Enveric Biosciences, Inc. 10-K

Item 7. Management’s discussion and analysis of financial condition and results of operations References to the “Company,” “our,” “us,” or “we” in this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Enveric” refer to Enveric Biosciences, Inc. The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements involving risks and uncertainties and should be read together with the “Risk Factors” and the “Cautionary Statement Regarding Forward-Looking Statements” sections of this Annual Report on Form 10-K. Such risks and uncertainties could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Business Overview We are a biotechnology company dedicated to the development of novel neuroplastogenic small-molecule therapeutics for the treatment of depression, anxiety, addiction, and other psychiatric disorders. Leveraging our unique discovery and development platform, the Psybrary™, which houses proprietary information on the use and development of existing and novel molecules for specific mental health indications, Enveric seeks to develop a robust intellectual property portfolio of novel drug candidates. Enveric’s lead program, the EVM301 Series, and its lead drug candidate, EB-003, are intended to offer a first-in-class, new approach to the treatment of difficult-to-address mental health disorders, mediated by the promotion of neuroplasticity and without also inducing hallucinations in the patient. Enveric unveiled its EVM401 Series on February 25, 2025, which is intended to broaden Enveric’s pipeline with additional non-hallucinogenic molecules and strengthen its ability to target addiction and neuropsychiatric disorders for patients with limited options. Previously, Enveric was developing the EVM201 Series, and its drug candidate EB-002 (formerly EB-373), for the treatment of neuropsychiatric disorders. The EVM201 Series comprised next generation synthetic prodrugs of the active metabolite, psilocin. Recently, Enveric out-licensed the EVM201 Series program to MycoMedica Life Sciences, who will seek to develop, manufacture, and commercialize EB-002, in exchange for certain development and milestone payments to Enveric (discussed below). Neuroplastogens Following our amalgamation with MagicMed in September 2021, we have continued to pursue the development of MagicMed’s proprietary library, the Psybrary™, which we believe will help us to identify and develop the right drug candidates needed to address mental health challenges, including depression, anxiety, and addiction disorders. We synthesize novel phenylalkylamines and indolethylamines, using a mixture of chemistry and synthetic biology, resulting in the expansion of the Psybrary™, which currently includes 20 patent families with claims covering a million potential molecular structures, over one thousand of which we have so far synthesized in sufficient quantities to identify and hundreds of which we have screened for receptor binding and other relevant activities. The Company developed certain intellectual property rights around the trademark PsyAI™ for potential use. On March 6, 2025, Enveric announced it is soliciting Requests-For Proposals (“RFPs”) for the license or sale of its PsyAI™ trademark portfolio as a means of maximizing value for an asset which is no longer strategic given the Company’s focus on drug development. This limited portfolio of US and Canadian trademark assets is held by its subsidiary, Enveric Biosciences Canada, Inc. Enveric expects the period for RFPs to remain open until August 31, 2025, with a decision to follow within three (3) months thereafter. At this stage, we have entered into several non-binding term sheets with strategic partners to out-license certain molecules from the Psybrary™. Going forward, in order to build a pipeline of product candidates, we intend to both continue to internally develop new drug candidates with associated intellectual property and to acquire, through in-licensing, additional intellectual property from pharmaceutical and biotechnology companies and research institutions. The in-licensed assets could include both research stage and clinical stage drug candidates. While we intend to pursue development of the EVM401 Series, our primary focus is to develop our lead asset EB-003 in the EVM301 Series. The development status of the product is shown in the table below: Product Candidates Targeted Indications Status Expected Next Steps EB-003 Mental health indication Preclinical Development IND Filing Psychedelic-inspired drug candidate 47 Recent Developments Reverse Stock Split We effected a 1-for-15 reverse stock split on January 27, 2025, which began trading on a split-adjusted basis on January 29, 2025, pursuant to which every 15 shares of our issued and outstanding common stock were reclassified as one share of common stock. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that were to otherwise have resulted from the reverse stock split were rounded up to the next whole number. The reverse stock split had no impact on the par value of our common stock or the authorized number of shares of our common stock. Nasdaq Bid Price Deficiency On May 16, 2024, the Company received a letter from Nasdaq notifying the Company that for the prior 30 consecutive business days the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2) (“Bid Price Rule”). The deficiency letter did not result in the immediate delisting of the Company’s common stock from Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial period of 180 calendar days, until November 12, 2024, to regain compliance with the Bid Price Rule. On November 20, 2024, Nasdaq issued a delisting notice, indicating that the Company did not satisfy the Bid Price Rule by the compliance date and that unless the Company requested an appeal of this determination before Nasdaq’s listing qualifications panel, our common stock would be scheduled for delisting from Nasdaq and trading suspended. We appealed the determination before Nasdaq’s listing qualifications panel and on December 30, 2024, the Company received an extension until May 19, 2025, to regain compliance with Bid Price Rule. On March 4, 2025, the Company received notice from the Nasdaq Office of General Counsel that the Company regained compliance with the Bid Price Rule. License Agreement with MycoMedica Life Sciences On November 7, 2024, Enveric executed a licensing agreement with MycoMedica Life Sciences, PBC (“MycoMedica”), out-licensing the Company’s EVM201 program, including drug candidate EB-002. Pursuant to the terms of licensing agreement, MycoMedica will seek to develop, manufacture, and commercialize EB-002, formerly EB-373, a synthetic prodrug of the active metabolite psilocin, for the treatment of neuropsychiatric disorders such as depression. MycoMedica received an exclusive, global license to the formulations, drugs, method of use, and medical devices developed by Enveric to utilize the compound. MycoMedica assumed the responsibility for all future preclinical, clinical, and commercial development on a royalty-bearing basis for all human and animal pharmaceutical applications. As part of the license agreement, Enveric received a modest upfront payment of $20,000 (recorded as other income), and if certain conditions are met, will receive development and sales milestones potentially totaling up to $62 million, plus tiered single digit royalties on all future sales. MycoMedica has the option during the license term to buyout its milestone and royalty payment obligations at a predetermined amount depending upon the stage of product development and commercialization at the time of the buyout. Further, MycoMedica has the right to purchase the licensed patents at a nominal amount upon a change of control of Enveric, although doing so does not relieve MycoMedica of any of its payment obligations. No royalties have been received to date. License Agreement with Aries Science and Technology On July 10, 2024, Akos Biosciences, Inc., a Delaware corporation (“Akos”), wholly-owned subsidiary of Enveric, entered into an exclusive license agreement with Aries Science and Technology, LLC (“Aries”) pursuant to which Akos granted Aries a license of Akos’s patented radiation dermatitis topical product. The license allows Aries to use the patented formulation to develop pharmaceutical or non-pharmaceutical products for treating radiation dermatitis suitable for administration to humans or animals. The license is exclusive (subject to certain exceptions contained in the Agreement), worldwide, royalty-bearing, and includes the right to sublicense. Enveric will be eligible to receive aggregate milestone payments of up to $61 million, as well as tiered royalties on future sales, if all conditions are met. Aries has the option during the license term, to purchase the rights to each licensed product (on a licensed product-by-licensed product basis) in the form of an exclusive (as to the applicable licensed product), fully paid, transferable right and license to the licensed product. No royalties have been received to date. Equity Distribution Agreement On September 1, 2023, the Company entered into a Distribution Agreement (“Distribution Agreement”), with Canaccord Genuity, LLC (“Canaccord”), pursuant to which the Company may offer and sell from time to time, through Canaccord as sales agent and/or principal, shares of common stock of the Company having an aggregate offering price of up to $10.0 million. Due to the offering limitations applicable to the Company and in accordance with the terms of the Distribution Agreement, the Company may offer common stock having an aggregate gross sales price of up to $2,392,514 pursuant to the prospectus supplement dated September 1, 2023. Subject to the terms and conditions of the Distribution Agreement, Canaccord may sell the common stock by any method permitted by law deemed to be an “at-the-market offering”. The Company will pay Canaccord a commission equal to 3.0% of the gross sales price of the common stock sold through Canaccord under the Distribution Agreement and has also agreed to reimburse Canaccord for certain expenses. The Company may also sell common stock to Canaccord as principal for Canaccord’s own account at a price agreed upon at the time of sale. Any sale of common stock to Canaccord as principal would be pursuant to the terms of a separate terms agreement between the Company and Canaccord. 