What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-13 compared with 2023-11-09 · 217 added, 462 removed, 312 unchanged (69% of the section changed)

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is a clinical stage pharmaceutical company seeking to develop innovative solutions for severe pain relief while reducing the fear of

and the potential for opioid misuse, abuse and overdose.

Our lead product candidate, PF614, is an extended release TAAP prodrug of oxycodone.

TAAP modification of prescription drugs removed the ability to crush, chew or manipulate and inject to achieve the effect of the medication

more quickly than by swallowing.

and the potential for addiction, opioid misuse, abuse and overdose.

Our lead product candidate, PF614, is an extended release TAAP prodrug

of oxycodone.

TAAP modification of prescription drugs removed the ability to crush, chew or manipulate and inject to achieve the effect

of the medication more quickly than by swallowing.

MPAR® adds a layer of overdose protection to each TAAP product.

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at planned levels and be forced to reduce or terminate our operations.

have generated limited revenues, have incurred significant operating losses since our inception and expect to continue to incur

operating losses for the foreseeable future.

have generated limited revenues, have incurred significant operating losses since our inception and expect to continue to incur operating

losses for the foreseeable future.

These factors raise substantial doubt about our ability to continue as a going concern.

Our future viability is dependent on our ability to raise additional capital to finance our operations.

Without raising additional

capital through a future offering, we believe that current cash on hand is insufficient to fund operations through the end of the

first quarter of 2024.

viability is dependent on our ability to raise additional capital to finance our operations.

expect to incur substantial expenses in the foreseeable future for the development and potential commercialization of our product candidates

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to commercialize our product candidates, if approved, we may require substantial additional funding in the future.

September 24, 2021, we entered into the SPA for an aggregate financing of $15.0 million with institutional investors.

A first closing

under the SPA occurred on September 24, 2021 and a second closing under the SPA occurred on November 5, 2021.

At the first closing, the

Company issued to the investors (i) senior secured convertible promissory notes in the aggregate principal amount of $5.3 million for

an aggregate purchase price of $5.0 million and (ii) warrants to purchase 1,504 shares of the Company’s common stock in the aggregate

at a current exercise price of $3.64 per share.

At the second closing, the Company issued to the institutional investors referenced above,

(i) senior secured convertible promissory notes in the aggregate principal amount of $10.6 million for an aggregate purchase price of

$10.0 million and (ii) warrants to purchase 3,008 shares of the Company’s common stock in the aggregate at a current exercise price

of $3.64 per share.

The 2021 Notes were satisfied on October 10, 2022.

June 30, 2022, we entered into an $8.0 million convertible financing agreement with institutional investors.

The agreement provided for

two closings, each for notes payable of $4.24 million (resulting in gross cash proceeds of $4.0 million).

Funds were received for the

first closing on July 1, 2022 and for the second closing on August 9, 2022.

The remaining amount of principal and interest on the 2022

Notes was repaid in the first quarter of 2023.

We were obligated under the 2022 Notes to pay additional cash as true-up payments for

interest or redemption amounts that we paid in shares of common stock that were valued below $24.07 or the lower conversion price of

$9.01 in effect between January 12, 2023 and May 12, 2023.

The true-up payments compensate the holder for the difference between the

value of a share and the conversion price in effect at the time of redemption, multiplied by the number of shares paid.

The true-up payments

totaling $0.6 million were paid on May 12, 2023.

connection with each of the first and second closings of the 2022 Notes we also issued warrants to purchase 38,894 shares of the Company’s

common stock.

The warrants have a current exercise price of $3.64 and are exercisable for five years following issuance of the 2022 Notes.

December Offering

December 7, 2022, we entered into an underwriting agreement with Lake Street Capital Management, LLC (the “ Underwriter ”),

pursuant to which we agreed to issue and sell (i) 190,000 shares of the Company’s common stock, par value $0.0001 per share, (ii)

pre-funded warrants to purchase 51,666 shares of common stock and (iii) warrants to purchase 483,333 shares of common stock to the Underwriter

in a public offering.

In addition, the Company granted the Underwriter the option, for 45 days from the closing of the offering, to purchase

up to 28,500 additional shares of common stock and common warrants to purchase up to an additional 72,500 shares of common stock.

Underwriter agreed to purchase the shares from the Company pursuant to at a price of $15.62 per share.

lieu of a purchase of common stock that would otherwise result in an investor’s beneficial ownership exceeding 4.99% (or, at the

election of the investor, 9.99%) of the outstanding common stock, a pre-funded warrant was offered, each of which enables the investor

to purchase one share of common stock at an exercise price of $0.0001.

Each pre-funded warrant was exercisable upon issuance and will

expire when exercised in full (all pre-funded warrants were exercised immediately upon issuance).

Each pre-funded warrant was sold with

a common warrant to purchase two shares of common stock.

The public purchase price of one share of common stock and accompanying common

warrant to purchase two shares of Common Stock is $16.80 and the combined purchase price of one pre-funded warrant and accompanying common

warrant to purchase two shares of common stock is $16.80.

common warrant is exercisable immediately at an exercise price of $16.80 per share and will expire five years following the date of issuance.

The offering closed on December 9, 2022 and we received aggregate gross proceeds of approximately $4.1 million from the Offering.

