CervoMed Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS     Diffusion Pharmaceuticals Inc. Consolidated Balance Sheets (unaudited)       September 30, 2022     December 31, 2021   Assets                 Current assets:                 Cash and cash equivalents   $ 6,587,018     $ 37,313,558   Marketable securities     19,270,940       —   Prepaid expenses, deposits and other current assets     464,884       510,015   Total current assets     26,322,842       37,823,573   Other assets     —       15,578   Total assets   $ 26,322,842     $ 37,839,151   Liabilities and Stockholders ’ Equity                 Current liabilities:                 Accounts payable     807,372       947,495   Accrued expenses and other current liabilities     1,463,280       1,980,189   Total current liabilities     2,270,652       2,927,684   Commitments and Contingencies (Note 9)                     Stockholders’ Equity:                 Common stock, $ 0.001 par value: 1,000,000,000 shares authorized: 2,039,236 and 2,038,185 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively     2,039       2,038   Additional paid-in capital     165,657,681       164,914,540   Accumulated other comprehensive loss     ( 86,955 )     —   Accumulated deficit     ( 141,520,575 )     ( 130,005,111 ) Total stockholders' equity     24,052,190       34,911,467   Total liabilities and stockholders' equity   $ 26,322,842     $ 37,839,151     See accompanying notes to unaudited interim consolidated financial statements.     1       Diffusion Pharmaceuticals Inc. Consolidated Statements of Operations and Comprehensive Loss (unaudited)       Three Months Ended September 30,     Nine Months Ended September 30,       2022     2021     2022     2021   Operating expenses:                                 Research and development   $ 798,247     $ 2,105,815     $ 5,332,698     $ 6,994,866   Intangible asset impairment charge     —       8,639,000       —       8,639,000   General and administrative     2,124,785       1,930,082       6,390,663       5,510,365   Depreciation     —       19,100       —       67,302   Loss from operations     2,923,032       12,693,997       11,723,361       21,211,533   Interest income     ( 124,710 )     ( 50,710 )     ( 207,897 )     ( 146,354 ) Loss from operations before income tax benefit     ( 2,798,322 )     ( 12,643,287 )     ( 11,515,464 )     ( 21,065,179 ) Income tax benefit     —       ( 443,893 )     —       ( 443,893 ) Net loss   $ ( 2,798,322 )   $ ( 12,199,394 )   $ ( 11,515,464 )   $ ( 20,621,286 ) Per share information:                                 Net loss per share of common stock, basic and diluted   $ ( 1.37 )   $ ( 5.99 )   $ ( 5.65 )   $ ( 10.76 ) Weighted average shares outstanding, basic and diluted     2,039,089       2,037,978       2,038,716       1,916,107   Comprehensive loss:                                 Net loss   $ ( 2,798,322 )   $ ( 12,199,394 )   $ ( 11,515,464 )   $ ( 20,621,286 ) Unrealized loss on marketable securities     ( 372 )     —       ( 86,955 )     —   Comprehensive loss:   $ ( 2,798,694 )   $ ( 12,199,394 )   $ ( 11,602,419 )   $ ( 20,621,286 )   See accompanying notes to unaudited interim consolidated financial statements.   2       Diffusion Pharmaceuticals Inc. Consolidated Statement of Changes in Stockholders' Equity Three and Nine Months Ended September 30, 2021 and 2022 (unaudited)       Series C Convertible Preferred Stock     Common Stock     Additional Paid-in     Accumulated Other Comprehensive     Accumulated     Total Stockholders'       Shares     Amount     Shares     Amount     Capital     Loss     Deficit      Equity    Balance at July 1, 2022     —     $ —       2,038,914     $ 2,038     $ 165,475,801     $ ( 86,583 )   $ ( 138,722,253 )   $ 26,669,003   Stock-based compensation expense and vesting of restricted stock units     —       —       322       1       181,880       —       —       181,881   Unrealized loss on marketable securities     —       —       —       —       —       ( 372 )     —       ( 372 ) Net loss     —       —       —       —       —       —       ( 2,798,322 )     ( 2,798,322 ) Balance at September 30, 2022     —     $ —       2,039,236     $ 2,039     $ 165,657,681     $ ( 86,955 )   $ ( 141,520,575 )   $ 24,052,190         Series C Convertible Preferred Stock     Common Stock     Additional Paid-in     Accumulated Other Comprehensive     Accumulated     Total Stockholders'       Shares     Amount     Shares     Amount     Capital     Loss     Deficit      Equity   Balance at January 1, 2022     —     $ —       2,038,185     $ 2,038     $ 164,914,540     $ —     $ ( 130,005,111 )   $ 34,911,467   Sale of Series C preferred stock to related parties     10,000       5,000       —       —       —       —       —       5,000   Conversion of Series C preferred stock to common stock     ( 10,000 )     ( 5,000 )     200               5,000       —       —       —   Stock-based compensation expense and vesting of restricted stock units     —       —       851       1       738,141       —       —       738,142   Unrealized loss on marketable securities     —       —       —       —       —       ( 86,955 )     —       ( 86,955 ) Net loss     —       —       —       —       —       —       ( 11,515,464 )     ( 11,515,464 ) Balance at September 30, 2022     —     $ —       2,039,236     $ 2,039     $ 165,657,681     $ ( 86,955 )   $ ( 141,520,575 )   $ 24,052,190     3         Stockholders' Equity       Common Stock     Additional Paid-in     Accumulated     Total Stockholders'       Shares     Amount     Capital     Deficit     Equity   Balance at July 1, 2021     2,037,978     $ 2,038     $ 164,495,840     $ ( 114,331,276 )   $ 50,166,602   Stock-based compensation expense     —       —       164,392       —       164,392   Net loss     —       —       —       ( 12,199,394 )     ( 12,199,394 ) Balance at September 30, 2021     2,037,978     $ 2,038     $ 164,660,232     $ ( 126,530,670 )   $ 38,131,600         Stockholders' Equity       Common Stock     Additional Paid-in     Accumulated     Total Stockholders'       Shares     Amount     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       673       31,093,629       —       31,094,302   Issuance of common stock upon exercise of warrants     84,600       85       2,201,365       —       2,201,450   Stock-based compensation expense     —       —       642,952       —       642,952   Net loss     —       —       —       ( 20,621,286 )     ( 20,621,286 ) Balance at September 30, 2021   $ 2,037,978     $ 2,038     $ 164,660,232     $ ( 126,530,670 )   $ 38,131,600     See accompanying notes to unaudited interim consolidated financial statements.   