NEONC TECHNOLOGIES HOLDINGS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from these forward-looking statements as a result of certain factors. For a complete discussion of such risk factors, see the section entitled “Risk Factors”. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in the “Part I - Financial Information,” including the related notes to the consolidated financial statements contained therein. Overview Our company (f/k/a NAS-ONC, Inc.) was formed in 2008, devoted to developing new drugs with new delivery modes. As a clinical-stage biopharmaceutical company, we have focused on establishing superior treatments for intracranial malignancies, i.e., aggressive cancers located in the brain. These cancer types include primary brain cancers, such as glioblastoma, and secondary brain cancers, that have arrived through metastatic spread from other cancers throughout the body, such as melanoma or breast and lung cancer. Brain-localized malignancies are particularly difficult to treat because the blood-brain barrier prevents efficient entry of most pharmacotherapeutic agents into the brain. As a result, these patients are faced with poor prognoses and shortened average life expectancy. NeOnc is developing novel drug delivery methods to be used in combination with novel drug candidates. NeOnc’s lead product candidate is NEO100. NEO100 is administered to patients via intranasal delivery. We have completed human safety testing in a Phase 1 clinical trial and are currently conducting preliminary efficacy testing in a Phase 2a trial with recurrent malignant glioma (Grade IV IDH1 mutant and Grade III Astrocytoma IDH1 mutant) patients. NeOnc is also developing a second product candidate, NEO212, which has completed preclinical testing, and an investigational new drug (IND) application has been filed and accepted with the United States Food and Drug Administration (FDA). The company has started Phase 1 clinical trials with patients harboring primary and secondary malignant brain cancer types. Several additional drug candidates are in the pipeline and are undergoing preclinical development. Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical and clinical studies and manufacturing. We do not have any products approved for sale and have not generated any revenue from product sales other than for humanitarian usage. From inception through March 31, 2025, we had raised an aggregate of approximately $29.3 million of gross proceeds through the sale and issuance of preferred stock and common stock, and approximately $11.7 million through the issuance of notes payable from HCWG, a related party (which was converted to common stock on June 30, 2024). Since its inception, we have incurred significant operating losses. Our net loss was $38,001,987 and $2,938,976, for the three months ended March 31, 2025 and 2024, respectively. We had an accumulated deficit of $88,610,432 at March 31, 2025. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing, and distribution activities. 18 As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when needed, could have a material adverse effect on our business, results of operations and financial condition. The report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2024 included an explanatory paragraph indicating that there was substantial doubt about our ability to continue as a going concern. See Note 1 to our l financial statements for additional information on our assessment. Components of Results of Operations Revenue We occasionally receive a fee from a patient for a “right to try” humanitarian program. Such revenues are not part of our core business. Operating Expenses Our operating expenses consist of (i) research and development expenses and (ii) legal and professional expenses and (iii) general and administrative expenses. Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts and preclinical and clinical studies under our research programs, which include: ● employee-related expenses, including salaries, benefits and stock-based compensation expense for our research and development personnel; ● costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on our behalf; ● costs of manufacturing drug products and drug supply related to our current or future product candidates; ● costs of conducting preclinical studies and clinical trials of our product candidates; ● consulting and professional fees related to research and development activities, including equity-based compensation to non-employees; ● costs of maintaining our laboratory, including purchasing laboratory supplies and non-capital equipment used in our preclinical studies; ● costs related to compliance with clinical regulatory requirements; and ● facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies. 19 Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical and clinical studies or other services performed. The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if they are approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of: ● the scope, rate of progress, and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities; ● establishing an appropriate safety profile; ● successful enrollment in and completion of clinical trials; ● whether our product candidates show safety and efficacy in our clinical trials; ● receipt of marketing approvals from applicable regulatory authorities; ● establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; ● obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates; ● commercializing product candidates, if and when approved, whether alone or in collaboration with others; and ● continued acceptable safety of the products following any regulatory approval. A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we commence clinical trials and continue the development of our current and future product candidates. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans. Legal and Professional Expenses Legal and professional expenses consist of costs related to corporate and intellectual property legal costs and accounting and auditing fees. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the Securities and Exchange Commission, or the SEC, and listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums, and investor relations costs. 20 General and Administrative Expenses General and administrative expenses include salaries and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, business development, operations and administrative roles. Other significant costs include insurance costs, travel costs, facility and office-related costs not included in research and development expenses. We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside service providers, among other expenses. In addition, if we obtain regulatory approval for any of our product candidates and do not enter a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities. Share Based Compensation Share based compensation expense result from the recognition of the fair value of restricted stock units (RSU) recorded on a straight-line basis from the date of grant to the date the RSU becomes fully vested. Interest Expense Interest expense primarily results from the bridge loan and a short-term loan both from related parties. Borrowings under these loans carry a 50% (or 1 times amounts borrowed) original issue discount (“OID”) on principal. The OID to be earned under the bridge loan is recognized ratably over the term of each draw-down under the loan through the maturity date. Amortization Amortization on debt issuance costs resulted from the grant of warrants for a line of credit commitment. The fair value of the warrants was determined using the Black Scholes valuation method and the fair value is being amortized over the term of the line of credit commitment. Amortization on deferred offering costs resulted from the issuance of common stock in connection with a private equity agreement 21 Comparison of the three months ended March 31, 2025 and 2024: Results of Operations The following table summarizes our results of operations for the periods presented: For the three months ended March 31, 2025 2024 Change Revenues Revenue $ 39,990 $ 43,000 $ (3,010 ) Operating expenses: Research and development 998,222 614,517 383,705 Legal and professional 957,545 564,354 393,191 General and administrative 849,485 415,612 433,873 Share based compensation 23,073,745 - 23,073,745 Advisory fee 11,737,806 - 11,737,806 Total operating expenses 37,616,803 1,594,483 36,022,320 Loss from operations (37,576,813 ) (1,551,483 ) (36,025,330 ) Other expense: Interest income 51,699 - 51,699 Amortization on debt issuance (167,951 ) - (167,951 ) Interest expense (308,922 ) (1,387,493 ) 1,078,571 Net loss $ (38,001,987 ) $ (2,938,976 ) $ (35,063,011 ) Revenue Revenue was generated for fees for a “right to try” humanitarian program during 2025 and 2024. Research and Development Expenses The following table summarizes the components of our research and development expenses for the periods presented: For the three months March 31, 2025 2024 Research and development costs by project: NEO100-01 $ 579,462 $ 285,612 NEO100-02 108,461 27,064 NEO212 176,555 161,734 Pediatric 48,832 67,397 Laboratory 84,912 72,710 Total $ 998,222 $ 614,517 22 For the three months ended March 31, 2025 2024 Change Clinical trial expense $ 913,310 $ 541,807 $ 371,503 Research and laboratory 84,912 72,710 12,202 Total research and development expense $ 998,222 $ 614,517 $ 383,705 Research and development expenses were $998,222 and $614,517 for the three months ended March 31, 2025 and 2024, respectively. A portion of these expenses amounting to approximately $84,912 and $72,710 for the three months ended March 31, 2025 and 2024, respectively are from the University of Southern California (USC), where Dr. Chen is a member of the faculty. The total increase of $383,705 was primarily due to: ● The addition of clinical trial sites for NEO100’s clinical trial. ● The recruitment for NEO212. ● The start of the clinical trial for NEO100-03 for a Pediatric Indication. ● Increased patient recruitment efforts. Legal and Professional Expenses Legal and professional expenses were $957,545 and $564,354 for the three months ended March 31, 2025 and 2024, respectively. The increase of $393,191 was primarily due to completion of the direct listing process. General and Administrative Expenses General and administrative expenses were $849,485 and $415,612 for the three months ended March 31, 2025 and 2024, respectively. The increase of $433,873 was primary due to a marketing campaign, rent and travel expenses. Share Based Compensation Share based compensation resulted from the granting of RSUs and is the recognition of the expense from the grant date to March 31, 2025. Advisory Fee The advisory fee was earned on the listing date March 26, 2025. Interest Expense Interest expense was $308,922 and $1,387,493 for the three months ended March 31, 2025 and 2024, respectively. The interest for the three months ended March 31, 2025 relates to the short-term loan in March from a related party in the amount of $301,422 and $7,500 accrued interest for a litigation matter. The OID interest for the three months ended March 31, 2024 relates to the OID for the related party bridge loan that was converted into common stock in June of 2024. Amortization of Debt Issuance Costs The debt issuance costs were $167,951 and $0 for the three months ended March 31, 2025 and 2024, respectively. This represents the amortization of the warrants issued for the HCWG line of credit. 