February Offering

February 2, 2023, we entered into a definitive Securities Purchase Agreement with certain institutional investors , pursuant to which

the Company agreed to issue and sell in a registered direct offering, priced “at-the-market” under the rules of The Nasdaq

Stock Market, an aggregate of 297,619 shares of common stock of the Company, par value $0.0001 per share, at an offering price of $10.08

per share, for gross proceeds of approximately $3.0 million before the deduction of placement agent fees and related costs of $0.3 million.

The closing of the Offering occurred on February 6, 2023.

a concurrent private placement, the Company issued to the institutional investors, for each share of common stock purchased in the offering,

a common warrant to purchase one share of common stock.

The common warrants are exercisable immediately upon issuance and terminate five

and one-half years following issuance.

The common warrants have an exercise price of $8.58 per share and are exercisable to purchase

an aggregate of up to 297,619 shares of Common Stock and expire on August 7, 2028.

A holder of a common warrant will not have the right

to exercise any portion of its warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or 9.99%

at the election of the holder prior to the date of issuance) of the number of shares of common stock outstanding immediately after giving

effect to such exercise;

provided, however, that upon 61 days’ prior notice to the Company, the holder may increase or decrease

the beneficial ownership limitation, provided that in no event shall the beneficial ownership limitation exceed 9.99%.

Wainwright & Co.

acted as the exclusive placement agent (the “ Placement Agent ”) for the offering.

We issued placement

agent warrants to purchase up to 20,832 shares of common stock to the Placement Agent (including its designees).

These warrants have

an exercise price equal to $12.60 per share and are exercisable for five years from the commencement of sales in the offering.

warrants and placement agent warrants and the shares of our common stock issuable upon the exercise of the common warrants and placement

agent warrants are not being registered under the Securities Act of 1933, as amended, are not being offered pursuant to the Registration

Statement, and are being offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act of 1933 and Rule 506(b).

the Securities Purchase Agreement, we agreed not to issue, enter into any agreement to issue or announce the issuance or proposed issuance

of any shares of common stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of 30 days

following the closing of the offering.

Our officers and directors agreed, subject to limited exceptions, for a period of 90 days after

the closing of the offering, to not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of, directly or indirectly,

or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section

16 of the Securities Exchange Act of 1934, as amended, with respect to, any shares of common stock or securities convertible, exchangeable

or exercisable into, shares of common stock beneficially owned, held or thereafter acquired by them.

May 12, 2023, the Company completed a public offering of an aggregate of 1,800,876 shares of its common stock at par value $0.0001 per

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warrant in lieu thereof) and accompanying warrants.

The Series A-1 warrants have an exercise price of $3.64 per share, are exercisable

immediately upon issuance and expire five years from the date of issuance, and the Series A-2 warrants have an exercise price of $3.64

per share, are exercisable immediately upon issuance and expire eighteen months from the date of issuance.

holder of a warrant issued in the offering will not have the right to exercise any portion of its warrants if the holder, together with

its affiliates, would beneficially own in excess of 4.99% (or 9.99% at the election of the holder prior to the date of issuance) of the

number of shares of Common Stock outstanding immediately after giving effect to such exercise ;

provided, however, that upon 61 days’

prior notice to the Company, the holder may increase or decrease the beneficial ownership limitation, provided that in no event shall

the beneficial ownership limitation exceed 9.99%.

Gross proceeds from this offering are approximately $7.0 million before the

deduction of placement agent fees and related costs of $0.7 million.

Gross proceeds from this offering were approximately $7.0 million before the deduction

of placement agent fees and related costs of $0.7 million.

The Series A-1 and Series A-2 warrants were repriced to $1.31 per share and

exercised in February 2024.

Wainwright & Co.

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The Company also registered warrants issued to the placement

agent to purchase 126,061 shares of common stock at a per share exercise price of $4.8588, which is 125% of the price of the shares in

the offering.

connection with the offering, the Company amended certain existing warrants to purchase up to an aggregate of 210,085 shares

of the Company’s common stock that were previously issued in September 2021 through December 2022 to purchasers in the offering

at exercise prices ranging from $16.80 to $187.20 per share, such that the amended warrants

have a reduced exercise price of $3.64 per share, at an additional offering price of $0.125 per amended warrant.

October Notes

agent to purchase 126,061 shares of common stock at a per share exercise price of $4.8588, which was 125% of the price of the shares

in the offering.

connection with the offering, the Company amended certain existing warrants to purchase up to an aggregate of 210,085 shares of the Company’s

common stock that were previously issued in September 2021 through December 2022 to purchasers in the offering at exercise prices ranging

from $16.80 to $187.20 per share, such that the amended warrants have a reduced exercise price of $3.64 per share, at an additional offering

price of $0.125 per amended warrant.

October 23, 2023, the Company entered into a Securities Purchase Agreement (the “SPA”) for an aggregate financing of $1.7

million with investors.

At the first closing under the SPA, which occurred on October 25, 2023, the Company issued to the investors (i) senior secured convertible promissory notes in the aggregate principal amount of $612,000 for an aggregate

purchase price of $566,667 and (ii) warrants to purchase 1,255,697 shares of the Company’s common stock in the aggregate.

At the second closing under the SPA, which will occur upon certain conditions being satisfied, the Company will

issue to the investors referenced above, (i) additional notes in the aggregate principal amount of $1,224,000 for an aggregate purchase

price of $1,133,333 and (i) additional warrants to purchase 2,511,394 shares of the common stock in the aggregate.