4       Diffusion Pharmaceuticals Inc. Consolidated Statements of Cash Flows (unaudited)       Nine Months Ended September 30,       2022     2021   Operating activities:                 Net loss   $ ( 11,515,464 )   $ ( 20,621,286 ) Adjustments to reconcile net loss to net cash used in operating activities:                 Depreciation     —       67,302   Stock-based compensation expense     738,142       642,952   Amortization of premium and discount on marketable securities     ( 122,157 )     —   Intangible asset impairment charge     —       8,639,000   Deferred income taxes     —       ( 443,893 ) Changes in operating assets and liabilities:                 Prepaid expenses, deposits and other assets     60,709       ( 119,080 ) Accounts payable, accrued expenses and other liabilities     ( 657,032 )     358,703   Net cash used in operating activities     ( 11,495,802 )     ( 11,476,302 )                   Cash flows provided by investing activities:                 Purchase of marketable securities     ( 37,985,738 )     —   Maturities of marketable securities     18,750,000       —   Net cash used in investing activities     ( 19,235,738 )     —                     Cash flows provided by financing activities:                 Proceeds from the sale of preferred stock     5,000       —   Proceeds from the exercise of common stock warrants     —       2,201,450   Proceeds from the sale of common stock     —       31,094,302   Net cash provided by financing activities     5,000       33,295,752                     Net (decrease) increase in cash and cash equivalents     ( 30,726,540 )     21,819,450   Cash and cash equivalents at beginning of period     37,313,558       18,515,595   Cash and cash equivalents at end of period   $ 6,587,018     $ 40,335,045                     Supplemental disclosure of non-cash investing and financing activities:                 Unrealized loss on marketable securities   $ 86,955     $ —     See accompanying notes to unaudited interim consolidated financial statements.   5     DIFFUSION PHARMACEUTICALS INC.     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS       1. Organization and Description of Business   Diffusion Pharmaceuticals Inc., a Delaware corporation, is a biopharmaceutical company developing novel therapies that may 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 like GBM. In October 2022, the Company announced that its Board has authorized a thorough review and evaluation of a range of potential strategic opportunities in the interest of enhancing stockholder value including transactional opportunities to better leverage the potential of TSC and the Company’s other assets.   On April 18, 2022, the Company effected a 1 -for- 50 reverse split of its common stock. Any references in the unaudited condensed consolidated financial statements and related notes to share or per share amounts give retroactive effect to this reverse stock split.       2. Liquidity   The Company has not generated any revenues from product sales and has funded operations primarily from the proceeds of public and private offerings of equity, convertible debt and convertible preferred stock. Substantial additional financing will be required by the Company to continue to fund its research and development activities. No assurance can be given that any such financing will be available when needed, or at all, or that the Company’s research and development efforts will be successful.   The Company regularly explores alternative means of financing its operations and seeks funding through various sources, including public and private securities offerings, collaborative arrangements with third parties and other strategic alliances and business transactions. The Company does not have any commitments to obtain additional funds and may be unable to obtain sufficient funding in the future on acceptable terms, if at all. If the Company cannot obtain the necessary funding, it will need to delay, scale back or eliminate some or all of its research and development programs or enter into collaborations with third parties to commercialize potential products or technologies that it might otherwise seek to develop or commercialize independently; consider other various strategic alternatives, including a merger or sale of the Company; or cease operations. 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. To date, the Company has not sold any shares pursuant to the 2022 Sales Agreement.   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 currently expects that its existing cash, cash equivalents and marketable securities as of September  30, 2022 will enable it to fund its operating expenses and capital expenditure requirements into the first quarter of 2024, subject to the outcome and timing of the Company's ongoing strategic review process.   6     DIFFUSION PHARMACEUTICALS INC.     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS       3. 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  September  30, 2022, and its results of operations for the three and nine months ended September  30, 2022 and 2021 and cash flows for the nine months ended September  30, 2022 and 2021. Operating results for the nine months ended  September  30, 2022 are not necessarily indicative of the results that may be expected for the year ending December  31, 2022. The unaudited interim consolidated financial statements presented herein do not contain the required disclosures under GAAP for annual financial statements. 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   The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.   On an ongoing basis, the Company evaluates its estimates using historical experience and other factors, including the current economic environment. Significant items subject to such estimates are assumptions used for purposes of determining stock-based compensation and accounting for research and development activities. Management believes its estimates to be reasonable under the circumstances. Actual results could differ significantly from those estimates.   