activity related to all stock option grants for the three months ended March 

Balance at January 1, 2022

$ 556,261  

$ 478,560  

The following table summarizes the activity related to all stock option grants for the six months ended June 

exercise price

contractual life

intrinsic value

Balance at January 1, 2021

72,454  

Cancelled/forfeited

$ 265.85  

Outstanding at March 31, 2022

56,300  

1 unchanged sentence

188.18  

Exercisable at March 31, 2022

Expired  

( 260 )  

Outstanding at June 30, 2022

122,882  

$ 149.96  

Vested and expected to vest at March 31, 2022

Exercisable at June 30, 2022

60,688  

$ 283.73  

Vested and expected to vest at June 30, 2022

122,882  

The weighted average grant date fair value of stock option awards granted was $ 10.90 during the three months ended March 31, 2022.

The total fair value of options vested during the three months ended March 31, 2022 and 2021 was $ 0.3 million and $ 0.2 million, respectively.

$ 149.96  

The weighted average grant date fair value of stock option awards granted during the six months ended June 

30, 2022 was $ 10.35 .

The total fair value of options vested during the three months ended June 

30, 2022 and 2021 was $ 0.3 million and $ 0.1 million, respectively.

The total fair value of options vested during the six months June 

30, 2022 and 2021 was $ 0.5 million and $ 0.3 million, respectively.

No options were exercised during any of the periods presented.

At March 

At June 

30, 2022, there was $ 1.1 million of unrecognized compensation expense that will be recognized over a weighted-average period of 1.93 years.

Options granted were valued using the Black-Scholes-Merton derivative instrument pricing model and assumptions used to value the options granted during the three months ended March 31, 2022 were as follows:

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Options granted were valued using the Black-Scholes option-pricing model and the weighted average assumptions used to value the options granted during the six months ended June 

30, 2022 and 2021 were as follows:

Expected term (in years)

1 unchanged sentence

Expected volatility

135.0 %  

Dividend yield

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Unit Awards

The Company issues restricted stock units ("RSU") to newly elected, non-executive members of the board of directors that vest in six, tri-monthly installments beginning 18 months after the respective grant date.

The Company issues restricted stock units ("RSU") to newly elected, non-executive members of the board of directors that vest in six, tri-monthly installments beginning 

18  months after the respective grant date.

The fair value of a RSU is equal to the fair market value price of the Company’s common stock on the date of grant.

1 unchanged sentence

The following table summarizes activity related to RSU awards during the period indicated:

Number of Units

Weighted average grant

date fair value

grant date fair

Balance at January 1, 2022

1 unchanged sentence

( 837 )  

Outstanding at March 31, 2022

Outstanding at June 30, 2022

$ 35.66  

( 1 ) The RSUs vested during the three months ended March 31, 2022 were settled on a hybrid basis.

The Company withheld 120 shares of common stock and, in lieu of delivering such shares, paid the RSU holder an amount in cash equal to the fair market value of such shares on vesting date, representing the holder's approximate tax liability associated with such vesting amount in cash equal to the fair market value of such shares on vesting date, representing the holder's approximate tax liability associated with such vesting.

The Company recognized approximately $ 16,000 and $ 5,000 in expense related to these awards during the three months ended March 

31, 2022 and March 31, 2021, respectively.

At March 

31, 2022, there was approximately $ 0.1 million of unrecognized compensation cost that will be recognized over a weighted average period of 1.90 years.

( 1 )  The RSUs vested during the 

six  months ended 

June 30, 2022 

were settled on a hybrid basis.

The Company withheld 

308  shares of common stock and, in lieu of delivering such shares, paid the RSU holder an amount in cash equal to the fair market value of such shares on vesting date, representing the holder's approximate tax liability associated with such vesting amount in cash equal to the fair market value of such shares on vesting date, representing the holder's approximate tax liability associated with such vesting.

The Company recognized approximately $ 16,000 and $ 5,000 in expense related to these awards during the three months ended June 

30, 2022 and 2021, respectively.

The Company recognized approximately $ 32,000 and $ 10,000 in expense related to these awards during the six months ended June 

30, 2022 and 2021, respectively.

At June 

30, 2022, there was approximately $ 96,000 of unrecognized compensation cost that will be recognized over a weighted average period of 1.69 years.