48 During the year ended December 31, 2024, the Company issued 111,200 shares of common stock for gross proceeds of $2,392,502 under the Distribution Agreement, and charged offering costs of $583,713 to additional paid in capital on the consolidated balance sheet. As of December 31, 2024 and 2023, there were deferred offering costs related to the Distribution Agreement of $0 and $171,944, respectively. The Company does not anticipate issuing further securities pursuant to the Distribution Agreement. Lincoln Park Equity Line On November 3, 2023, the Company entered into a Purchase Agreement (the “Lincoln Park Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $10.0 million of the Company’s common stock subject to certain limitations and satisfaction of the conditions set forth in the Lincoln Park Purchase Agreement. Under the terms and subject to the conditions of the Lincoln Park Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $10.0 million of the Company’s Common Stock (the “Purchase Shares”). However, such sales of Common Stock by the Company, if any, will be subject to important limitations set forth in the Lincoln Park Purchase Agreement, including limitations on number of shares that may be sold. Sales may occur from time to time, at the Company’s sole discretion, over the 24-month period commencing on the date that the conditions to Lincoln Park’s purchase obligation set forth in the Lincoln Park Purchase Agreement are satisfied, including that a registration statement on Form S-1 covering the resale of the shares of the Company’s Common Stock that have been and may be issued to Lincoln Park under the Lincoln Park Purchase Agreement, which the Company has filed with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus relating thereto is filed with the SEC. As required under the Lincoln Park Purchase Agreement, the Company registered a resale of 76,032 shares of our common stock, plus the 9,294 commitment shares, by Lincoln Park on a registration statement on Form S-1 dated November 8, 2023, which was declared effective by the SEC on December 5, 2023. As of July 30, 2024, there were no remaining shares available to be issued in connection with this registration statement. On September 4, 2024, the Company filed a new registration statement on Form S-1, which was declared effective by the SEC on September 11, 2024. The new Form S-1 registered an additional 326,667 shares of common stock that are available to be issued to Lincoln Park in connection with the Lincoln Park Purchase Agreement. During the year ended December 31, 2024, the Company had issued 159,366 shares of common stock, through the Lincoln Park Purchase Agreement for gross cash proceeds of $1,083,709. As of December 31, 2024 there were 243,334 remaining shares available to be issued in connection with this amended registration statement. The Company engaged in a best efforts public offering in the first quarter of 2025 (described below), which restricts the use of the Lincoln Park Equity Line for a period of one year from February 3, 2025. Because the purchase price per share to be paid by Lincoln Park for the shares of Common Stock that the Company may elect to sell to Lincoln Park under the Lincoln Park Purchase Agreement, if any, will fluctuate based on the market prices of the Company’s Common Stock at the time the Company elects to sell shares to Lincoln Park pursuant to the Lincoln Park Purchase Agreement, if any, it is not possible for us to predict the number of shares of Common Stock that the Company will sell to Lincoln Park the purchase price per share that Lincoln Park will pay for shares purchased from us or the aggregate gross proceeds that the Company will receive from those purchases by Lincoln Park. Registered Direct Offerings Between March and May 2024, the Company entered into a series of common stock purchase agreements (the “Purchase Agreements”) for the issuance in a registered direct offering of an aggregate of 45,780 shares of the Company’s common stock to certain institutional investors. The issuance was made in exchange for the permanent and irrevocable waiver of the variable rate transaction limitation contained in certain inducement offer letters, dated December 28, 2023, between the Company and the institutional investors with respect to any existing or future agreement by the Company to effect any issuance of shares. The Company did not receive any net proceeds in connection with the offering. The offering was made to obtain a waiver of the variable rate transaction limitation as described above and further described in the Purchase Agreements so the Company could utilize its equity line of credit with Lincoln Park, and enter into any future agreements that involve a variable rate transaction and issue such shares thereunder. The fair value of the shares issued for consideration of waiving the variable rate transaction limitation was $322,453 and was charged to additional paid in capital, as it is direct and incremental to the Distribution Agreement, on the unaudited condensed consolidated balance sheet as an offering cost related to the Distribution Agreement. The fair value of the shares issued for consideration of waiving the variable rate transaction limitation was $448,840 and was recorded as deferred offering costs, as direct and incremental to the Purchase Agreement, within prepaid expenses and other current assets on the unaudited condensed consolidated balance sheet related to the Purchase Agreement. 49 January 2025 Offering On January 30, 2025, the Company commenced a best efforts public offering (the “Offering”) of an aggregate of (i) 1,229,330 shares (the “Shares”) of common stock of the Company, (ii) 437,336 pre-funded warrants (the “Pre-Funded Warrants”) to purchase 437,336 shares of common stock (the “Pre-Funded Warrant Shares”), (iii) 1,666,666 Series A warrants (the “Series A Warrants”) to purchase 1,666,666 shares of common stock (the “Series A Warrant Shares”), and (iv) 1,666,666 Series B warrants (the “Series B Warrants,” and together with the Series A Warrants, the “Warrants”) to purchase 1,666,666 shares of common stock (the “Series B Warrant Shares”). Each Share or Pre-Funded Warrant was sold together with one Series A Warrant to purchase one share of common stock and one Series B Warrant to purchase one share of common stock. The offering price for each Share and accompanying Warrants was $3.00, and the offering price for each Pre-Funded Warrant and accompanying Warrants was $2.9999. The Pre-Funded Warrants have an exercise price of $0.0001 per share, are exercisable immediately and will expire when exercised in full. Each Warrant has an exercise price of $3.00 per share and will be exercisable immediately upon issuance (“Initial Exercise Date”). The Series A Warrants expire on the five-year anniversary of the Initial Exercise Date. The Series B Warrants expire on the 18-month anniversary of the Initial Exercise Date. The Offering closed on February 3, 2025. The net proceeds of the Offering, after deducting the fees and expenses of the Placement Agent (as defined below) and other offering expenses payable by the Company, but excluding the net proceeds, if any, from the exercise of the Warrants, is approximately $4.2 million. The Company intends to use the net proceeds from the Offering for working capital, EB-003 development, and general corporate purposes. Financial Overview We are a pre-revenue biotech company that has to date, not generated any revenues. During the year ended December 31, 2024, we raised approximately $8.0 million from the sales of Common Stock and warrants. These amounts were the primary source of funds upon which our operations were financed during the year ended December 31, 2024. Research and Development Expenses Research and development expenses consist primarily of costs incurred for the research and development of our preclinical product candidates, and include, without limitation: ● employee-related expenses, including salaries, benefits and share-based compensation expense; ● expenses incurred under agreements with contract research organizations, contract manufacturing organizations, and consultants and other entities engaged to support our product research and development activities; ● the cost of acquiring, developing and manufacturing materials and lab supplies used in research and development activities; ● facility, equipment, depreciation and other expenses, which include, without limitation direct and allocated expenses for rent, maintenance of our facilities and equipment, insurance and other supplies; ● costs associated with preclinical activities and regulatory operations, including, without limitation, patent related costs; ● consulting and professional fees associated with research and development activities. We expense research and development costs to operations as incurred. Research and development activities are central to our business model. We utilize a combination of internal and external efforts to advance product development from early-stage work to future clinical trial manufacturing and clinical trial support. External efforts include work with consultants and increasingly substantial work at CROs and CMOs. We support an internal research and development team in Calgary, Alberta, Canada. To move these programs forward along our development timelines, a large portion (approximately 75%) of our staff are research and development employees. In January 2024, the Company reduced its discovery team in Calgary and was primarily focused on the development of EB-002 and EB-003 pipeline assets (until we out-licensed EB-002 to MycoMedica Lifesciences in November of 2024). Because of the numerous risks and uncertainties associated with product development, however, we cannot determine with certainty the duration and completion costs of these or other current or future preclinical studies and clinical trials. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. General and Administrative Expenses General and administrative expenses consist principally of salaries, benefits and related costs such as stock-based compensation for personnel and consultants in executive, finance, business development, corporate communications and human resource functions, facility costs not otherwise included in research and development expenses, accounting and audit costs, tax compliance costs, SEC compliance costs, investor relation costs, training and conference costs, insurance costs and legal fees. 50 Stock-Based Compensation A significant portion of our operating expenses is related to stock-based compensation costs. Stock-based compensation costs were approximately $1.6 million and $2.2 million for the years ended December 31, 2024 and 2023, respectively. Stock-based compensation consists of restricted stock units (“RSU”), restricted stock awards (“RSA”) and options to purchase shares of the Company’s common stock. The Company follows Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation, which addresses the accounting for stock-based payment transactions, requiring such transactions to be accounted for using the fair value method. The fair value of RSU or RSA awards is determined by the closing price per share of the Company’s common stock on the date of the award. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of options issued. RSA’s and RSU’s may contain vesting conditions that include, without limitation, any or all of the following: immediate vesting, vesting over a defined time period, vesting based on specific volume weighted average price levels being achieved by the Company’s common stock as publicly traded within specified measurement periods, and vesting based on the achievement of specific performance milestones. Options contain vesting conditions that provide for vesting over a defined time period. The fair value of RSA’s and RSU’s and options, is charged to expense, on a straight line basis over the vesting periods defined in the award agreements, except for the fair value which is attributable to achievement of a specific performance milestones, which are charged to expense upon achievement of such milestones. Results of Operations The following table sets forth information comparing the components of net loss for the years ended December 31, 2024 and 2023: For the Years Ended December 31, 2024 2023 Operating expenses General and administrative $ 6,453,505 $ 8,852,021 Research and development 2,841,272 7,252,437 Depreciation and amortization 337,489 343,982 Total operating expenses 9,632,266 16,448,440 Loss from operations (9,632,266 ) (16,448,440 ) Other income (expense) Inducement expense, net — (1,848,235 ) Change in fair value of warrant liabilities 24,370 94,396 Change in fair value of investment option liability 21,620 208,752 Change in fair value of derivative liability — 727,000 Other income 20,000 — Interest income, net 219 3,708 Total other income (expense) 66,209 (814,379 ) Net loss before income taxes $ (9,566,057 ) $ (17,262,819 ) Income tax expense (8,930 ) (28,913 ) Net loss $ (9,574,987 ) $ (17,291,732 ) 51 General and Administrative Expenses Our general and administrative expenses decreased to $6,453,505 for the year ended December 31, 2024 from $8,852,021 for the year ended December 31, 2023, a decrease of $2,398,516, or 27%. This change was primarily driven by decreases in consulting expenses of $1,067,245, salaries and wages of $623,101, stock compensation expense of $508,785, accounting fees of $345,488, insurance expenses of $193,932, and software expenses of $183,681. This is offset by an increase in director fees of $223,700, public company fees of $182,643, and Delaware Franchise Tax expenses of $81,421. The decrease in consulting fees was due to decreased outsourcing to contractors. The decrease in salaries and wages was due to the reduction in force. The decrease in stock compensation expense was primarily to a reduction in expense related to restricted stock units as a result of forfeitures and decreased value of new grants as a result of lower stock prices. The decrease in accounting fees was due to a reduction in technical accounting services. The decrease in insurance expense was due to lower premiums as a result of lower payroll costs. The decrease in software expenses was due to the down-size in operations of Enveric Canada. The increase in director fees was due to the addition of a director to the Board during 2024 and cash payments made to each director during the year. The increase in public company fees was due to an increase in broker fees and other public company filing fees. Research and Development Expenses Our research and development expense for the year ended December 31, 2024 was $2,841,272 as compared to $7,252,437 for the year ended December 31, 2023 with a decrease of $4,411,165, or approximately 61%. This decrease was primarily driven by decreased salaries and wages of $1,560,017, research costs of $1,346,647, CRO costs of $1,247,284, lab expenses of $158,514, tax incentive of $149,262, and rent of $86,098. The decrease in salaries and wages was due to the reduction in force as a result of the Company’s cost reduction plan. The decrease in research costs and CRO costs was due to the completion of the Australia research and development project during the second quarter of 2024. The decrease in lab expenses was due to a reduction in research and development during 2024. The decrease in tax incentives was due to a tax credit received during 2024. The decrease in rent was due to the expiration of the Company’s Canadian lease during 2024. These decreases were slightly offset by an increase in consulting fees of $366,060. The increase in consulting fees was due to certain employees that were hired on a part-time consultant basis to perform certain research and development activities. Depreciation and Amortization Expense Depreciation and amortization expense for the year ended December 31, 2024 was $337,489 as compared to $343,982 for the year ended December 31, 2023, with a decrease of $6,493, or approximately 2%. Change in Fair Value of Warrant Liabilities Change in fair value of warrant liabilities for the year ended December 31, 2024 resulted in income of $24,370 as compared to $94,396 for the year ended December 31, 2023. The change in fair value of warrant liabilities is significantly influenced by the change in the closing price of Common Stock at the end of each period, as compared to the closing price of Common Stock at the beginning of each period with a strong inverse relationship between changes in fair value of warrant liabilities and the trading price of Common Stock. The significant decrease in the Company’s stock price during the year ended December 31, 2024 compared to the year ended December 31, 2023, resulted in the significant decrease to the change in fair value of warrant liabilities. Change in Fair Value of Investment Option Liability Change in fair value of investment option liability for the year ended December 31, 2024 resulted in income of $21,620 as compared to $208,752 for the year ended December 31, 2023. The change in fair value of investment option liability is significantly influenced by the change in the closing price of Common Stock at the end of each period, as compared to the closing price of Common Stock at the beginning of each period with a strong inverse relationship between changes in fair value of warrant liabilities and the trading price of Common Stock. The significant decrease in the Company’s stock price during the year ended December 31, 2024 compared to the year ended December 31, 2023, resulted in the significant decrease to the change in fair value of warrant liabilities. Inducement Expense There was no inducement expense for the year ended December 31, 2024 as compared to $1,848,235 for the year ended December 31, 2023. The expenses recorded were related to inducement incurred related to the conversion of warrants and investment options that occurred in December 2023. Change in Fair Value of Derivative Liability The Company’s change in fair value of derivative liability is due to the May 2023 redemption which ceased the probability of occurrence of the Akos spin-off and Akos Series A Preferred Stock redemption. 52 Other Income The Company’s other income during the year ended December 31, 2024 relates to licensing income from the contract with MycoMedica Life Sciences. Going Concern, Liquidity and Capital Resources The Company has incurred a loss since inception resulting in an accumulated deficit of $106,074,505 as of December 31, 2024 and further losses are anticipated in the development of its business. Further, the Company had operating cash outflows of $7,726,139 for the year ended December 31, 2024. For the year ended December 31, 2024, the Company had a loss from operations of $9,632,266. Since inception, being a research and development company, the Company has not yet generated revenue and the Company has incurred continuing losses from its operations. The Company’s operations have been funded principally through the issuance of debt and equity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. In assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments. At December 31, 2024, the Company had cash of $2,241,026 and working capital of $1,244,848. The Company’s current cash on hand is insufficient to satisfy its operating cash needs for the 12 months following the filing of this Annual Report on Form 10-K. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. Management’s plan to alleviate the conditions that raise substantial doubt include raising additional working capital through public or private equity or debt financings or other sources, and may include additional collaborations with third parties as well as disciplined cash spending. Adequate additional financing may not be available to us on acceptable terms, or at all. Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain operating activities. As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date of the financial statements. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Cash Flows Since inception, we have primarily used our available cash to fund our product development and operations expenditures. Cash Flows for the Years Ended December 31, 2024 and 2023 The following table sets forth a summary of cash flows for the years presented: For the Years Ended December 31, 2024 2023 Net cash used in operating activities $ (7,726,139 ) $ (14,094,411 ) Net cash provided by investing activities — 11,667 Net cash provided by (used in) financing activities 7,673,834 (1,343,141 ) Effect of foreign exchange rate on changes on cash 5,354 (10,022 ) Net decrease in cash $ (46,951 ) $ (15,435,907 ) Operating Activities Net cash used in operating activities was $7,726,139 during the year ended December 31, 2024, which consisted primarily of a net loss adjusted for non-cash items of $7,302,896, a decrease in prepaid expenses of $178,496, an increase in due to related parties of $232,891 and a decrease in accounts payable and accrued liabilities of $834,630. Net cash used in operating activities was $14,094,411 during the year ended December 31, 2023, which consisted primarily of a net loss adjusted for non-cash items of $13,919,661, an increase in prepaid expenses and other current assets of $6,857, a decrease in accounts payable and accrued liabilities of $103,848, and a decrease in right-of-use operating lease asset and obligation of $64,045. Investing Activities Net cash provided by investing activities was $0 during the year ended December 31, 2024. Net cash used in investing activities was $11,667 during the year ended December 31, 2023, which consisted of the purchase of property and equipment, offset by proceeds from sale of property and equipment. 53 Financing Activities Net cash provided by financing activities was $7,673,834 during the year ended December 31, 2024, which consisted of $1,804,819 in proceeds from the subscription receivable related to issuance of Inducement Warrants and the exercise of warrants and preferred investment options, $2,676,980 in proceeds from the exercise of Inducement Warrants, $2,290,186 in proceeds from commons stock sold under the Distribution Agreement, net of offering costs, $1,083,706 in proceeds from common stock sold under the Purchase Agreement, net of offering costs, offset by the payment of offering costs previously accrued of $181,857. Net cash used in financing activities was $1,343,141 during the year ended December 31, 2023, which consisted of $1,052,057 for the redemption of Series A Preferred Stock and the payment of offering costs previously accrued of $291,084. Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, costs and expenses and related disclosures. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Significant areas requiring management’s estimates and assumptions include determining the fair value of transactions involving common stock, the valuation of warrants and preferred investment options, the valuation of stock-based compensation and accruals associated with third party providers supporting research and development efforts. Actual results could differ from those estimates.