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   Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit with multiple financial institutions, the balances of which frequently exceed federally insured limits.   Cash and Cash Equivalents   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.   Marketable Securities   The Company classifies its marketable securities as available-for-sale, which include commercial paper and U.S. government debt securities with original maturities of greater than three months from date of purchase. 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 value, with unrealized gains and losses reported in comprehensive loss and accumulated other comprehensive loss within stockholders’ equity. Gains or losses on marketable securities sold will be based on the specific identification method.   7     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 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 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   Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, convertible preferred stock, common stock warrants, stock options and unvested restricted stock that would result in the issuance of incremental shares of common stock. 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 September  30, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:       As of September 30,       2022     2021   Common stock warrants     111,891       129,989   Stock options     141,500       75,990   Unvested restricted stock awards     4,162       5,836         257,553       211,815     Recently Adopted Accounting Pronouncements   In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments — Credit Losses, Measurement of Credit Losses on Financial Instruments (Topic 326 ). The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in carrying value of the asset. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. 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.   8     DIFFUSION PHARMACEUTICALS INC.     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS       4. Cash, cash equivalents and marketable securities   The following is a summary of the Company's cash and cash equivalents as of the dates indicated:       September 30, 2022     December 31, 2021   Cash in banking institutions   $ 1,276,935     $ 30,308,075   Money market funds     4,317,557       7,005,483   Commercial paper     992,526       —   Total   $ 6,587,018       37,313,558     The following is a summary of the Company's marketable securities as of September  30, 2022:       Amortized cost     Unrealized gains     Unrealized losses     Fair Value   Commercial paper   $ 15,357,565     $ —     $ ( 56,985 )   $ 15,300,580   U.S. treasury bonds     4,000,330       —       ( 29,970 )     3,970,360   Total   $ 19,357,895     $ —     $ ( 86,955 )   $ 19,270,940     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. All of the Company’s marketable securities are in an unrealized loss position at September  30, 2022. Unrealized losses on marketable securities as of September  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 nine months ended September  30, 2022 and there were no realized gains or losses recorded during the nine months ended September  30, 2021.       5. Fair Value of Financial Instruments   Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments be made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including prepaid expense and accounts payable are shown at cost, which approximates fair value due to the short-term nature of these instruments. The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement , for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:     • Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.   • Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.   • Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).   9     DIFFUSION PHARMACEUTICALS INC.     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS     The following table presents the Company’s assets that are measured at fair value on a recurring basis (amounts in thousands):       Fair value measurement at reporting date       Quoted prices in active markets for identical assets (Level 1)     Significant other observable inputs (Level 2)     Significant unobservable inputs (Level 3)   September 30, 2022:                         Cash equivalents:                         Money market funds   $ 4,317,557     $ —     $ —   Commercial paper     —       992,526       —   Total cash equivalents   $ 4,317,557     $ 992,526     $ —                             Marketable securities                         Commercial paper     —       15,300,580       —   US treasury     —       3,970,360       —   Total marketable securities   $ —     $ 19,270,940     $ —                             Total financial assets   $ 4,317,557     $ 20,263,466     $ —     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. This valuation technique may change from period to period, based on the relevance and availability of market data.       6. Accrued Expenses and Other Current Liabilities   Accrued expenses and other current liabilities consisted of the following as of the dates indicated below:       September 30, 2022     December 31, 2021   Accrued payroll and payroll related expenses   $ 944,684     $ 879,971   Accrued professional fees     58,789       247,704   Accrued clinical studies expenses     357,851       786,579   Other accrued expenses     101,956       65,935   Total   $ 1,463,280     $ 1,980,189       10     DIFFUSION PHARMACEUTICALS INC.     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS       7. Stockholders' Equity and Common Stock Warrants   Common Stock Warrants   During its evaluation of equity classification for the Company's common stock warrants issued in previous periods, the Company considered the conditions as prescribed within ASC 815 - 40, Derivatives and Hedging, Contracts in an Entity ’ s own Equity . The conditions within ASC 815 - 40 are not subject to a probability assessment. The warrants do not fall under the liability criteria within ASC 480 Distinguishing Liabilities from Equity as they are not puttable and do not represent an instrument that has a redeemable underlying security. 