Commitments and Contingencies

1 unchanged sentence

The Company has short term agreements to utilize membership-based co-working space in both Charlottesville, Virginia and Philadelphia, Pennsylvania.

Rent expense related to the Company's short-term agreements was approximately $ 9,000 and $ 31,000 for the three months ended March 

Rent expense related to the Company's short-term agreements for the three months ended June 30, 2022 and 2021 was approximately $ 2,000 and $ 29,000 , respectively.

Rent expense related to the Company's short-term agreements was approximately $ 11,000 and $ 60,000 for the six months ended June 

30, 2022 and 2021, respectively.

7 unchanged sentences

The Company provides a safe harbor match with a maximum amount of 4 % of the participant’s compensation.

The Company made matching contributions under the 401 (k) Plan of approximately $ 27,000 and $ 16,000 for the three months ended March 31, 2022 and 2021, respectively.

The Company made matching contributions under the 401 (k) Plan of approximately $ 26,000 and $ 24,000 for the three months ended and matched contributions under the 401 (k) Plan of approximately $ 53,000 and $ 40,000 for the six months ended June 

30, 2022 and 2021, respectively.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Legal Proceedings

13 unchanged sentences

A case management conference was held on February 23, 2022 at which a trial date of May 24, 2023 was set, and the parties have agreed to stipulate to mediation in advance of the trial.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company believes the claims in this matter are without merit and intends to defend itself vigorously.

1 unchanged sentence

Depending on the outcome or resolution of this matter, it could have a material effect on the Company’s financial position, results of operations and cash flows.

Subsequent Events

Special Meeting, Series C Preferred Stock Conversion, Charter Amendment, and Reverse Stock Split

On April 18, 2022, at the Special Meeting, the Company's stockholders approved an amendment to the Company’s certificate of incorporation, as amended, to effect a reverse stock split of the Company’s outstanding shares of common stock by a ratio of any whole number between 1 -for- 2 and 1 -for- 50 , at any time prior to December 31, 2022, the implementation and timing thereof subject to the discretion of the Company’s board of directors.

Following the completion of the Special Meeting, in accordance with Section 8 (a) of the Series C Certificate, the Company delivered to the holders of the Series C Preferred Stock written notice of the Company’s intent to implement the Reverse Stock Split and the Mandatory Conversion (as defined in the Series C Certificate) of all 10,000 shares of Series C Preferred Stock outstanding into an aggregate of 200 shares of the Company’s common stock.

As described in further detail above under, Note 3.

Basis of Presentation and Summary of Significant Accounting Policies , on April 18, 2022, following the completion of the Special Meeting and the Series C Preferred Stock conversion,  the Company implemented the Reverse Stock Split at a ratio of 1 -for- 50 and beginning with the opening of trading on April 19, 2022, the Company’s common stock was available for trading on the Nasdaq Capital Market on a Reverse Stock Split adjusted basis.

Nasdaq Bid Price Requirement Compliance

On May 3, 2022, the Company received a written notice from the Nasdaq Staff confirming that the Company has regained compliance with Nasdaq Listing Rule 5550 (a)( 2 ) because the bid price for the Company’s common stock had closed above $1.00 per share for the previous ten ( 10 ) consecutive business days ending May 2, 2022.

As previously reported, on May 6, 2021, the Company received a written notice from the Nasdaq Staff indicating that the Company was not in compliance with Nasdaq Listing Rule 5550 (a)( 2 ) because the bid price for the Company’s common stock had closed below $1.00 per share for the previous 30 consecutive business day.

The May 3, 2022 letter confirmed this matter is now closed.

MANAGEMENT ’

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Enhancing Oxygen, Fueling Life

We are a biopharmaceutical company developing novel therapies that enhance the body’s ability to deliver oxygen to the areas where it is needed most.

Our lead product candidate, TSC, is being developed to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine’s most intractable and difficult-to-treat conditions.

Highlights from the First Quarter of 2022

Completed Dosing in the Altitude Trial  – On April 11, 2022, we announced the final participant in the Altitude Trial had completed dosing, and topline data is expected to be available in June 2022.

We also reported the clinical investigators will be presenting abstracts at the Undersea & Hyperbaric Medical Society’s Annual Scientific Meeting in Reno, Nevada scheduled for May 22 to 26, 2022 based on blinded, aggregated (placebo and treatment), interim physiological data from the first fifteen participants in the study.