23 Cash Flows The following table summarizes our cash flow for the periods indicated: For the three months ended March 31, 2025 2024 Change Net cash provided by (used in): Operating activities $ (5,650,055 ) $ 145,748 $ (5,795,803 ) Financing activities 11,024,372 (172,595 ) 11,196,967 Net increase (decrease) in cash $ 5,374,317 $ (26,848 ) $ 5,401,165 Operating Activities During the three months ended March 31, 2025, net cash used in operating activities was $5,650,055 consisting primarily of our net loss of $38,001,987, offset by share based compensation of $23,073,745, accretion of original issue discount of $300,000, amortization of costs of $577,192, the accrued advisory fee of $8,828,565 and increases in accounts payable in the amount of $628,276. These were offset by decreases in accrued compensation in the amount of $290,108, and prepaid expenses in the amount of $765,738. During the three months ended March 31, 2024, net cash used in operating activities was $145,748 consisting primarily of our net loss of $2,938,976 less the non-cash charge of the accretion of the original issue discount on the bridge loan in the amount $1,387,493, increase in the bridge loan – expenses paid by the bridge loan provider on behalf of the Company of $476,393 and an offset by an increase in accounts payable of $1,001,066. Financing Activities During the three months ended March 31, 2025, cash provided by financing activities was $11,024,372 consisting primarily of the sale of common stock of $11,644,005 offset by offering costs in the amount of $319,533, resulting in net offering costs of $11,324,372 and the repayment of related party loan of $600,000. During the three months March 31, 2024, cash used in financing activities was $172,595 consisting primarily of proceeds from related party loans, offset by repayment of the same related parties loans and the decrease in deferred offering costs. Liquidity and Capital Resources Sources of Liquidity/Going Concern Since our inception, we have funded our operations through the sale and issuance of preferred and common stock and debt financing rounds from related and third parties. In March 2025 prior to our direct listing we issued 625,000 shares of common stock in a private placement at a price of $16.00 per share for gross proceeds of approximately $10,000,000. In March 2025 after our direct listing we issued 102,750 shares of common stock in a private placement at a price of $16.00 per share for gross proceeds of approximately $1,644,000. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Since our inception, we have not generated any revenue from product sales or any other sources, except humanitarian use, and we have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever. As reflected in the accompanying consolidated financial statements, we have incurred recurring net losses since our inception. For the three months ended March 31, 2025, the Company incurred a net loss of $38,001,987 and has an accumulated deficit of $88,610,432 at March 31, 2025. At March 31, 2025, the Company had cash totalling $5,439,210. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our strategies, such as executing additional licensing contracts. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. 24 The ability to continue as a going concern is dependent on us raising additional capital and attaining and maintaining profitable operations in the future to meet our obligations and repay our liabilities arising from normal business operations when they come due. Since inception, we have funded our operations primarily through equity and debt financings and licensing income and we expect to continue to rely on these sources of capital in the future. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our shareholders, in the case of equity financing, or grant unfavorable terms in licensing agreements. Funding Requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, initiate and conduct preclinical studies and clinical trials, and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. We expect to finance our operations over the next 12 months primarily through existing cash balances and the proceeds from the aforementioned private placements and supplemented as necessary by funds available through our Line of Credit Agreement with HCWG and sales under the Equity Purchase Agreement, each as described below. Line of Credit Agreement On October 11, 2024, we entered into a Line of Credit Agreement with HCWG for borrowings of up to $10.0 million. Borrowings under the Line of Credit Agreement bear interest at 10.0% per annum with interest payments due on the first business day of each calendar month, with unpaid principal due by October 12, 2027. This agreement may be extended by mutual agreement for a three year period and in the event of an extension of the maturity date the interest rate will increase to 14%. In connection therewith, we issued HCWG a five-year warrant to purchase up to 312,500 shares of our common stock at a per share exercise price of $12.00. Equity Purchase Agreement On October 22, 2024, we entered into an equity purchase agreement (the “Equity Purchase Agreement”) and related registration rights agreement (the “ELOC RRA”) with Mast Hill Fund, LP (“Mast Hill”) pursuant to which the Company may sell and issue to the investor, and the investor may purchase from the Company, up to $50,000,000 of Company’s common shares. Under the Equity Purchase Agreement, the Company has the right, but not the obligation, to direct Mast Hill, by its delivery to the Mast Hill of a Put Notice from time to time, to purchase Put Shares (i) in a minimum amount not less than $50,000.00 and (ii) in a maximum amount up to the lesser of (a) $750,000.00 or (b) 150% of the average trading volume of the Company’s common stock during the five trading days immediately preceding the Put Date. The actual amount of proceeds we receive pursuant to each Put Notice (each, the “Put Amount”) is determined by multiplying the Put Amount requested by the applicable purchase price. The purchase price for each of the Put Shares equals 95% of the “Market Price,” less the Clearing Costs. Market Price is the lowest volume weighted average prices of the Company’s common shares on its principal market on any trading day during the Valuation Period. The Valuation Period is the five trading days immediately following the date on which Mast Hill receives the Put Shares in its brokerage account. Clearing Costs are all the fees incurred by Mast Hill with respect to its brokerage firm, clearing firm, Company transfer agent fees, and attorney fees, with respect to the Put Shares. 25 Because the purchase price per share to be paid by Mast Hill for the common shares that the Company may elect to sell to Mast Hill under the Equity Purchase Agreement, if any, will fluctuate based on the market prices of common shares prior to each sale made pursuant to the Equity Purchase Agreement, if any, it is not possible for us to predict, as of the date of this prospectus and prior to any such sales, the number of common shares that we will sell to Mast Hill under the Equity Purchase Agreement, the purchase price per share that Mast Hill will pay for shares purchased from us under the Equity Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by Mast Hill under the Equity Purchase Agreement, if any. Pursuant to the Equity Purchase Agreement, we will have discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold to Mast Hill. If and when we do elect to sell shares of our common shares to Mast Hill pursuant to the Equity Purchase Agreement, after it has acquired such shares, Mast Hill may resell all, some or none of such shares at any time or from time to time in its discretion and at different prices. As a result, the other investors who purchase shares from Mast Hill in this offering at different times will likely pay different prices for those shares, and so may experience different levels of dilution and in some cases substantial dilution and different outcomes in their investment results. The term of the Equity Purchase Agreement commenced on March 25, 2025 and will terminate on the earlier of (i) the date on which the Mast Hill shall have purchased Put Shares equal to the $50,000,000, (ii) twenty-four (24) months after the date of the Equity Purchase Agreement, (iii) written notice of termination by the Company to Mast Hill, (iv) the registration statement registering the Put Shares is no longer effective after the initial effective date of such registration statement, or (v) the date that, pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary case or any Person commences a proceeding against the Company, a receiver, trustee, assignee, liquidator or similar official is appointed for the Company or for all or substantially all of its property or the Company makes a general assignment for the benefit of its creditors. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on a number of factors, including: ● the costs of conducting preclinical studies and clinical trials; ● the costs of manufacturing; ● the scope, progress, results and costs of discovery, preclinical development, laboratory testing, and clinical trials for product candidates we may develop, if any; ● the costs, timing, and outcome of regulatory review of our product candidates; ● our ability to establish and maintain collaborations on favorable terms, if at all; ● the achievement of milestones or occurrence of other developments that trigger payments under any license or collaboration agreements we might have at such time; ● the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval; ● the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; ● the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims; ● our headcount growth and associated costs as we expand our business operations and research and development activities; and ● the costs of operating as a public company. 26 Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we raise funds through potential collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Advances – Executive Chairman of the Board In February 2025, our Executive Chairman advanced the Company approximately $300,000. The advances carry a 50% (or 1 times amounts borrowed) original issue discount (“OID”) on the principal. In the event of default, interest is payable at on any unpaid balance at a rate of 10% per annum. In March 2025, further to the terms of such advance, the Executive Chairman was paid a total of $600,000 upon repayment of such advances, including OID. Critical Accounting Estimates We account for stock-based compensation, including restricted stock units (RSUs), in accordance with ASC 718. RSUs are measured at fair value on the grant date based on our common stock price and expense over the vesting period. For awards with performance or market conditions, expense is recognized based on the probability of achievement and may be accelerated. We estimate forfeitures based on historical data and adjust these estimates periodically. Changes in forfeiture rates, stock price, or performance assumptions can materially affect stock-based compensation expenses. Management reviews these assumptions quarterly and updates estimates as necessary. We consider the accounting for RSUs a critical estimate due to the judgment involved and its material impact on our financial results.