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 September  30, 2022, the Company had the following warrants outstanding to acquire shares of its common stock:       Outstanding     Range of exercise price per share   Expiration dates Common stock warrants issued in 2018 related to the January 2018 Offering     23,639     $ 599.71 - $ 749.76   January 2023 Common stock warrants issued related to the May 2019 Offering     27,648     $ 250.09 - $ 306.04   May and December 2024 Common stock warrants issued related to the November 2019 Offering     4,269       $ 17.51     November 2024 Common stock warrants issued related to the December 2019 Offering     6,264     $ 21.68 - $ 34.92   December 2024 and June 2025 Common stock warrants issued related to the May 2020 Offering     11,424       $ 65.65     March 2025 Common stock warrants issued related to May 2020 Investor Warrant Exercise     4,998       $ 29.70     November 2025 Common stock warrants issued related to the February 2021 Offering     33,649       $ 64.08     February 2026       111,891                 During the nine months ended September 30, 2022, 18,077 warrants expired.       8. Stock-Based Compensation   2015 Equity Plan   The 2015 Equity Plan provides for increases to the number of shares reserved for issuance thereunder each January 1 equal to 4.0 % of the total shares of the Company’s common stock outstanding as of the immediately preceding December 31, unless a lesser amount is stipulated by the Compensation Committee of the Company's board of directors. 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 September  30, 2022, there were 23,664 shares available for future issuance under the 2015 Equity Plan.   11     DIFFUSION PHARMACEUTICALS INC.     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS     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 September 30,     Nine Months Ended September 30,       2022     2021     2022     2021   Research and development   $ 46,704     $ 18,811     $ 164,489     $ 111,378   General and administrative     135,177       145,581       573,653       531,574   Total stock-based compensation expense   $ 181,881     $ 164,392     $ 738,142     $ 642,952     The following table summarizes the activity related to all stock option grants for the nine months ended September  30, 2022:       Number of Options     Weighted average exercise price per share     Weighted average remaining contractual life (in years)     Aggregate intrinsic value   Balance at January 1, 2022     72,454     $ 265.91                   Granted     77,088       9.87             $ 6,279   Forfeited     ( 7,603 )     144.62                   Expired     ( 439 )     1,575.00                   Outstanding at September 30, 2022     141,500     $ 128.77       8.7       —   Exercisable at September 30, 2022     68,062     $ 251.37       8.0       —   Vested and expected to vest at September 30, 2022     141,500     $ 128.77       8.7       —     The weighted average grant date fair value of stock option awards granted during the nine months ended September  30, 2022 was $ 9.87 . The total fair value of options vested during the three months ended September  30, 2022 and 2021 was $ 0.4 million and $ 0.3 million, respectively. The total fair value of options vested during the nine months September  30, 2022 and 2021 was $ 0.7 million and $ 0.6 million, respectively. No options were exercised during any of the periods presented. At September  30, 2022, there was $ 1.0 million of unrecognized compensation expense that will be recognized over a weighted-average period of 1.67 years.   Options granted were valued using the Black-Scholes option-pricing model and the weighted average assumptions used to value the options granted during the nine months ended September  30, 2022 and 2021 were as follows:       2022     2021   Expected term (in years)     5.7       10   Risk-free interest rate     1.7 %     1.5 % Expected volatility     121.4 %     123.8 % Dividend yield     — %     — %   12     DIFFUSION PHARMACEUTICALS INC.     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS     Restricted Stock Awards       Number of Units     Weighted average grant date fair value   Balance at January 1, 2022     5,509     $ 34.78   Vested (1)     ( 1,347 )     30.93   Outstanding at September 30, 2022     4,162     $ 36.02     ( 1 ) The RSUs vested during the nine months ended September  30, 2022 were settled on a hybrid basis. The Company withheld 496 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 the vesting date, representing the holder's approximate tax liability associated with the vesting.   The Company recognized approximately $ 17,000 and $ 16,000 in expense related to these awards during the three months ended September  30, 2022 and 2021, respectively. The Company recognized approximately $ 49,000 and $ 27,000 in expense related to these awards during the nine months ended September  30, 2022 and 2021, respectively. At September  30, 2022, there was approximately $ 79,000 of unrecognized compensation cost that will be recognized over a weighted average period of 1.49 years.       9. Commitments and Contingencies   Office Space Lease Commitment   As of September 30, 2022, the Company had 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 for the three months ended September 30, 2022 and 2021 was approximately $ 5,000 and $ 48,000 , respectively. Rent expense related to the Company's short-term agreements was approximately $ 16,000 and $ 0.1 million for the nine months ended September  30, 2022 and 2021, respectively.   Research and Development Arrangements   In the course of normal business operations, the Company enters into agreements with universities and CROs to assist in the performance of research and development activities and contract manufacturers to assist with chemistry, manufacturing, and controls related expenses. Expenditures to CROs represent a significant cost in clinical development for the Company. The Company could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and long-term commitments of cash.   