Continued Progress the ILD-DLCO Trial – Enrollment of patients in the ILD-DLCO Trial, which commenced in December 2021, continued in the first quarter.

We currently expect to complete dosing in the second half of 2022, with topline results reported within two months of study completion.

Expanded Scientific Advisory Board – On February 24, 2022, we announced a significant expansion of our Scientific Advisory Board to include five prominent radiation and medical oncologists, who will help guide the design of our recently announced Hypoxic Solid Tumor Program.

We are a biopharmaceutical company developing novel therapies to enhance the body’s ability to deliver oxygen to the areas where it is needed most.

Our lead product candidate, TSC, is being investigated to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine’s most intractable and difficult-to-treat conditions, including hypoxic solid tumors.

Business Update

In the first quarter of 2022, we continued to advance the development of TSC for the treatment of hypoxia and as a platform to enhance standard-of-care treatment for conditions complicated by hypoxia with a particular near-term focus on hypoxic solid tumors.

As of the date of the Quarterly Report, TSC has been administered to more than 220 subjects across 11 clinical trials.

Data from these clinical trials support our understanding of the safety, tolerability, pharmacokinetics and pharmacodynamic effects of TSC.

Evidence of clinical effect with TSC was reported from a Phase 2 clinical study conducted in patients with PAD with claudication.

In addition, post hoc analyses of two prior studies involving patients with COVID-19 and unresected GBM tumors have provided preliminary evidence of TSC’s potential.

Although the results small Phase 2 studies were not statistically significant, we believe the results were compelling and subsequent analyses helped identify certain data gaps that have been focus of recent development, including the relationship between TSC  dose and oxygenation.

During 2021, to address these identified gaps in our TSC knowledge base, and guide the future of our TSC development program, we designed and executed on our Oxygenation Trials.

The Oxygenation Trials are a series of three short-term, clinical studies designed to provide clinical evidence of the relationship between TSC dose and the effects on oxygenation, each specifically tailored to evaluate the effects of TSC on a different component of the oxygen delivery pathway.

We completed the first of these studies, the TCOM Trial, in March 2021.

The first participants in the second Oxygenation Trial, the Altitude Trial, were dosed in November 2021 and on April 11, 2022, we announced the completion of dosing for the final participant in the study.

Topline data from the Altitude Trial are expected to be available in June 2022.

In December 2021 we announced the dosing of the first patients in the final Oxygenation Trial, the ILD-DLCO Trial.

We currently expect to complete dosing in this study in the second half of 2022 and to report top line results within two months of study completion.

The extensive preclinical and clinical data regarding TSC obtained to date, including data recently obtained from our Oxygenation Trials and our COVID-19 Trial completed in February 2021, provide significant information related to TSC’s effects on oxygenation, dose response characteristics, pharmacokinetics, and pharmacodynamics.

In November 2021, based on the available data and the significant unmet medical need, we announced our intention to focus the next steps in our efforts to develop TSC as an adjunct to standard of care therapy for hypoxic solid tumors.

We believe the aforementioned collection of information will allow us to be more efficient and increase our likelihood of success, compared to the Company’s past efforts to develop TSC as a cancer treatment, which were terminated in 2019 due to financial constraints.

During the first quarter of 2022 continued to work with our advisors including our new Scientific Advisory Board members announced in February 2022, on the design of the Hypoxic Solid Tumor Program including the preliminary design of our Planned Phase 2 Hypoxic Tumor Trial protocol and updating our oncology-related IND previously filed with the FDA.

We currently expect to commence our Planned Phase 2 Hypoxic Tumor Trial in the second half of 2022, subject to FDA feedback and the availability of clinical drug supply.

In parallel, we continue to undertake preclinical studies and other opportunities to obtain additional data designed to demonstrate TSC’s potential uses in a broad spectrum of non-cancer indications, as well as our work to further improve the TSC manufacturing process and support the continued 

and support the continued availability of high-quality drug product.

Finally, we believe we can leverage what we have learned from the development of TSC and the significant skills and experience of our team to opportunistically identify and acquire or in-license novel product candidates that complement TSC and our overall strategy. 

We also believe diversifying our asset portfolio through and acquisition or in-license would reduce our Company’s overall risk profile as an investment.