In connection with

the financing, the Company issued a $0.2 million senior secured convertible promissory note to a board member.

combined notes are subject to an original issue discount of 8%, have a term of six months from their respective date of issuance and

accrue interest at the rate of 6.0% per annum.

The notes are convertible into common stock, at a per share conversion price equal to

Beginning ninety days following issuance of the notes at the first closing and second closing, respectively, the Company is obligated to redeem monthly one third of the

original principal amount under the applicable note, plus accrued but unpaid interest, liquidated damages and any other amounts then

owing to the holder of such note.

The Company is required to pay the redemption amount in cash with a premium of 10% or, at the

election of the investor at any time, some or all of the principal amount and interest may be paid by conversion of shares under

the note into common stock based on a conversion price equal to $1.5675.

warrants have an exercise price of $1.5675 and are exercisable for five years following issuance on each of the first and second closing dates under the SPA.

million with investors, including $0.2 million with a board member.

The notes are subject to an original issue discount of 8%, have a

term of six months from their respective date of issuance and accrue interest at the rate of 6.0% per annum.

The Company is required

to pay scheduled redemption amounts in cash with a premium of 10% or, at the election of the investor at any time, some or all of the

principal amount and interest may be paid by conversion of shares under the note into common stock based on a conversion price equal

Conversions and repayments of principal and interest on the notes in January and February 2024 totaled $1.7 million.

Company also issued warrants to purchase an aggregate of 3,767,091 shares of common stock at an exercise price of $1.5675 that are exercisable

for five years following issuance.

Warrants for 1.3 million shares of common stock were exercised in January 2024.

Warrant Inducement

February 12, 2024, the Company entered into an Inducement Letter with certain holders of existing warrants to purchase up to an aggregate

of 3,601,752 shares of the Company’s common stock issued to the holders in connection with the 2023 May Offering.

Pursuant to the

Inducement Letter, the holders agreed to exercise for cash their existing warrants to purchase an aggregate of 3,601,752 shares of Common

Stock at a reduced exercise price of $1.31 per share in consideration of the Company’s agreement to issue new unregistered Series

A Warrants (the “Series A Warrants”) to purchase up to 3,601,752 shares of Common Stock and new unregistered Series B Warrants

(the “Series B Warrants”) to purchase up to 3,601,752 shares of Common Stock (collectively, the “New Warrant Shares”).

The Series A Warrants have an exercise price of $1.06 per share and have a term equal to eighteen months from the date of issuance.

Series B Warrants have an exercise price of $1.06 per share and will expire on May 12, 2028.

The gross proceeds to the Company from the

exercise of the warrants were approximately $4.7 million, prior to deducting placement agent fees and estimated offering expenses.

closing of the offering occurred on February 14, 2024.

connection with the execution of the Inducement Letter, the Company entered into a waiver related to the 2023 Notes’s SPA it had

entered into as of October 23, 2023.

The SPA contained restrictions on the Company’s ability to undertake certain transactions,

which included entering into the Inducement Letter.

The Waiver permitted the Company to enter into the Inducement Letter but required

repayment of the remaining $0.5 million of investor held notes issued under the SPA with a premium of $0.5 million following closing

of the transaction contemplated thereby.

Company utilized an exclusive placement agent for the 2024 Warrant Inducement and incurred approximately $0.5 million in legal fees and

other closing costs.

Additionally, the Company issued to the placement agent as compensation unregistered warrants to purchase up to

252,123 shares of Common Stock, equal to 7.0% of the aggregate number of shares of Common Stock (or warrants) placed in the transaction.

The placement agent warrants expire on May 12, 2028, and have an exercise price of $1.6375 per share of Common Stock (equal to 125% of

the reduced exercise price per Existing Warrant).

of Our Operating Results

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In September 2019, we were

awarded a second research and development grant related to the development of our TAAP/MPAR® abuse deterrent technology for Opioid

Use Disorder (“OUD”) (the “OUD Grant”).

awarded a second research and development grant related to the development of our TAAP/MPAR abuse deterrent technology for Opioid Use

Disorder (“OUD”) (the “OUD Grant”).

Grant funds are awarded annually through a Notice of Award which contains

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We expense research and development costs as incurred, which include:

incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;

incurred under agreements with CROs that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical

studies, clinical trials and CMOs that are primarily engaged to provide preclinical and clinical drug substance and product for our

research and development programs;

costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and

clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct

our clinical trials, preclinical studies and other scientific development services;

made in cash or equity securities under third-party licensing, acquisition and option agreements;

employee-related

expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development

related to compliance with regulatory requirements;

facilities-related costs, depreciation and other expenses, which include rent and utilities.

expenses incurred to conduct

the necessary preclinical studies and clinical trials required to obtain regulatory approval;

expenses incurred under

agreements with CROs that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical studies,

clinical trials and CMOs that are primarily engaged to provide preclinical and clinical drug substance and product for our research

and development programs;

other costs related to

acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials,

including manufacturing validation batches, as well as investigative sites and consultants that conduct our clinical trials, preclinical

studies and other scientific development services;

payments made in cash or

equity securities under third-party licensing, acquisition and option agreements;

employee-related expenses,

including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions;

costs related to compliance

with regulatory requirements;

allocated facilities-related

costs, depreciation and other expenses, which include rent and utilities.

recognize external development costs as incurred.