Defined Contribution Retirement Plan   The Company has established its 401 (k) Plan, which covers all employees who qualify under the terms of the plan. Eligible employees may elect to contribute to the 401 (k) Plan up to 90 % of their compensation, limited by the IRS-imposed maximum. 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 $ 26,000 and $ 11,000 for the three months ended and matched contributions under the 401 (k) Plan of approximately $ 79,000 and $ 60,000 for the nine months ended September  30, 2022 and 2021, respectively.   13     DIFFUSION PHARMACEUTICALS INC.     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS     Legal Proceedings   On August 7, 2014, a complaint was filed in the Superior Court of Los Angeles County, California by Paul Feller, the former Chief Executive Officer of the Company’s legal predecessor under the caption Paul Feller v. RestorGenex Corporation, Pro Sports & Entertainment, Inc., ProElite, Inc. and Stratus Media Group, GmbH (Case No. BC553996 ). The complaint asserts various causes of action, including, among other things, promissory fraud, negligent misrepresentation, breach of contract, breach of employment agreement, breach of the covenant of good faith and fair dealing, violations of the California Labor Code and common counts. The plaintiff is seeking, among other things, compensatory damages in an undetermined amount, punitive damages, accrued interest and an award of attorneys’ fees and costs. On December 30, 2014, the Company filed a petition to compel arbitration and a motion to stay the action. On April 1, 2015, the plaintiff filed a petition in opposition to the Company’s petition to compel arbitration and a motion to stay the action. After a related hearing on April 14, 2015, the court granted the Company’s petition to compel arbitration and a motion to stay the action. On January 8, 2016, the plaintiff filed an arbitration demand with the American Arbitration Association. On November 19, 2018 at an Order to Show Cause Re Dismissal Hearing, the court found sufficient grounds not to dismiss the case and an arbitration hearing was scheduled, originally for November 2020 but later postponed due to the COVID- 19 pandemic and related restrictions on gatherings in the State of California. In addition, following the November 2018 hearing, an automatic stay was placed on the arbitration in connection with the plaintiff filing for personal bankruptcy protection. On October 22, 2021, following a determination by the bankruptcy trustee not to pursue the claims and release them back to the plaintiff, the parties entered into a stipulation to abandon arbitration and return the matter to state court. A case management conference was held on February 23, 2022 at which an initial trial date of May 24, 2023 was set, and the parties have agreed to stipulate to mediation in advance of the trial. On October 20, 2022, the parties filed a joint stipulation to continue the trial and certain deadlines related to the mediation in order to allow plaintiff's counsel to continue to seek treatment for an ongoing medical issue. On November 1, 2022, based on the parties joint stipulation, the court entered an order continuing the trial date to October 25, 2023.   The Company believes the claims in this matter are without merit and intends to defend itself vigorously. However, at this stage, the Company is unable to predict the outcome and possible loss or range of loss, if any, associated with its resolution or any potential effect the matter may have on the Company’s financial position. 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.         ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   You should read the following discussion of our financial condition and results of operations together with the unaudited interim consolidated financial statements and the notes thereto included elsewhere in this report and other financial information included in this report. The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “ Part I — Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations — Special Note Regarding Forward-Looking Statements ” in this report and under “ Part I — Item 1A. Risk Factors ” in our Annual Report. These risks could cause our actual results to differ materially from any future performance suggested below.     Diffusion Pharmaceuticals: Enhancing Oxygen, Fueling Life   We are a biopharmaceutical company developing novel therapies that may 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 like GBM.   14     Business Update   Ongoing Evaluation of Strategic Opportunities   On October 25, 2022, we announced that our Board authorized a thorough review and evaluation of a range of potential strategic opportunities in the interest of enhancing stockholder value including transactional opportunities to better leverage the potential TSC and the Company’s other assets.   We are undertaking this expanded review as part of our previously disclosed, ongoing efforts to identify acquisition and partnership transactions that complement, supplement, or de-risk our current development programs and support the Board’s commitment to enhancing stockholder value. Our Board has determined to expand its evaluation to a broader range of options which could include a joint venture, licensing, sale or divestiture of some of the Company’s proprietary technologies or a sale of the Company, in addition to the previously announced opportunities under consideration.   Over the past two years, we have obtained encouraging data on the potential effects of TSC on oxygenation, including the results of our Altitude, TCOM, and COVID-19 Trials. We believe these data further support TSC's potential benefits for patients, particularly as an adjuvant treatment to standard of care therapy for hypoxic solid tumors, like glioblastoma multiforme. However, despite the accelerated, tumor oxygenation data readouts expected from our Study 200-208 trial design described below, we increasingly believe the likelihood of realizing TSC's value and benefits may be more likely achieved in an organization with larger infrastructure and greater resources given the recent downturn in the public financing environment and associated increase in our expected cost of capital as a standalone, single asset company which is one of the rationales underlying the strategic review authorized by our Board.   