Altitude Trial

During the second quarter, we reported positive effects from our second Oxygenation Trial, the Altitude Trial.

This was a double-blind, randomized, placebo-controlled crossover dose exploration study designed to investigate TSC’s effects on oxygen enhancement using an experimental model to induce hypoxia in study participants.

The primary endpoints measured in this study were maximal oxygen consumption and partial pressure of arterial blood oxygen in normal healthy volunteers subjected to incremental levels of physical exertion while exposed to hypoxic and hypobaric conditions at a simulated altitude of 15,000 feet above sea level.

The secondary endpoints were to assess the effect of TSC on SpO2 and lactate.

A total of 30 healthy volunteers were enrolled in the trial with each subject serving as their own control by completing the experiment twice in a random, blinded order in the same day with a 3-hour rest and wash out period between experimental intervals.

During one ascent, study subjects received IV placebo administration and the other ascent the same subject received a single IV dose of TSC at one of three dose levels (0.5 mg/kg, 1.5 mg/kg, or 2.5 mg/kg).

In the trial, following exercise under hypoxic conditions, an increase in pH and a decrease in lactate were observed in the study subjects treated with the highest dose of TSC (2.5 mg/kg), both at the end of the exercise period and at 10 minutes post-exercise relative to placebo.

These data suggest the 2.5 mg/kg dose of TSC decreased blood acidity (i.e., lactic acid accumulation) and enhanced metabolic recovery at 10 minutes after completion of exercise under the stressful conditions of simulated high altitude and exercise.

These positive changes observed in blood markers of oxygen utilization results in the Altitude Trial suggest TSC may enhance oxygen availability at the cellular level and reinforce our belief in the therapeutic potential of TSC.

Phase 2 Trial in Patients with GBM Incorporating Innovative Imaging Methodology (Study 200-208)

Taken together, the combination of positive effects observed in each of the TCOM, Altitude, and COVID-19 Trials affirmed our belief in TSC's potential as an adjuvant treatment to standard of care therapy for hypoxic solid tumors.

As such, on July 26, 2022, we announced that we had aligned with the FDA on the design of an open-label, dose-escalation, Phase 2 safety and efficacy study of TSC administered with standard of care to newly diagnosed GBM patients.

This trial has been designated Study "200-208," and we currently expect to initiate the trial by the end of 2022 and to dose the first patient in the study in the first quarter of 2023, subject to the outcome of our ongoing business development processes described below.

GBM is an aggressive, deadly, and treatment-resistant type of malignant brain tumor, affecting approximately 13,000 newly diagnosed patients each year in the United States.

Few treatment options are available for patients with GBM, and none have extended life expectancy beyond a few months.

In fact, according to the National Brain Tumor Society, the five-year survival rate for GBM is only 6.8 percent with an average survival time of eight months.

Study 200-208 will include a dose-escalation phase, enrolling patients in a 3+3+3 design, to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of TSC at doses of 1.5 mg/kg, 2.0 mg/kg and 2.5 mg/kg administered in combination with concomitant standard of care radiotherapy plus temozolomide.

An additional 17 subjects will be treated at the highest tolerable dose identified in the dose escalation phase.

The primary objective of the study is to evaluate the safety and tolerability of TSC for the treatment of patients with newly diagnosed GBM when administered with standard of care.

Secondary objectives of the study are to evaluate progression-free survival at six months by magnetic resonance imaging, assessment using Response Assessment in Neuro-Oncology criteria, and to evaluate overall survival at 12 months.

Study 200-208 will vary in a variety of ways from the GBM trials we have conducted in the past, including three particularly notable differentiators:

The 1.5 mg/kg to 2.5 mg/kg doses of TSC to be administered in the trial will be 6-10-fold higher than the 0.25 mg/kg dose used in conjunction with radiotherapy in our prior GBM trials;

TSC will be administered five days each week approximately 30-60 minutes prior to radiotherapy, as compared to the three days per week regimen in our prior GBM trials;

The trial will incorporate an innovative use of PET scans to directly evaluate the oxygen enhancing effects of TSC on tumor hypoxia using radiotracers, with initial data readouts expected to be available within one year of the study’s initiation.