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to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the following:

scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development

an appropriate safety and efficacy profile with investigational new drug (“ IND ”) enabling studies;

patient enrollment in and the initiation and completion of clinical trials;

timing, receipt and terms of any marketing approvals from applicable regulatory authorities including the FDA and non-U.S.

extent of any required post-marketing approval commitments to applicable regulatory authorities;

clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that

we or our third-party manufacturers are able to make product successfully;

and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial

maintaining, defending and enforcing patent claims and other intellectual property rights;

and changing government regulation;

commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.

the scope, progress, outcome

and costs of our preclinical development activities, clinical trials and other research and development activities;

establishing an appropriate

safety and efficacy profile with investigational new drug (“ IND ”) enabling studies;

successful patient enrollment

in and the initiation and completion of clinical trials;

the timing, receipt and

terms of any marketing approvals from applicable regulatory authorities including the FDA and non-U.S.

the extent of any required

post-marketing approval commitments to applicable regulatory authorities;

establishing clinical and

commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party

manufacturers are able to make product successfully;

development and timely

delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;

obtaining, maintaining,

defending and enforcing patent claims and other intellectual property rights;

significant and changing

government regulation;

launching commercial sales

of our product candidates, if and when approved, whether alone or in collaboration with others;

maintaining a continued

acceptable safety profile of our product candidates following approval, if any, of our product candidates.

changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical

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Income (Expense)

on issuance of convertible notes

2022 Notes are accounted for under ASC 480 – Distinguishing Liabilities from Equity, due to share settlement features contained

within the notes.

As a result, the 2022 Notes are recorded as liabilities at fair value upon initial recognition and at the balance sheet

We use a discounted cash flow model and a Monte Carlo simulation to estimate the fair value of the notes, both of which rely on

unobservable Level 3 inputs.

The loss on issuance of convertible notes represents the difference between the gross proceeds received

and the calculated fair value on the issuance date of the notes.

costs for convertible notes

issuance costs for convertible notes represent the original issue discount (expensed immediately due to the initial recognition at fair

value of the 2022 Notes noted above), and legal and accounting fees incurred in connection with the issuance of the 2022 Notes.

in fair value of convertible notes

elected the fair value option to account for the 2021 Notes as we believe the fair value option provides users of the financial statements

with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes

in the fair value of the common stock underlying the conversion option.

The 2022 Notes are accounted for under ASC 480 – Distinguishing

Liabilities from Equity, due to share settlement features contained within the notes.

We use a discounted cash flow model and a Monte

Carlo simulation to estimate the fair value of the notes, both of which rely on unobservable Level 3 inputs.

Changes in the fair value

of the notes are recognized through earnings for each reporting period.

of liability classified warrants

warrants issued with the 2021 Notes and 2022 Notes are liability classified due to certain cash settlement features.

We use a Black-Scholes

option pricing model to estimate the fair value of the warrants at issuance.

This represents the immediate expense upon initial recognition

of the liability that is included in the statement of operations.

The liability is subsequently remeasured each reporting period as described

further below.

2022 Notes were accounted for under ASC 480 – Distinguishing Liabilities from Equity, due to share settlement features contained

within the notes.

We used a discounted cash flow model and a Monte Carlo simulation to estimate the fair value of the notes, both of

which rely on unobservable Level 3 inputs.

Changes in the fair value of the notes are recognized through earnings for each reporting

in fair value of liability classified warrants

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the warrants are recognized through earnings for each reporting period.

on debt conversions

conversions on the 2021 Notes occurred, we calculated the difference between the conversion price and the average of the high and low

stock price on the date of conversion.

The resulting difference is either a loss if the conversion price was below the average of the

high and low stock price on the date of conversion or a gain if the conversion price was above the average of the high and low stock

price on the date of conversion.

expense consists of interest accrued on our financed directors’ and officers’ insurance as well as imputed interest on the

commitment fees related to the share subscription facility.

Interest expense related to the 2021 Notes and 2022 Notes is included in

the estimate of fair value of the convertible notes.

expense consists of interest accrued on our financed directors’ and officers’ insurance, and accumulated interest from the

2023 Notes based on the stated interest rate.

In addition, the 2023 Notes balances reflect amortization of the debt discount from the

original issuance and a discount associated with the warrant issuances and amortization of the associated debt issuance costs that are

all recorded as interest expense.

Interest expense related to the 2021 Notes and 2022 Notes was included in the estimate of fair value

of the convertible notes.

for Income Taxes

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available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

As of September 30,

As of March 31, 2024

and December 31, 2023, we continue to maintain a full valuation allowance against all of our deferred tax assets based on our evaluation

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requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to Internal Revenue Code Section 174.

not impacted our effective tax rate or our cash tax payable in 2023;

has not impacted our effective tax rate or our cash tax payable in 2024;

however, if the requirement to capitalize Section 174 expenditures

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of Operations

of the three months ended September 30, 2023 and 2022:

Three Months Ended September 30,

of the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Federal grants

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Other income (expense):

Issuance costs for convertible notes

Loss on issuance of convertible notes

Change in fair value of convertible notes

Issuance of liability classified warrants

Change in fair value of liability classified warrants

Loss on debt conversions

Interest expense

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grant funding

from federal grants for the three months ended September 30, 2023 and 2022 totaled $0.4 million and $0.3 million, respectively.

from federal grants for the three months ended March 31, 2024 and 2023 totaled $0.3 million and $0.8 million, respectively.

The difference

is due to the timing of research activities eligible for funding.

We expect funding from federal grants to fluctuate in the future due

to the timing of preclinical and clinical development activities under the grants.

and development expenses

and development expenses for the three months ended September 30, 2023 and 2022 were $1.9 million and $4.8 million, respectively, representing

a decrease of $2.9 million.

The decrease was primarily the result of changes in timing of external research and development costs related

to clinical and pre-clinical programs for PF614 and PF614-MPAR.

We do not currently track expenses on a program-by-program basis.

expect future research and development expenses to fluctuate based on timing of projects and clinical trials.

and administrative expenses

and administrative expenses for the three months ended September 30, 2023 and 2022 were $1.2 million and $1.7 million, respectively,

representing a decrease of $0.5 million.

The decrease was primarily a result of reduced stock-based compensation, reduced costs associated

with liability insurance, legal, and consulting fees, and no current employee bonus expenses in the 2023 period.

We expect future general

and administrative expenses to approximate current levels.

income and expense

in fair value of the 2022 Notes (outstanding in 2023) and the 2021 Notes (outstanding in 2022) are due to the significant fluctuations

in the Company’s share price as well as the balance outstanding for the respective Notes for the relevant period.

The change in

fair value of liability classified warrants for the three months ended September 30, 2023 are primarily the result of the warrants outstanding

for both the 2021 Notes and 2022 Notes compared to only changes related to the warrants associated with the 2021 Notes in the prior period,

as well as fluctuations associated with the Company’s decreasing stock price.

Loss on debt conversions is driven by the difference

between the conversion price of the 2021 Notes and the average of the high and low stock price on the date of conversion.

corresponding activity in the 2023 period associated with the 2021 Notes due to the settlement of the 2021 Notes during the previous

of the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30

Federal grants

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

(18,021,309 )

Other income (expense):

Issuance costs for convertible notes

Loss on issuance of convertible notes

Change in fair value of convertible notes

Issuance of liability classified warrants

Change in fair value of liability classified warrants

Loss on debt conversions

Interest expense

Other income and expense, net

Total other income (expense), net

(18,729,609 )

Net loss attributable to noncontrolling interests

Deemed dividend related to warrants down round provision

Net loss attributable to common stockholders

$ (7,121,716 )

$ (19,563,588 )

grant funding

from federal grants for the nine months ended September 30, 2023 and 2022 totaled $1.7 million

and $1.1 million, respectively.

The difference is due to the timing of research activities eligible for funding.

We expect funding

from federal grants to fluctuate in the future due to the timing of preclinical and clinical development activities under the grants.

is due to the timing of research activities eligible for funding, as current funding under the MPAR grant was completed in December 2023.

We expect funding from federal grants to fluctuate in the future due to the timing of preclinical and clinical development activities

under the grants.

and development expenses

and development expenses for the nine months ended September 30, 2023 and 2022 were $5.4 million and $13.4 million, respectively, representing

and development expenses for the three months ended March 31, 2024 and 2023 were $0.8 million and $1.8 million, respectively, representing

a decrease of $1.0 million.

The decrease was primarily the result of changes in timing of external research and development costs related

to clinical and pre-clinical programs for PF614 and PF614-MPAR.

The decrease was primarily the result of reduced external research and development costs related to clinical

and pre-clinical programs for PF614 and PF614-MPAR.

We do not currently track expenses on a program-by-program basis.

expect future research and development expenses to fluctuate based on timing of projects and clinical trials.

We expect future

research and development expenses to approximate current levels but may need to be adjusted based on our ability to raise capital sufficient

to fund these expenses.

and administrative expenses

and administrative expenses for the nine months ended September 30, 2023 and 2022 were $3.9 million and $5.7 million, respectively, representing

and administrative expenses for the three months ended March 31, 2024 and 2023 were $1.4 million and $1.6 million, respectively, representing

a decrease of $0.2 million.

The decrease was primarily a result of reduced stock-based compensation, reduced liability insurance legal,

and consulting fees and no current employee bonus expenses in the 2023 period.

We expect future general and administrative expenses to

approximate current levels.

The decrease was primarily a result of reduced stock-based compensation and consulting fees in the 2024 period.

We expect future general and administrative expenses to approximate current levels.

income and expense

in fair value of the 2022 Notes (outstanding in 2023) and the 2021 Notes (outstanding in 2022) are due to the significant fluctuations

in the Company’s share price as well as the balance outstanding for the respective Notes for the relevant period.

The change in

fair value of liability classified warrants for the nine months ended September 30, 2023 are primarily the result of the warrants outstanding

for both the 2021 Notes and 2022 Notes compared to only changes related to the warrants associated with the 2021 Notes in the prior period,

as well as fluctuations associated with the Company’s decreasing stock price.

Loss on debt conversions is driven by the difference

between the conversion price of the 2021 Notes and the average of the high and low stock price on the date of conversion.

corresponding activity in the 2023 period associated with the 2022 Notes due to the accounting under ASC 480.

income and expense for the three months ended March 31, 2024, consisted primarily of interest expenses associated with the amortization

of the original issue discount and the debt issuance costs associated with the 2023 Notes and represented a net change in other income

and expense of $1.6 million compared to the three months ended March 31, 2023.

The comparative period for 2023 consisted primarily of

changes in fair value associated with the 2022 Notes and the Company’s liability-classified warrants.

and capital resources

of liquidity and capital

of September 30, 2023, we had $1.5 million of cash and cash equivalents.

On October 23, 2023, we entered into a SPA for an aggregate

financing of $1.7 million with investors to issue at the first closing, (i) senior secured convertible promissory notes in the

aggregate principal amount of $612,000 for an aggregate purchase price of $566,667 and (ii) warrants to purchase 1,255,697 shares of

the Company’s common stock, par value $0.0001 per share in the aggregate.

Upon certain conditions being satisfied, at the

second closing, we will issue to the investors referenced above, (i) additional notes in the aggregate principal amount of

$1,224,000 for an aggregate purchase price of $1,133,333 and (i) additional warrants to purchase 2,511,394 shares of the common

stock in the aggregate.

Since inception, we have generated limited revenues and have incurred significant operating losses and

negative cash flows from our operations, and we anticipate that we will continue to incur losses for the foreseeable future.

not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates

for several years, if at all.

of March 31, 2024, we had $3.4 million of cash and cash equivalents.

Since inception, we have generated limited revenues and have incurred

significant operating losses and negative cash flows from our operations, and we anticipate that we will continue to incur losses for

the foreseeable future.

We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales

of any product candidates for several years, if at all.

have funded our operations to date primarily with proceeds from the sale of common equity, funding under federal research grants and

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We anticipate that we will fund our operations through public or private equity

or debt financings or other sources, which may include potential collaboration agreements with third parties.

We cannot make assurances

that anticipated additional financing will be available to us on favorable terms, if at all, or that we will enter into any collaborations.

funding under two approved federal research grants totaled $2.7 million at September 30, 2023 and is expected to be utilized by August

or debt financings or other sources, such as potential collaboration agreements.

We cannot make assurances that anticipated additional

financing will be available to us on favorable terms, if at all.

funding under two approved federal research grants totaled $1.9 million at March 31, 2024 and is expected to be utilized by August 31,

Pursuant to the terms and conditions of the two grants, we are required to submit progress reports to NIDA on an annual basis and

a final research performance progress report within 120 days of the performance period end date.

Additionally, the grants limit the use

of funds to activities that are clearly severable and independent from activities that involve human subjects until the receipt by NIDA

of (i) Institutional Review Board (“ IRB ”) approval, (ii) federal-wide assurance from the Office for Human Research

Protections, (iii) a Data and Safety Monitoring Plan, (iv) certification that all key personnel have completed education on the protection

of human subjects and (v) a Clinical Trials Dissemination Plan.

We must also comply with the data sharing policies of NIDA and the NIH

Public Access Policy, that require submission of final peer-reviewed journal manuscripts that arise from the use of grants to PubMed

Central immediately upon acceptance for publication.

grant must be repaid.

To receive the remaining funding for each respective study covered by a grant, we must meet certain milestones.

We have met the required milestones under the MPAR Grant.

The remaining milestone under the OUD Grant is identification of a R-methadone-TAAP

clinical candidate that meet the specified criteria.

arising from the research projects funded with the grants are required to be reported to NIDA, per the Bayh-Dole Act (the Patent and

Trademark Law Amendments Act), that permits us to retain ownership of the inventions, while also giving NIDA the license to practice

the subject invention.

In turn, we are expected to file for patent protection and to ensure commercialization upon licensing for the

benefit of public health.

have not used the GEM facility to date.

Pursuant to the GEM Agreement, we are entitled to draw down up to $60.0 million of gross proceeds

(“ Aggregate Limit ”) from GEM Global in exchange for shares of our common stock, subject to meeting the terms and conditions

of the GEM Agreement.

This share subscription facility is available for a period of 36 months from the closing date of the Merger (expires

on July 1, 2024).

A draw down is subject to limitations on the amount that is drawn under the facility and must comply with certain conditions

precedent including the listing of our shares on a principal market (which includes Nasdaq), having the necessary number of shares that

are issuable pursuant to the draw down registered under an effective registration statement, and other notice and timing requirements.

Upon our valid exercise of a draw down, pursuant to delivery of a notice and in accordance with other conditions, GEM Global is required

to pay, in cash, a per-share amount equal to 90% of the average closing bid price of the shares of our common stock recorded by Nasdaq

during the 30 consecutive trading days commencing on the first trading day that is designated on the draw down notice.

In no event may

our draw down requests exceed 400% (“ Draw Down Limit ”) of the average daily trading volume for the 30 trading days

immediately preceding the date we deliver the draw down notice.

We may not be able to utilize the facility before it expires.

to utilize this share subscription facility is restricted while financing commitments to which we are subject remain outstanding.

the public listing of the Company’s shares following the closing of the Merger, GEM Global became entitled to a commitment fee

in the form of cash or freely tradeable shares of our common stock in an amount equal to 2% of the Aggregate Limit or $1.2 million to

be paid in two tranches.

The commitment fee for the first tranche, which is equal to 67% of the commitment fee, or $800,000, was discharged

with 3,838 shares of common stock transferred from related parties in July 2022.

The commitment fee for the second tranche, which was

equal to the remaining 33% of the commitment fee, or $400,000, was paid in January 2023 through the issuance of 44,444 shares of registered

common stock.

Additionally,

we issued a warrant with a 36-month term at the closing of the Merger granting GEM Global the right to purchase 4,608 shares of our common

stock (an amount equal to 4% of the total number of our common stock outstanding as of the closing date of the Merger (subject to adjustments

described below), calculated on a fully diluted basis), at a strike price per share equal to $2,402.40, which was the closing bid price

for such common stock on the first day of trading on Nasdaq.

The exercise price was reduced to $3.64 per share as of June 30, 2023 because

of a pricing adjustment per the GEM Agreement which is reflected on the consolidated statement of operations as a deemed dividend.

warrant can be exercised on a cashless basis in part or in whole at any time during the term.

Any failure by us to timely transfer the

shares under the warrant pursuant to GEM Global’s exercise will entitle GEM Global to compensation in addition to other remedies.

The number of shares underlying the warrant as well as the strike price is subject to adjustments for recapitalizations, reorganizations,

change of control, stock split, stock dividend, reverse stock splits, and issuances of additional common shares at a price per share

less than the exercise price.

to the terms of the GEM Agreement, we are required to indemnify GEM Global for any losses it incurs as a result of a breach by us or

of our representations and warranties and covenants under the GEM Agreement or for any misstatement or omission of a material fact in

a registration statement registering those shares pursuant to the GEM Agreement.

Also, GEM Global is entitled to be reimbursed for legal

or other costs or expenses reasonably incurred in investigating, preparing, or defending against any such loss.

have generated limited revenues and have incurred significant operating losses since our inception.

We expect to continue to incur significant

expenses and operating losses for the foreseeable future.

Without capital raised through financing transactions, existing cash resources

are sufficient to allow us to fund current planned operations into the third quarter of 2024, which raises substantial doubt about the

Company’s ability to continue as a going concern.

following table summarizes our cash flows for each of the periods presented:

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities

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$ (3,606,919 )

Net cash provided by investing activities

Net cash provided by financing activities

Net decrease in cash and cash equivalents

$ (1,683,321 )

Net increase (decrease) in cash and cash equivalents

$ (1,731,937 )

the nine months ended September 30, 2023 and 2022, we used cash in operating activities of $9.0 million and $14.6 million, respectively.

the three months ended March 31, 2024 and 2023, we used cash in operating activities of $3.4 million and $3.6 million, respectively.

The decrease primarily resulted from the timing of vendor invoicing and payments.

the nine months ended September 30, 2023, there were no investing activities.

the nine months ended September 30, 2023, net cash provided by financing activities was $7.3 million, primarily consisting of proceeds

from 2023 February and 2023 May offerings of $9.1 million, net of transaction costs of $0.4 million and the repayment of financed insurance

premiums of $0.3 million and cash payment of 2022 Notes of $1.0 million.

During the nine months ended September 30, 2022, net cash provided

by financing activities was $6.8 million, primarily consisting of proceeds from the issuance of the 2022 Notes, net repayment of financed

insurance premiums and cash payment of convertible notes.

the three months ended March 31, 2024, net cash provided by financing activities was $5.7 million, primarily consisting of net proceeds

from warrant exercises and the warrant inducement, less repayment of convertible notes and financed insurance premiums.

During the three

months ended March 31, 2023, net cash provided by financing activities was $1.9 million, primarily consisting of net proceeds from the

2023 February Offering, less repayment of convertible notes and financed insurance premiums.

primary use of cash is to fund operating expenses, primarily related to our research and development activities.

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and amount of our operating expenditures will depend largely on our ability to:

preclinical development of our early-stage programs and clinical trials of our product candidates;

or have manufactured on our behalf, preclinical and clinical drug material and develop processes for late state and commercial manufacturing;

regulatory approvals for any product candidates that successfully complete clinical trials;

a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain

marketing approval and intend to commercialize on our own;

additional clinical, quality control and scientific personnel;

our operational, financial and management systems and increase personnel, including personnel to support our clinical development,

manufacturing and commercialization efforts and our operations as a public company;

maintain, expand and protect our intellectual property portfolio;

the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights,

including enforcing and defending intellectual property related claims;

the costs of operating as a public company.

have generated limited revenues and have incurred significant operating losses since our inception.

As of September 30, 2023, had an

accumulated deficit of $118.0 million.

We expect to continue to incur significant expenses and operating losses for the foreseeable future.

the certainty of available proceeds through the GEM facility, or capital raised through other financing transactions, existing cash resources

are not sufficient to allow us to fund current planned operations through the next 12 months following the filing of this Quarterly Report

on Form 10-Q, which raises substantial doubt about the Company’s ability to continue as a going concern.

advance preclinical development

of our early-stage programs and clinical trials of our product candidates;

manufacture, or have manufactured

on our behalf, preclinical and clinical drug material and develop processes for late state and commercial manufacturing;

seek regulatory approvals

for any product candidates that successfully complete clinical trials;

establish a sales, marketing,

medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval

and intend to commercialize on our own;

hire additional clinical,

quality control and scientific personnel;

expand our operational,

financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and

commercialization efforts and our operations as a public company;

obtain, maintain, expand

and protect our intellectual property portfolio;

manage the costs of preparing,

filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and

defending intellectual property related claims;

manage the costs of operating

as a public company.

commitments as of March 31, 2024, included an estimated $17.6 million related to open purchase orders and contractual obligations that

occurred in the ordinary course of business, including commitments with contract research organizations for multi-year pre-clinical and

clinical research studies.

Although open purchase orders are considered enforceable and legally binding, the terms generally allow us

the option to cancel, reschedule, and adjust requirements based on our business needs prior to the delivery of goods or the performance

of the numerous risks and uncertainties associated with research, development and commercialization of biologic product candidates, we

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Our future funding requirements will depend on and could

increase significantly as a result of many factors, including:

scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical

costs, timing and outcome of regulatory review of our product candidates;

costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our

clinical trials;

costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product

candidates for which we receive marketing approval;

costs of manufacturing commercial-grade product and necessary inventory to support commercial launch;

ability to receive additional non-dilutive funding, including grants from organizations and foundations;

revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual

property rights and defending intellectual property-related claims;

ability to establish and maintain collaborations on favorable terms, if at all;

extent to which we acquire or in-license other product candidates and technologies.

increase significantly because of many factors, including:

the scope, progress, results

and costs of researching and developing our product candidates, and conducting preclinical and clinical trials;

the costs, timing and outcome

of regulatory review of our product candidates;

the costs, timing and ability

to manufacture our product candidates to supply our clinical and preclinical development efforts and our clinical trials;

the costs of future activities,

including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which

we receive marketing approval;

the costs of manufacturing

commercial-grade product and necessary inventory to support commercial launch;

the ability to receive

additional non-dilutive funding, including grants from organizations and foundations;

the revenue, if any, received

from commercial sale of our products, should any of our product candidates receive marketing approval;

the costs of preparing,

filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual property rights and

defending intellectual property-related claims;

our ability to establish

and maintain collaborations on favorable terms, if at all;

the extent to which we

acquire or in-license other product candidates and technologies.

Accounting Policies and Significant Judgments and Estimates

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our significant accounting policies are described in more detail in Note 3 to our audited consolidated financial statements included

in our 2022 Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and

estimates used in the preparation of our consolidated financial statements.

in our 2023 Annual Report on Form 10-K, we believe that the following accounting policy is the most critical to the judgments and estimates

used in the preparation of our consolidated financial statements.

Research and Development Expenses

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of estimated accrued research and development expenses include fees paid to:

including research laboratories, in connection with preclinical development activities;

and investigative sites in connection with preclinical studies and clinical trials;

in connection with drug substance and drug product formulation of preclinical studies and clinical trial materials.

vendors, including research

laboratories, in connection with preclinical development activities;

CROs and investigative

sites in connection with preclinical studies and clinical trials;

CMOs in connection with

drug substance and drug product formulation of preclinical studies and clinical trial materials.

base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant

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particular period.

measure all stock-based awards granted to employees, directors and non-employees based on their fair value on the date of the grant and

recognize the corresponding compensation expense of those awards using the accelerated attribution method over the requisite service

period, which is generally the vesting period of the respective award.

Forfeitures are accounted for as they occur.

We grant stock options

and restricted stock awards that are subject to either service or performance-based vesting conditions.

Compensation expense related

to awards with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period

using the accelerated attribution method over the requisite service period to the extent achievement of the performance condition is

classify stock-based compensation expense in our statements of operations in the same way the award recipient’s payroll costs are

classified or in which the award recipient’s service payments are classified.

estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the fair value

of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free

interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

Value of Liabilities

elected the fair value option to account for the 2021 Notes as we believe the fair value option provides users of the financial statements

with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes

in the fair value of the common stock underlying the conversion option.

We use a Monte Carlo simulation to estimate the fair value of

the conversion feature of the notes, which relies on unobservable Level 3 inputs.

We use a discounted cash flow model to estimate the

fair value of the debt component of the 2021 Notes.

Changes in the fair value of the notes are recognized through other income (expense)

for each reporting period.

July and August 2022, the Company issued the 2022 Notes.

The 2022 Notes are accounted for under ASC 480 – Distinguishing Liabilities

from Equity, due to share settlement features contained within the notes.

As a result, the 2022 Notes are recorded as liabilities

at fair value at the balance sheet date with changes in the fair value of the notes recognized in other income (expense) for each reporting

The fair value estimate of the 2022 Notes was based on a discounted cash flow model and a Monte Carlo simulation, which represent

Level 3 measurements.

Significant assumptions include the discount rate used in the discounted cash flow model and the expected premium

for conversion used in the Monte Carlo simulation.

issued warrants in connection with the issuance of both the 2021 and 2022 Notes.

The warrants were liability classified due to certain

cash settlement features.

The Company uses a Black-Scholes model to estimate the fair value of the warrants.

Changes in the fair value

of the warrants are recognized in other income (expense) for each reporting period.

Sheet Arrangements

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operations is disclosed in Note 3 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

growth company and smaller reporting company status

are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and

we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are

not emerging growth companies.

We may take advantage of these exemptions until we are no longer an emerging growth company under Section

107 of the JOBS Act, which provides that an emerging growth company can take advantage of the extended transition period afforded by

the JOBS Act for the implementation of new or revised accounting standards.

We have elected to avail ourselves of the extended transition

period and, therefore, while we are an emerging growth company, we are not subject to new or revised accounting standards at the same

time that they become applicable to other public companies that are not emerging growth companies, unless we choose to early adopt a

new or revised accounting standard.

Additionally,

we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.

Smaller reporting companies may take

advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.

We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held

reporting company status

are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.

Smaller reporting companies may take advantage

of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.

will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held

by non-affiliates exceeds $250 million as of the prior June 30, or (ii) our annual revenues exceeded $100 million during such completed

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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 2. Management’s Discussion and Analysis