As of September 30, 2022 we had cash, cash equivalents and marketable securities of $12.68 per share of common stock outstanding. We believe our strong balance sheet and talented team of employees provide us the opportunity to leverage what we have learned from the development of TSC to evaluate a range of potential strategic opportunities to further enhance stockholder value. We believe supplementing, diversifying and expanding our asset portfolio through an acquisition, in-license, merger or other opportunistic transaction has the potential to increase our Company's attractiveness as an investment opportunity and reduce its overall risk profile.   There is no timeline for this review and there is no assurance the Board’s review will result in any transaction being consummated. Diffusion does not intend to comment on this process or make further disclosures until it determines an update is appropriate.   Phase 2 Trial in Patients with GBM Incorporating Innovative Imaging Methodology (Study 200-208)   While our process to evaluate strategic opportunities is ongoing, the entire Diffusion organization remains focused on executing our strategy to enhance value for our stockholders. We continue to prioritize and advance what we continue to believe to be value-creating initiatives within our standalone business, including continued progress towards the initiation of Study 200-208, further exploration of potential accelerated pathways for regulatory approval of TSC, and taking steps to preserve capital without sacrificing meaningful growth opportunities.   On July 26, 2022, we announced 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, which has been designated Study "200-208."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.   15     The tissue microenvironment of tumors such as GBM is well known to be hypoxic, and therefore less sensitive to radiation therapy, an important part of standard of care therapy. As such, Study 200-208 has been designed to evaluate TSC as an adjuvant treatment to standard of care therapy for hypoxic solid tumors. The study 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 overall survival of patients with newly diagnosed GBM when treated with TSC administered with standard of care. Secondary objectives of the study are to evaluate progression-free survival at six months and seven months by magnetic resonance imaging, assessment using Response Assessment in Neuro-Oncology criteria.   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; and     • 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 from the dose-escalation phase expected to be available within one year of the first patient being dosed.   We currently intend to use the PET scan data from the dose escalation phase of Study 200-208 to support a discussion with the FDA on a planned pathway to approval of TSC as a treatment for newly diagnosed patients with GBM when administered as an adjunct to radiotherapy as part of standard of care therapy. We intend to initiate these discussions with the FDA concurrently with our planned enrollment of an additional 17 subjects to be treated at the highest tolerable dose identified in the dose escalation phase.   Our internal clinical development efforts continue to be focused on engaging study sites and related activities that will enable us to dose the first patient in Study 200-208 in the first quarter of 2023. However, the actual timing of the study's initiation, the dosing of the first patient and subsequent downstream milestones are subject to the outcome and timing of our ongoing strategic review process described above and the pace of enrollment in the study.   ILD-DLCO Trial   In August 2022, satisfied that the positive results observed in our TCOM and Altitude Trials had accomplished our original goals for the Oxygenation Trials, we announced our decision to terminate recruitment and enrollment in our ILD-DLCO Trial and dedicate additional time and resources to standing up our Hypoxic Solid Tumor Program and the 200-208 Study, as well as our business development activities.   16     At the time the ILD-DLCO study was terminated, 18 of the planned 27 patients had been enrolled and treated in accordance with the planned 2:1 randomization with the 12 patients in the TSC cohort receiving a single, intravenous dose of 2.5mg/kg. Analyses of this partial dataset indicate TSC was safe and well tolerated among all 12 TSC-treated patients at the 2.5 mg/kg dose, which as noted above is the highest dose currently planned to be administered in the 200-208 Study. Although there was no significant change observed in the study’s primary endpoint, diffusion of carbon monoxide into the lungs measured at 30 min post-TSC vs baseline DLCO, the TSC-treated patient cohort did statistically separate from placebo at 60 min post-dose in the 6-minute walk test when compared to the pre-dose baseline, though the change was less than the clinically meaningful change typically found in the scientific literature (30m distance gained or 20% improvement vs baseline (pre-TSC) 6-minute walk test). Further, there was no significant change in the pre-TSC vs. post-TSC Borg Dyspnea Scale measurement or heart rate recovery at completion of the 6-minute walk test.   We believe the data from the ILD-DLCO trial supporting the safety and tolerability of TSC administered at 2.5 mg/kg iv in patients with ILD-DLCO reinforce our plans to target this dose in the 200-208 Study as a treatment for newly diagnosed patients with GBM when administered as an adjunct to radiotherapy as part of standard of care therapy.   17     Financial Summary   As of September 30, 2022, we had cash, cash equivalents, and marketable securities of $25.9 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 $2.8 million and $11.5 million for the three and nine months ended September 30, 2022, respectively. Our accumulated deficit as of September 30, 2022 was $141.5 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;   • other research, development, and manufacturing activities designed to develop and optimize formulation, manufacturing processes, dosage, dose forms, and other characteristics prior to regulatory approval;   • the maintenance, expansion, and protection our global intellectual property portfolio;   • the hiring of additional clinical, manufacturing, scientific, sales, or other personnel; and investments in operational, financial, and management information systems.   