Business Development

Our current strategy for TSC is focused on advancing it through development with the ultimate objective of obtaining market authorizations and entering commercialization, whether alone, with a partner, or through a partner, to provide treatment options to patients suffering from life-threatening medical conditions like GBM.

We believe that our recent clinical development efforts, including the completion of our TCOM and Altitude Trials and our design of Study 200-208, are positive steps for our Company and our stockholders and create the potential to drive meaningful value if we are successful in advancing TSC to the subsequent development milestones we have identified.

However, drug development is an extremely expensive, risky, and time-consuming endeavor, particularly so for drugs being developed to treat oncological indications.

Accordingly, while we continue our internal efforts to advance the development of TSC, including Study 200-208, we are also taking active steps to identify potential partnership and other opportunities to obtain additional resources for our programs, including opportunities that are non-dilutive to our stockholders.

We also believe we can leverage what we have learned from the development of TSC and the significant skills and experience of our team to opportunistically identify and acquire or in-license novel product candidates that complement our overall strategy and/or are synergistic with our team's core competencies and strengths.

We have taken, and intend to continue to take, active steps to identify assets and/or companies for acquisition and/or partnership, as well as a range of other transactions, across a variety of therapeutic indications, that we believe may complement, supplement and/or de-risk our current development programs, as well as provide additional value for our stockholders.

At-The-Market Sales Agreement

In July 2022, we entered into the 2022 Sales Agreement with BTIG, pursuant to which we may sell, from time to time, shares of our common stock having an offering price of up to $20 million in sales deemed to be “at-the-market”

equity offerings as defined in Rule 415 of the Securities Act, subject to the offering limits in General Instruction I.B.6 of Form S-3.

As of the date of this Quarterly Report, we have not sold any shares of common stock pursuant to the Sales Agreement.

ILD-DLCO Trial Update

From our initial announcement of the Oxygenation Trials in early 2021, we have stated our belief that positive data from any one or more of the three Oxygenation Trials would provide evidence of a definitive effect of TSC on oxygenation, as well as guide the subsequent steps of our development strategy focused on demonstrating the clinical and therapeutic benefits of TSC in a relevant patient population affected by hypoxia.

As noted above, the positive effects observed in and data obtained from both the TCOM and Altitude Trials have been used to design and align with the FDA on a novel GBM trial design for Study 200-208 and to develop our Hypoxic Solid Tumor Program, more generally.

On August 9, 2022, in order to, among other things, dedicate more of our human and other resources to Study 200-208 and our business development activities, as well as ongoing challenges enrolling patients in clinical trials for respiratory indications during the ongoing COVID-19 pandemic, we made the decision to terminate recruitment and enrollment in the ILD-DLCO Trial and begin winding the trial down.

Financial Summary

As of March 31, 2022, we had cash, cash equivalents and marketable securities of $32.6 million, in the aggregate.

We have incurred operating losses since inception, have not generated any product sales revenue and have not achieved profitable operations.

We incurred a net loss of $4.5 million for the three months ended March 31, 2022.

Our accumulated deficit as of March 31, 2022 was $134.5 million, and we expect to continue to incur substantial losses in future periods.

We also anticipate that our operating expenses will increase substantially as we continue to advance the development of TSC, including any costs related to:

our ongoing and planned clinical trials, including our Planned Phase 2 Hypoxic Tumor Trial;

As of June 30, 2022, we had cash, cash equivalents, and marketable securities of $28.5 million, in the aggregate.

We have incurred operating losses since inception, have not generated any product revenue and have not achieved profitable operations.

We incurred net losses of $4.2 million and $8.7 million for the three and six months ended June 30, 2022, respectively.

Our accumulated deficit as of June 30, 2022 was $138.7 million, and we expect to continue to incur substantial losses in future periods.

We anticipate that our operating expenses will increase substantially as we continue to advance the development of TSC and any other assets we may in-license or acquire, including any costs related to:

our ongoing and planned clinical trials, including Study 200-208;

our in-license or acquisition of any additional product candidates, including any related transaction costs;

any additional studies we may undertake, including other preclinical and clinical studies to support the filing of any new drug application with the FDA;

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the hiring of additional clinical, manufacturing, scientific, sales, or other personnel;

investments in operational, financial, and management information systems.

We currently intend to use our existing cash, cash equivalents and marketable securities for working capital and to fund the research and development of TSC.

We expect that our cash, cash equivalents and marketable securities as of March 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements through 2023.

and investments in operational, financial, and management information systems.

We currently intend to use our existing cash, cash equivalents and marketable securities for working capital and to fund the research and development of TSC and any business development activities we may undertake.

We currently expect that our cash, cash equivalents and marketable securities as of June 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024, without giving effect to any business development activities we may undertake.

Financial Operations Overview

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Interest income is interest earned from our cash, cash equivalents and marketable securities.

Results of Operations for Three Months Ended March  

31, 2022 Compared to Three Months Ended March  

The following table sets forth our results of operations for the three months ended March 31, 2022, and 2021.

Three Months Ended March 31,

Results of Operations for Three Months Ended June  

30, 2022 Compared to Three Months Ended June  

The following table sets forth our results of operations for the three months ended June 30, 2022 and 2021.

Three Months Ended June 30, 2022

Operating expenses:

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Loss from operations

Other income:

Interest income

We recognized $2.4 million in research and development expenses during the three months ended March 31, 2022 compared to $2.9 million during the three months ended March 31, 2021.

A significant portion of this decrease was attributable to the timing of clinical trials and drug manufacturing, offset by an increase in salaries and wages and stock-based compensation related to increased headcount.

General and administrative expenses increased by $0.4 million during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, mainly due to an increase in salaries and wages and stock-based compensation related to increased headcount as well as an increase in outside professional fees.

The decrease in depreciation for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is related to the disposal of property and equipment during the year-ended December 31, 2021.

The decrease in interest income for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is primarily attributable to lower interest earned on cash and investments during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

We recognized $2.1 million in R&D expenses during the three months ended June 30, 2022 compared to $2.0 million during the three months ended June 30, 2021.

This increase was attributable to the timing of clinical trials and drug manufacturing, offset by an increase in salaries and wages and stock-based compensation related to increased headcount.

G&A expenses were $2.1 million during the three months ended June 30, 2022 compared to $1.8 million during the three months ended June 30, 2021.

The increase was mainly due to an increase in professional fees related to the April reverse stock-split as well as increased salary expense related to additional headcount.

The decrease in depreciation for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 is related to the disposal of property and equipment during the year-ended December 31, 2021.

Results of Operations for Six Months Ended June  

30, 2022 Compared to Six Months Ended June  

The following table sets forth our results of operations for the six months ended June 30, 2022 and 2021.

Six Months Ended

Operating expenses:

Research and development

General and administrative

Loss from operations

Interest income

We recognized $4.5 million in R&D expenses during the six months ended June 30, 2022 compared to $4.9 million during the six months ended June 30, 2021.

This decrease was attributable to the timing of clinical trials and drug manufacturing, offset by an increase in salaries and wages and stock-based compensation related to increased headcount.

G&A expenses were $4.3 million during the six months ended June 30, 2022 compared to $3.6 million during the six months ended June 30, 2021.

The increase in G&A expense was primarily due to an increase in professional fees related to the April reverse stock-split as well as increased salary expense related to additional headcount.

The decrease in depreciation for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is related to the disposal of property and equipment during the year-ended December 31, 2021.

The decrease in interest income for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is primarily attributable to lower interest earned on cash and investments.

Liquidity and Capital Resources

Working Capital

As of March 31, 2022, we had $9.9 million in cash and cash equivalents, $22.7 million in marketable securities, working capital of $30.6 million and an accumulated deficit of $134.5 million.

To date, we have funded our operations primarily through the sale and issuance of preferred stock, common stock and convertible promissory notes.

As of June 30, 2022, we had $6.0 million in cash and cash equivalents, working capital of $26.7 million and an accumulated deficit of $138.7 million.

We expect to continue to incur net losses for the foreseeable future.

We intend to use our existing cash, cash equivalents and marketable securities to fund our working capital and research and development of our product candidates.

The following table sets forth our cash flows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

We intend to use our existing cash and cash equivalents to fund our working capital and research and development of our product candidates.

The following table sets forth our cash flows for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

Net cash (used in) provided by:

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Net (decrease) increase in cash and cash equivalents

As of December 31, 2021, we did not own any marketable securities.