Subject to the outcome of our ongoing strategic review process, 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 future business development activities we may undertake. We currently expect that our cash, cash equivalents and marketable securities as of September 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024, subject to the outcome and timing of the aforementioned strategic review process.     Financial Operations Overview   Revenues   We have not yet generated any revenue from product sales. We do not expect to generate revenue from product sales for the foreseeable future.   Research and Development Expense   R&D expenses include, but are not limited to, third-party CRO arrangements and employee-related expenses, including salaries, benefits, stock-based compensation, and travel expense reimbursement. R&D activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical studies. As we advance our product candidates, we expect the amount of R&D costs will continue to increase for the foreseeable future. R&D costs are charged to expense as incurred.   Intangible Asset Impairment Charge    In the third quarter of 2021, the Company made a determination to no longer dedicate resources to the Company’s DFN-529 intangible asset and any future development efforts were abandoned. In connection with this decision, the Company concluded that DFN-529 was impaired in its entirety.   18     General and Administrative Expense   G&A expenses consist principally of salaries and related costs for executive and other personnel, including stock-based compensation, other employee benefit costs, expenses associated with investment bank and other financial advisory services, and travel expenses. Other G&A expenses include, facility-related costs, communication expenses and professional fees for legal, patent prosecution and maintenance, consulting, accounting, and other professional services.   Interest Income   Interest income is interest earned from our cash, cash equivalents and marketable securities.     Results of Operations for Three Months Ended September   30, 2022 Compared to Three Months Ended September   30, 2021   The following table sets forth our results of operations for the three months ended September 30, 2022 and 2021.       Three Months Ended September 30, 2022               2022     2021     Change   Operating expenses:                         Research and development   $ 798,247     $ 2,105,815     $ (1,307,568 ) Intangible asset impairment charge     —       8,639,000     $ (8,639,000 ) General and administrative     2,124,785       1,930,082       194,703   Depreciation     —       19,100       (19,100 ) Loss from operations     2,923,032       12,693,997       (9,770,965 ) Interest income     (124,710 )     (50,710 )     (74,000 ) Loss from operations before income tax benefit     2,798,322       12,643,287       (9,844,965 ) Income tax benefit     —       (443,893 )     443,893   Net loss   $ (2,798,322 )   $ (12,199,394 )   $ 9,401,072     19     We recognized $0.8 million in R&D expenses during the three months ended September 30, 2022 compared to $2.1 million during the three months ended September 30, 2021. This decrease was attributable to the timing of clinical trials and drug manufacturing, as well as a vendor-related refund.   The decrease in intangible asset impairment charge is related to the nonrecurring $8.6 million non-cash impairment charge related to the write down of our DFN-529 IPR&D asset during the three months ended September 30, 2021.   G&A expenses were $2.1 million during the three months ended September 30, 2022 compared to $1.9 million during the three months ended September 30, 2021. The increase was mainly due to increased professional fees related to ongoing business development activity.   The decrease in depreciation for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 is related to the disposal of property and equipment during the year-ended December 31, 2021.   The decrease in income tax benefit of $0.4 million during the three months ended September 31, 2022 compared to the three months ended September 31, 2021 is due to the tax effect of the reduction in the deferred tax liability associated with the basis differences from the DFN-529 IPR&D intangible asset that was written down in the third quarter of 2021.   Results of Operations for Nine Months Ended September   30, 2022 Compared to Nine Months Ended September   30, 2021   The following table sets forth our results of operations for the nine months ended September 30, 2022 and 2021.       Nine Months Ended September 30,               2022     2021     Change   Operating expenses:                         Research and development   $ 5,332,698     $ 6,994,866     $ (1,662,168 ) Intangible asset impairment charge     —       8,639,000       (8,639,000 ) General and administrative     6,390,663       5,510,365       880,298   Depreciation     —       67,302       (9,420,870 ) Loss from operations     11,723,361       21,211,533       (9,488,172 ) Other income:                         Interest income     (207,897 )     (146,354 )     (61,543 ) Loss from operations before income tax benefit     (11,515,464 )     (21,065,179 )     9,549,715   Income tax benefit     —       (443,893 )     443,893   Net loss   $ (11,515,464 )   $ (20,621,286 )   $ 9,105,822     We recognized $5.3 million in R&D expenses during the nine months ended September 30, 2022 compared to $7.0 million during the nine months ended September 30, 2021. This decrease was attributable to the timing of clinical trials and drug manufacturing as well as a vendor-related refund, offset by an increase in salaries and wages and stock-based compensation related to increased headcount.   The decrease in intangible asset impairment charge is related to the nonrecurring $8.6 million non-cash impairment charge related to the write down of our DFN-529 IPR&D asset during the nine months ended September 30, 2021.   20     G&A expenses were $6.4 million during the nine months ended September 30, 2022 compared to $5.5 million during the nine months ended September 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 nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 is related to the disposal of property and equipment during the year-ended December 31, 2021.   The increase in interest income for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 is primarily attributable to higher interest earned on cash and investments.   The decrease in income tax benefit of $0.4 million during the nine months ended September 30, 2022 compared to the nine months ended September 31, 2021 is due to the tax effect of the reduction in the deferred tax liability associated with the basis differences from the DFN-529 IPR&D intangible asset that was written down in the third quarter of 2021.   Liquidity and Capital Resources   Working Capital   To date, we have funded our operations primarily through the sale and issuance of preferred stock, common stock and convertible promissory notes. As of September 30, 2022, we had $6.6 million in cash and cash equivalents, working capital of $24.1 million and an accumulated deficit of $141.5 million. We expect to continue to incur net losses for the foreseeable future. We intend to use our existing cash and cash equivalents to fund our working capital and research and development of our product candidates, subject to the outcome and timing of our ongoing strategic review process.   Cash Flows   The following table sets forth our cash flows for the nine months ended September 30, 2022 and 2021:       Nine Months Ended September 30,   Net cash (used in) provided by:   2022     2021   Operating activities   $ (11,495,802 )   $ (11,476,302 ) Investing activities     (19,235,738 )     —   Financing activities     5,000       33,295,752   Net (decrease) increase in cash and cash equivalents   $ (30,726,540 )   $ 21,819,450     As of December 31, 2021, we did not own any marketable securities. The decrease in cash and cash equivalents during the nine months ended September 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 $11.5 million during the nine months ended September 30, 2022 was primarily attributable to our net loss of $11.5 million and our net change in operating assets and liabilities of $0.6 million. This amount was offset by $0.7 million in stock-based compensation expense as well as $0.1 million of amortization of premium and discount on marketable securities. 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 a decrease in our prepaid expenses, deposits and other current assets.   Net cash used in operating activities of $11.5 million during the nine months ended September 30, 2021 was primarily attributable to our net loss of $20.6 million and a change in our deferred income taxes of $0.4 million. These amounts were partially offset by a $8.6 million non cash impairment charge in connection with the write down of our DFN-529 IPR&D asset, $0.6 million in stock-based compensation expense, and a net change in our operating assets and liabilities of $0.2 million.   21     Investing Activities   Net cash used in investing activities during the nine months ended September 30, 2022 was attributable to the purchase of $38.0 million of marketable securities and maturities of $18.8 million of marketable securities.   Financing Activities   Net cash provided by financing activities was $5,000 during the nine months ended September 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 nine months ended September 30, 2021, which was attributable to net proceeds of $31.1 million received from the sale of our common stock in connection with the February 2021 Offering and $2.2 million in proceeds received from the exercise of previously issued common stock warrants.   Capital Requirements   We currently expect to continue to incur substantial expenses and generate significant operating losses as we continue to pursue our business strategy of developing TSC. Our operations have consumed substantial amounts of cash since inception and we currently expect to continue to spend substantial amounts of cash to advance the clinical development of TSC and any other product candidates we may in-license or acquire in the future. 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 currently believe we have adequate cash resources to continue operations into the first quarter of 2024 (subject to the outcome and timing of our ongoing strategic review process), 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.   In July 2022, 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 or be on terms acceptable to us. This risk may increase if economic and market conditions deteriorate. If we are unable to obtain additional financing when needed, we may need to terminate, significantly modify, or delay the development of TSC or our product candidates, or we may need to obtain funds through collaborations or otherwise on terms that may require us to relinquish rights to our technologies or product candidates that we might otherwise seek to develop or commercialize independently. If we are unable to raise adequate additional capital as and when required in the future, we could be forced to cease development activities and terminate our operations, and you could experience a complete loss of your investment.   To the extent that we raise additional capital in the future through the sale of our common stock or securities convertible or exchangeable for common stock such as common stock warrants, convertible preferred stock, or convertible debt instruments, the interests of our current stockholders may be diluted or otherwise impacted. In particular, specific rights granted to future holders of preferred stock or convertible debt securities may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.   22     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. As a result, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these arrangements.   Critical Accounting Policies   As of the date of this Quarterly Report, the Critical Accounting Policies included in our Annual Report have not changed.   23     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   As a “smaller reporting company” 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.