The decrease in cash and cash equivalents during the six months ended June 30, 2022 is primarily attributable to purchases of marketable securities during the period intended to preserve capital, fulfill the Company's liquidity needs, and maximize investment performance in accordance with the Company's investment policies and guidelines.

Operating Activities

Net cash used in operating activities of $4.7 million during the three months ended March 31, 2022 was primarily attributable to our net loss of $4.5 million and our net change in operating assets and liabilities of $0.5 million.

Net cash used in operating activities of $8.7 million during the six months ended June 30, 2022 was primarily attributable to our net loss of $8.7 million and our net change in operating assets and liabilities of $0.5 million.

This amount was offset by $0.6 million in stock-based compensation expense.

The net change in our operating assets and liabilities is primarily attributable to an increase in our prepaid expenses, deposits and other current assets.

Net cash used in operating activities of $5.2 million during the three months ended March 31, 2021 was primarily attributable to our net loss of $4.6 million and our net change in operating assets and liabilities of $0.7 million.

The net change in our operating assets and liabilities is primarily attributable to a decrease in our accrued expenses and other current liabilities due to the timing of our payments to our vendors and employees as well as an increase in our prepaid expenses, deposits and other current assets.

Net cash used in operating activities of $8.5 million during the six months ended June 30, 2021 was primarily attributable to our net loss of $8.4 million and our net change in operating assets and liabilities of $0.6 million.

This amount was offset by $0.5 million in stock-based compensation expense and depreciation expense.

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Investing Activities

During the three months ended March 31, 2022, we purchased $22.7 million in marketable securities with cash.

There were no investing activities during the three months ended March 31, 2021.

Net cash used in investing activities during the six months ended June 30, 2022 was attributable to the purchase of $31.6 million of marketable securities and maturities of $9.0 million of marketable securities.

Financing Activities

Net cash provided by financing activities was $5,000 during the three months ended March 31, 2022, attributable to proceeds received from the sale of our Series C Convertible Preferred Stock.

Net cash provided by financing activities was $33.3 million during the three months ended March 31, 2021, attributable to net proceeds of $31.1 million received from the sale of our common stock and $2.2 million in proceeds received from the exercise of common stock warrants.

Net cash provided by financing activities was $5,000 during the six months ended June 30, 2022, which was attributable to net proceeds received from the sale of our Series C Preferred Stock.

Net cash provided by financing activities was $33.3 million during the six months ended June 30, 2021, which was attributable to net proceeds of $31.1 million received from the sale of our common stock and $2.2 million in proceeds received from the exercise of common stock warrants.

Capital Requirements

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As of the date of this Quarterly Report, most of our cash resources for clinical development are dedicated to our ongoing and planned clinical trials.

While we believe we have adequate cash resources to continue operations through 2023, we anticipate that we will need additional funding in order to complete development of TSC which, if available, could be obtained through additional capital raising transactions, entry into strategic partnerships or collaborations, or alternative financing arrangements.

As of March 31, 2022, we did not have any credit facilities in place under which we could borrow funds or any other sources of committed capital.

While we currently believe we have adequate cash resources to continue operations into the first quarter of 2024 (without giving effect to any business development activities we may undertake), we anticipate that we will need additional funding in order to complete development of TSC and any other assets we may in-license or acquire which, if available, could be obtained through additional capital raising transactions, entry into strategic partnerships or collaborations, or alternative financing arrangements.

As of June 30, 2022, we did not have any credit facilities in place under which we could borrow funds or any other sources of committed capital.

In July 2022, we entered into an at-the-market sales agreement, or the 2022 Sales Agreement with BTIG, as agent, pursuant to which the Company may sell up to an aggregate of $20.0 million in shares of the Company’s common stock, from time to time through BTIG, by any method permitted that is deemed an “at the market offering”

as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended.

As of the date of this filing, we have not sold any shares under the 2022 Sales Agreement.

In the future, we may seek to raise additional funds through various sources.

However, we can give no assurances that we will be able to secure 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 or be on terms acceptable to us.

This risk may increase if economic and market conditions deteriorate.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC, that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.

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As a “smaller reporting company”

as defined by Item 10 of Regulation S-K we are not required to provide the information required by this Item 3.

as defined by Item 10 of Regulation S-K, promulgated by the SEC under the U.S.

Securities Act of 1933, as amended, we are not required to provide the information required by this Item 3.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements