Item 7. Management’s Discussion and Analysis
Item 7. 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 the related
notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the
following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the
numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors, including those discussed under Part I. “Item 1A. Risk Factors”
and elsewhere in this Annual Report on Form 10-K.
Overview
We are a commercial stage biotechnology company
focused on the research, development, and commercialization of innovative solutions for men’s health and oncology. Through our acquisition
of Proteomedix, which closed on December 15, 2023, we own Proclarix, an in vitro diagnostic test for prostate cancer originally developed
by Proteomedix and approved for sale in the European Union under the In Vitro Diagnostic Regulation (“IVDR”), which we anticipate
will be marketed in the U.S. as a lab developed test through our license agreement with LabCorp.
We also own ENTADFI, an FDA-approved, once daily
pill that combines finasteride and tadalafil for the treatment of BPH, a disorder of the prostate. However, in light of (i) the time and
resources needed to continue pursuing commercialization of ENTADFI, and (ii) the Company’s cash runway and indebtedness, the Company
has abandoned commercialization of ENTADFI and is working with an investment advisor to assist with the potential sale or other transaction
of the ENTADFI assets. There is currently no plan to resume commercialization of ENTADFI, and as such, if we are not able to consummate
a sale or other transaction of the ENTADFI assets, we may abandon the assets and destroy our inventory of the product. In addition, as
part of cost reduction efforts and in connection with our initial pause in commercializing ENTADFI, we terminated three employees involved
with the ENTADFI program, effective April 30, 2024, with such individuals to continue assisting the Company on an as-needed, consulting
basis. Based on the current circumstances surrounding ENTADFI, at June 30, 2024, the ENTADFI assets were fully impaired. Refer to Note
4 and 5 in the accompanying consolidated financial statements included elsewhere in the Report for further discussion.
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The Company continues to search for a permanent
Chief Executive Officer and Chief Financial Officer.
We are currently focusing our efforts on commercializing
Proclarix.
Proclarix is an easy-to-use next generation
protein-based blood test that can be done with the same sample as a patient’s regular Prostate-Specific Antigen (“PSA”)
test. The PSA test is a well-established prostate specific marker that measures the concentration of PSA molecules in a blood sample.
A high level of PSA can be a sign of prostate cancer. However, PSA levels can also be elevated for many other reasons including infections,
prostate stimulation, vigorous exercise or even certain medications. PSA results can be confusing for many patients and even physicians.
It is estimated over 50% of biopsies with elevated PSA are negative or clinically insignificant resulting in an overdiagnosis and overtreatment
that impacts the physician’s routine, our healthcare system, and the quality of patients’ lives. Approximately 10% of all
men have elevated PSA levels., commonly referred to as the diagnostic “grey zone”, of which only 20 – 40% present clinically
with cancer. Proclarix is intended for use in diagnosing these patients where it is difficult to decide if a biopsy is necessary to verify
a potential clinically significant cancer diagnosis. Proclarix helps doctors and patients with unclear PSA test results through the use
of our proprietary Proclarix Risk Score which delivers clear and immediate diagnostic support for further treatment decisions. No additional
intervention is required, and results are available quickly. Local diagnostic laboratories can integrate this multiparametric test into
their current workflow because Proclarix assays use the enzyme-linked immunosorbent assay (ELISA) standard, which most diagnostic laboratories
are already equipped to process.
Since our
inception in October 2018 until April 2023, when we acquired ENTADFI, we devoted substantially all of our resources to performing
research and development, undertaking preclinical studies and enabling manufacturing activities in support of our product development
efforts, hiring personnel, acquiring and developing our technology and now deprioritized vaccine candidates, organizing and staffing our
company, performing business planning, establishing our intellectual property portfolio and raising capital to support and expand such
activities.
During the third quarter of 2023, we halted our
vaccine discovery and development programs, and accordingly, we now operate in one segment: commercial. The commercial segment was new
in the second quarter of 2023 and is currently dedicated to the development and commercialization of Proclarix.
Given Proclarix is CE-marked for sale in
the European Union, we expect to generate revenue from sales of Proclarix by 2027. Although we anticipate these sales to offset some expenses
relating to commercial scale up and development, we expect our expenses will increase substantially in connection with our ongoing activities,
as we:
●
commercialize Proclarix
●
hire additional personnel;
●
operate as a public company; and
●
obtain, maintain, expand, and protect our intellectual property portfolio.
We rely and will continue to rely on third parties
for the manufacturing of Proclarix. We have no internal manufacturing capabilities, and we will continue to rely on third parties, of
which the main suppliers are single-source suppliers, for commercial product.
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We do not have any products approved
for sale, aside from Proclarix and ENTADFI, from which we have not generated any revenue from product sales and for which we have determined
to abandon commercialization activities To date, we have financed our operations primarily with proceeds from our sale of preferred securities
to seed investors, the initial public offering (“IPO”), and subsequent offerings of debt and equity securities. We will continue
to require significant additional capital to commercialize Proclarix, and to fund operations for the foreseeable future. Accordingly,
until such time as we can generate significant revenue, if ever, we expect to finance our cash needs through public or private equity
or debt financings, third-party (including government) funding and to rely on third-party resources for marketing and distribution arrangements,
as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches, to support our
operations.
Some recent key developments affecting our business
include the following:
Altos Units
On January 23, 2024, the Company issued a
non-convertible debenture (the “Altos Debenture”) in the principal sum of $5.0 million, in connection with a Subscription
Agreement, to Altos Ventures, a stockholder of the Company and related party (“Altos”). The Altos Debenture was originally
payable in full upon the earlier of (i) the closing under the Subscription Agreement and (ii) June 30, 2024. On April 24,
2024, the Altos Debenture was amended to extend the maturity date to the earlier of (i) the closing under the Subscription Agreement
and (ii) October 31, 2024 (the “Altos Amendment”). On September 24, 2024, upon obtaining stockholder approval and pursuant
to the Subscription Agreement, dated December 18, 2023, the Company issued an aggregate of 513,424 units (the “Units”) to
Altos, each Unit comprised of (i) one share of Common Stock and (ii) one pre-funded warrant (collectively, the “Altos Warrants”)
to purchase 0.3 shares of Common Stock at an exercise price of $0.04 per share. The Altos Warrants were immediately exercisable at any
time on or after the date of issuance and had a term of exercise of five (5) years from the date of issuance. The outstanding debt, as
per the Altos Debenture agreement, is considered settled through the unit issuance.
Additional shares are issuable to Altos to the
extent Altos continues to hold Common Stock included in the Units and if the VWAP during the 270 days following closing is less than $10.00,
as set forth in the Subscription Agreement.
On September 24, 2024, Altos exercised all the
Altos Warrants, and the Company issued to Altos an additional 154,027 shares of Common Stock upon such exercise.
Amended Forbearance Agreement
On September 19, 2024, the Company entered into
an Amended and Restated Forbearance Agreement with Veru (the “Amended and Restated Forbearance Agreement” or “A&R
Forbearance Agreement”), which amends and restates the Original Forbearance Agreement in its entirety. Pursuant to the A&R Forbearance
Agreement, Veru will forbear from exercising its rights under both April Veru Note and the September Veru note, subject to the terms and
conditions set forth below.
The A&R Forbearance Agreement extends the
due date for the April 2024 and September 2024 Veru Notes until the earlier to occur of (i) June 30, 2025 or (ii) the occurrence of any
Event of Default. The Amended and Restated Forbearance Agreement also effected certain modifications to the payment terms in the Original
Forbearance Agreement and amended certain terms of the September Veru Note as summarized below.
Pursuant to the A&R Forbearance Agreement,
the Company agreed to make the following required payments (the “Required Payments”) during the April 2024 Forbearance Period
first to accrued and unpaid interest under the April Veru note and then any remainder to the outstanding principal amount of the April
Veru Note:
●
Interest at the rate of 10% per annum shall accrue on any unpaid principal balance of the April Veru Note commencing on April 20, 2024 through the date that the outstanding principal balance under the April Veru Note is paid in full;
●
Monthly payments equal to 25% (increased from 15% in the Original Forbearance Agreement) of (i) the monthly cash receipts of Proteomedix for the licensing or sale of any products or services, (ii) monthly cash receipts of the Company or any of its subsidiaries for the sales of Proclarix anywhere in the world, and (iii) monthly cash receipts of the Company or any of its subsidiaries for milestone payments or royalties from LabCorp cash receipts of the Company of its subsidiaries from certain sale or licensing revenues or payments (the “Ordinary Cash Revenue”), which increased amount shall begin October 20, 2024 for cash receipts in September 2024;
77
●
Payment of 20% (increased from 10% in the Original Forbearance Agreement) of the net proceeds from certain financing or other transactions outside the ordinary course of business completed by the Company or any of its subsidiaries during the April 2024 Forbearance Period, which increased amount will begin for any net proceeds received after September 19, 2024; and
●
The remaining balance of the April Veru Note will be due at the end of the April 2024 Forbearance Period.
The Company
and Veru also agreed to the following amendments to the September Veru Note in the A&R Forbearance Agreement:
●
As noted above, an extension of the maturity date to June 30, 2025;
●
The accrual of interest at the rate of 10% per annum on any unpaid principal balance of the September Veru Note commencing on October 1, 2024 through the date that the outstanding principal balance under the September Veru Note is paid in full;
●
Any amounts owed on the September Veru Note, including but not limited to unpaid principal and accrued interest, will be paid in cash or, upon the mutual written consent of Veru and the Company, in shares of the Company’s Common Stock or a combination of cash and the Company’s Common Stock;
●
Following full repayment of all principal and interest under the April Veru Note, the Company will make the Required Payments first towards accrued and unpaid interest under the September Veru Note and then towards the remaining principal balance payable under the September Veru Note; and
November Amended and Restated Forbearance Agreement
with Veru
On November 26, 2024, the Company entered into
another Amended and Restated Forbearance Agreement with Veru (the “November Amended and Restated Forbearance Agreement” or
“November A&R Forbearance Agreement”), which amends and restates certain terms of the A&R Forbearance Agreement. Pursuant
to the November A&R Forbearance Agreement, Veru agreed to waive the due date for payment of applicable Cash Receipt Payments (as such
term is defined in the A&R Forbearance Agreement) generated in October 2024 until the Company receives funds of at least $97,000 pursuant
to its equity line of credit facility with Keystone Capital Partners LLC. In exchange, the Company agreed to increase its payments to
be made to Veru out of future financing and strategic transactions through June 30, 2025, from 20% to 25% of net proceeds generated from
such transactions. All other terms of the A&R Forbearance Agreement with Veru remain the same.
March 2025 Amended and Restated Forbearance
Agreement with Veru on April 2025
On March 31, 2025, Veru
and the Company entered into a waiver agreement, pursuant to which Veru agreed to waive and extend the date for payment of the April 2024
Promissory Note to April 14, 2025.
On April 23, 2025, Veru
and the Company entered into a limited waiver agreement, pursuant to which Veru agreed to waive and extend the date for payment of the
April 2024 Promissory Note to June 30, 2025.
Warrant Inducement
On July 11, 2024, the Company entered into the
Inducement Letters with certain holders of existing preferred investment options to purchase shares of the Company’s common stock
at the original exercise prices of $101.84 and $43.60 per share, issued on August 11, 2022 and August 2, 2023, respectively, pursuant
to which the holders agreed to exercise for cash their Existing PIOs to purchase an aggregate of 186,466 shares of the Company’s
common stock, at a reduced exercise price of $6.00 per share, in consideration for the Company’s agreement to issue new preferred
investment options (the “Inducement PIOs”) to purchase up to an aggregate of 559,397 shares of the Company’s common
stock. Of the 559,397 PIOs issued, 186,465 have a contractual term of 5 years, while the remaining 372,932 have a contractual term of
2 years. Aside from the contractual terms, the Inducement PIOs have substantially the same terms as the Existing PIOs.
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On July 11, 2024, the Company consummated the
transaction contemplated by the Inducement Letters upon unanimous written consent of the Board (the “Warrant Inducement”).
The Company received aggregate net proceeds of approximately $0.9 million from the exercise of the Existing PIOs by the holders and the
sale of the Inducement PIOs, after deducting placement agent fees and other offering expenses payable by the Company.
The Company agreed to file a registration statement
covering the resale of the Inducement PIO Shares issued or issuable upon the exercise of the Inducement PIOs (the “Resale Registration
Statement”) within 30 days after the date of the Inducement Letter and to use commercially reasonable efforts to cause such Resale
Registration Statement to be declared effective by the SEC within 60 days following the date of the Inducement Letter (or within 90 days
following the date of the Inducement Letter in the case of full review of the Resale Registration Statement by the SEC).
The Company engaged H.C. Wainwright & Co.,
LLC (“Wainwright”) to act as its exclusive placement agent in connection with the transactions summarized herein and will
pay Wainwright a cash fee equal to 7.5% of the gross proceeds received form the exercise of the Existing PIOs as well as a management
fee equal to 1.0% of the gross proceeds from the exercise of the Existing PIOs. The Company also agreed to reimburse Wainwright for its
expenses in connection with the exercise of the Existing PIOs and the issuance of the Inducement PIOS, up to $50,000 for fees and expenses
of legal counsel and other out-of-pocket expenses and agreed to pay Wainwright for non-accountable expenses in the amount of $35,000.
The Company also agreed to issue to Wainwright or its designees warrants (the “Placement Agent Warrants”), and as such shares
of common stock issuable thereunder, (the “Placement Agent Warrant Shares”) to purchase (i) 13,054 shares of common stock
which will have the same terms as the Inducement PIOs except for an exercise price equal to $7.50 per share and a term of five (5) years
following the date of stockholder approval and (ii) upon any exercise for cash of the Inducement PIOs, 7.5% of the aggregate exercise
price and that number of shares of common stock equal to 7.0% of the aggregate number of such shares of common stock underlying the Inducement
PIOs that have not been exercised, which will have substantially the same terms as the Placement Agent Warrants.
The Company evaluated the terms of the Inducement
PIOs and the Wainwright Inducement Warrants (collectively, the “August 2023 Inducement Warrants”), and determined that they
should be classified as equity instruments based upon accounting guidance provided in ASC 480 and ASC 815-40. The Company also evaluated
the unissued shares held in abeyance, which represent a prepaid forward contract, and determined that it is an equity instrument based
on the guidance provided in ASC 480 and ASC 815-40.
The Warrant Inducement, which resulted in the
lowering of the exercise price of the Existing PIOs and the issuance of the Inducement PIOs, is considered a modification of the Existing
PIOs under the guidance of Accounting Standards Update (“ASU”) No. 2021-04, Issuer’s Accounting for Certain Modifications
or Exchanges of Equity Classified Written Call Options . The modification is consistent with the “Equity Issuance” classification
under that guidance as the reason for the modification was to induce the holders of the Existing PIOs to cash exercise their warrants,
resulting in the imminent exercise of the Existing PIOs, which raised equity capital and generated net proceeds for the Company of approximately
$0.9 million. As the Existing PIOs and the Inducement PIOs were classified as equity instruments before and after the exchange, and as
the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $1.9
million as an equity issuance cost.
In addition, the change in fair value of the contingent
warrant liability associated with 3,729 of the August 2022 Contingent Warrants and 7,459 of the August 2023 Contingent Warrants was decreased
to $0 upon the agreement with Wainwright that all prior contingent warrants were no longer issuable or due upon the Warrant Inducement
Transaction. The fair value of the contingent warrant liability of approximately $2,700 was derecognized as of the settlement date, with
the corresponding amount, representing the fair value of the Wainwright Inducement Warrants, was recognized as additional paid-in capital.
79
The Company evaluated the terms of the 39,158
Inducement Contingent Warrants (equivalent to 7.0% of the aggregate number of such shares of common stock underlying the Inducement PIOs
that have not been exercised), which are issuable upon a future inducement, and determined that they should be classified as a liability
based upon accounting guidance provided in ASC 815-40. Since the Inducement Contingent Warrants are a form of compensation to Wainwright,
the Company recorded the value of the liability of approximately $158,000 as a reduction of additional paid in capital, with subsequent
changes in the value of the liability recorded in other income (expense) in the accompanying statements of operations.
Reverse Stock Split
On September 24, 2024, the Company effected a
Reverse Stock Split of all shares of its issued and outstanding Common Stock at a ratio of one-for-forty (1:40). The Company accounted
for the reverse stock split on a retrospective basis pursuant to Accounting Standards Codification
(“ASC”) 260, Earnings Per Share . All issued and outstanding common stock, common stock warrants, and share-based
awards’ exercise prices and per share data have been adjusted in the consolidated financial statements, on a retrospective basis,
to reflect the reverse stock split for all periods presented. The number of authorized shares and par value of the
preferred stock and common stock were not adjusted because of the reverse stock split.
Conversion of Series A Preferred Stock
On September 24, 2024, the Company issued an aggregate
of 142,749 shares of Common Stock to Veru Inc., following Veru’s election to convert all the 3,000 shares of Series A preferred
stock (“Series A Preferred Stock”) of the Company issued to it on September 29, 2023. The Series A Preferred Stock was originally
issued to Veru pursuant to an Amendment to the Asset Purchase Agreement, dated September 29, 2023, between the Company and Veru.
Conversion of Series B Preferred Stock
On September 24, 2024 the Company issued an aggregate
of 6,741,820 shares of Common Stock (the “PMX Converted Shares”) to certain stockholders of the Company who were formerly
holders of outstanding capital stock or convertible securities (the “Sellers”) of PMX, pursuant to the automatic conversion
of all the 2,696,729 shares of Series B preferred stock (“Series B Preferred Stock”) of the Company, which Series B Preferred
Stock was originally issued to the Sellers on December 15, 2023. The Series B Preferred Stock was originally issued to the Sellers pursuant
to a Share Exchange Agreement, dated December 15, 2023, between the Company, PMX, and the Sellers (the “Share Exchange Agreement”),
and was subject to the automatic conversion following (i) the Company’s receipt of stockholder approval for the issuance of the
PMX Converted Shares and ii) the effectiveness of the Reverse Stock Split, which provided for a sufficient number of authorized shares
to issue the PMX Converted Shares, as contemplated by the Share Exchange Agreement.
Series C Preferred Stock
On October 1, 2024, the Board authorized the Company
to create a series of 10,000 shares of preferred stock designated as “Series C convertible Preferred Stock”, with a par value
of $0.00001, pursuant to the certificate of designations. At any time after the initial issuance date of Series C convertible Preferred
Stock, each Preferred Share shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock. The holders
of Series C Preferred Stock are entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends actually
paid on shares of Common Stock, when and if actually paid. Each holder is entitled to convert any portion of the outstanding Preferred
Shares held by such holder into validly issued, fully paid and non-assessable Conversion shares at the Conversion Rate, which can be determined
by dividing (x) the Conversion Amount of such Preferred Share by (y) the Conversion Price, $4.5056, subject to adjustment as provided
in the Certificate of Designations. As of May 30, 2025, an aggregate of 2,130 Series C Preferred Stock was outstanding, after redemptions
of 1,369 shares for an aggregate of $1.71 million. An additional amount of $150,531 is due to the PIPE Series C investors for 120 Series
C preferred shares that remain due from the most recent ELOC draw. These 120 shares remain subject to future redemption.
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PIPE Financing and ELOC
On October 1, 2024, the Board authorized the Company
to create a series of 10,000 shares of preferred stock designated as “Series C convertible Preferred Stock”, with a par value
of $0.00001, pursuant to the certificate of designations. At any time after the initial issuance date of Series C convertible Preferred
Stock, each Preferred Share shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock. The holders
of Series C Preferred Stock are entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends actually
paid on shares of Common Stock, when and if actually paid. In addition, from and after the occurrence and during the continuance of any
Triggering Event, dividends (“Default Dividends”) will accrue on the Stated Value of each Preferred Share at a rate of fifteen
percent (15.0%) (the “Default Rate”) per annum. Each holder is entitled to convert any portion of the outstanding Preferred
Shares held by such holder into validly issued, fully paid and non-assessable Conversion shares at the Conversion Rate, which can be determined
by dividing (x) the Conversion Amount of such Preferred Share by (y) the Conversion Price, $4.5056, subject to adjustment as provided
in the Certificate of Designations.
After the Stockholder Approval Date, if a Triggering
Event occurs and is continuing at any time after the earlier of the holders’ receipt of a Triggering Event Notice and such holder
becoming aware of such Triggering Event (such earlier date, the “Alternate Conversion Right Commencement Date”) and ending
on the twentieth (20 th ) Trading Day after the later of (x) the date of such Triggering Event is cured and (y) such holder’s
receipt of a Triggering Event Notice (such ending date, the “Alternate Conversion Right Expiration Date”), and each such period,
an “Alternate Conversion Right Period”), such holder may, at such holder’s option, by delivery of a Conversion Notice
to the Company (the date of any such Conversion Notice, each an “Alternate Conversion Date”), convert all, or any number of
Preferred Shares held by such holder into shares of Common Stock at the Alternate Conversion Price (each, an “Alternate Conversion”).
Alternate Conversion Price means, with respect to any Alternate Conversion that price will be the lowest of (i) the applicable Conversion
Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, and (ii) the greater of (x) the Floor Price
and (y) 80% of the lowest VWAP of the Common Stock during the five (5) consecutive Trading Day period ending and including the Trading
Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice (such period, the “Alternate Conversion
Measuring Period”).
At any time, the Company has the right to redeem
in cash all, but not less than all, of the Preferred Shares then outstanding at a price (the “Company Optional Redemption Price”)
equal to 125% of the greater of (i) the Conversion Amount being redeemed and (ii) the product of (1) the Conversion Rate with respect
to the Conversion Amount being redeemed multiplied by (2) the greatest closing sale price of the Company’s Common Stock on any Trading
Day during the period commencing on the date immediately preceding the date the Company notifies the holders of its elections to redeem
and the date the Company makes the entire payment required. Upon the occurrence of a Bankruptcy Triggering Event, the Company will immediately
redeem, in cash, each of the Preferred Shares then outstanding at a redemption price equal to the greater of (i) the product of (A) the
Conversion Amount to be redeemed multiplied by (B) 125% and (ii) the product of (X) the Conversion Rate with respect to the Conversion
Amount in effect immediately following the date of initial public announcement of such Bankruptcy Triggering Event multiplied by (y) the
product of (1) 125% multiplied by (2) the greatest closing sale price of the Common Stock on any Trading Day during the period commencing
on the date immediately preceding such Bankruptcy Triggering Event and ending on the date the Company pays the entire payment required.
In no event may any Preferred Shares be converted
(or Warrants be exercised) and shares of Common Stock be issued to any holder if after giving effect to the issuance of shares of Common
Stock upon such conversion of the Preferred Shares (or exercise of the Warrants), the holder (together with its affiliates, if any) would
beneficially own more than 4.99% of the outstanding shares of Common Stock, which we refer to herein as the “PIPE Blocker”.
The PIPE Blocker may be raised or lowered to any percentage not in excess of 9.99% at the option of the applicable holder of the Preferred
Shares (or Warrants), except that any raise will only be effective upon 61-days’ prior notice to the Company.
On October 2, 2024, the Company entered into,
and sold, to six institutional investors (collectively, the “PIPE Investors”), pursuant to the securities purchase agreement
an aggregate of 3,499 shares of Series C Preferred Stock which includes an issuance of 840 shares of Series C Preferred Stock to the lead
investor in consideration for the PIPE Investors’ irrevocable commitment to purchase shares of the Series C Preferred Stock, and
warrants to purchase 591,856 shares of Common Stock, (together, the “PIPE Securities”) for aggregate net cash proceeds to
the Company of $1.9 million. The exercise price of the warrants is $4.38, and the warrants are exercisable six months after the issuance
date and expire on the third anniversary of the initial exercisability date.
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On October 2, 2024, the Company entered into a
Common Stock ELOC Purchase Agreement relating to a Committed Equity Facility with an institutional investor (the “ELOC Purchaser”),
whereby the Company may offer and sell, from time to time at its sole discretion, and whereby the ELOC Purchaser has committed to purchase,
up to $25.0 million of the Company’s newly issued Common Stock, subject to certain limitations. Concurrently with entering into
the ELOC Purchase Agreement, the Company also entered into a registration rights agreement with the ELOC Purchaser, pursuant to which
it agreed to provide the ELOC Purchaser with certain registration rights related to the shares issued under the ELOC Purchase Agreement
(the “ELOC Registration Rights Agreement”). In no event will the Company issue to the Purchaser under the ELOC Purchase Agreement
more than 1,658,525 shares of Common Stock, representing 19.99% of the total number of shares of Common Stock outstanding immediately
prior to the execution of the Common Stock Purchase Agreement (the “Exchange Cap”), unless (i) the Company obtains the approval
of the issuance of such shares by its stockholders in accordance with the applicable stock exchange rules or (ii) sales of Common Stock
are made at a price equal to or in excess of the lower of (A) the closing price immediately preceding the delivery of the applicable notice
to the Purchaser and (B) the average of the closing prices of the Common Stock for the five business days immediately preceding the delivery
of such notice, such that the sales of such Common Stock to the Purchaser would not count toward the Exchange Cap because they are “at
market” under applicable stock exchange rules.
The Company may not issue or sell any shares of
Common Stock to the ELOC Purchaser under the Common Stock Purchase Agreement, if it would result in the ELOC Purchaser beneficially owning
more than 4.99% of the outstanding shares of Common Stock (the “ELOC Blocker”). The ELOC Blocker may be raised or lowered
to any other percentage not in excess of 9.99% at the option of the ELOC Purchaser, except that any raise will only be effective upon
61 days’ prior notice to the Company.
Potential Ocuvex Transaction
On April 1, 2025, the
Company and Ocuvex Therapeutics, Inc. signed a Non-Binding Letter of Intent contemplating a potential business combination transaction
with Ocuvex. The Company and Ocuvex intend to continue negotiations to enter into a definitive agreement. Upon closing of the proposed
transaction, the Company will acquire all the issued and outstanding equity interests of Ocuvex in exchange for newly issued shares of
common stock of the Company. Immediately following the closing of the proposed transaction, the pre-closing Ocuvex equity holders will
own approximately 90% of the equity interests in the combined company.
Certain Significant Relationships
We have entered into grant, license and collaboration
arrangements with various third parties as summarized below. For further details regarding these and other agreements, see the section
titled “Business - Intellectual Property” and Note 6 to our consolidated financial statements included elsewhere in this Report.
Laboratory Corporation of America
On March 23, 2023, Proteomedix entered into a
license agreement with LabCorp pursuant to which LabCorp has the exclusive right to develop and commercialize Proclarix and other products
developed by LabCorp using Proteomedix’s intellectual property covered by the license, in the United States (“Licensed Products”).
In consideration for granting LabCorp an exclusive license, Proteomedix received an initial license fee in the mid-six figures upon signing
of the contract. Additionally, Proteomedix is entitled to royalty payments between 5% and 10% on the net sales recognized by LabCorp of
any Licensed Products plus milestone payments as follows:
●
after the first sale of Proclarix as a laboratory developed test, LabCorp will pay an amount in the mid-six figures;
●
after LabCorp achieves a certain amount in the low seven figures in net sales of the Licensed Products, LabCorp will pay Proteomedix an amount in the low seven figures; and
●
after a certain amount in the mid-seven figures in net sales of Licensed Products, LabCorp will pay Proteomedix an amount in the low seven figures.
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A total of $2.5 million in milestone payments
are payable under the license agreement. An additional $0.5 million was paid to Proteomedix as an initial license fee in 2023.
LabCorp is wholly responsible for the cost, if
any, of research, development and commercialization of Licensed Products in the United States but has the right to offset a portion of
those costs against future royalty and milestone payments. Additionally, LabCorp may deduct royalties or other payments made to third
parties related to the manufacture or sale of Licensed Products up to a maximum amount of any royalty payments due to Proteomedix.
The license agreement and related royalty payment
provisions expire during 2038, which approximates the expiration of the last patent covered by the license agreement. LabCorp has the
right to terminate the license agreement for any reason by providing 90 days written notice to Proteomedix. Either party may terminate
the license agreement due to a material breach of the terms of the license agreement with 30 days’ notice, provided such breach
is not cured within the foregoing 30-day period. Finally, Proteomedix may terminate the license agreement with 60 days’ notice in
the event LabCorp fails to make any undisputed payment due, provided that LabCorp does not remit the payment within the foregoing 60-day
period.
Services Agreement
On July 21, 2023, the Company, entered into a
Licensing and Services Master Agreement (“Master Services Agreement”) and a related statement of work with IQVIA, pursuant
to which IQVIA was to provide to the Company commercialization services for the Company’s products, including recruiting, managing,
supervising and evaluating sales personnel and providing sales-related services for such products, for fees totaling up to $29.1 million
over the term of the statement of work. The statement of work had a term through September 6, 2026, unless earlier terminated in accordance
with the Master Services Agreement and the statement of work. On July 29, 2023, a second statement of work was entered into with IQVIA
for certain subscription services providing prescription market data access to the Company. The fees under the second statement of work
totaled approximately $800,000, and the term was through July 14, 2025. On October 12, 2023, the Company terminated the Master Services
Agreement and the statements of work. The Company recorded net credits of approximately $0.5 million related to this contract during the
year ended December 31, 2024, which is included in selling, general and administrative expense in the accompanying consolidated statements
of operations and comprehensive loss. The Company had approximately $1.1 million and $1.8 million recorded in related accounts payable
as of December 31, 2024 and 2023, respectively, which includes amounts due for early termination of the contract. See Note 6 to our consolidated
financial statements included elsewhere in this Report.
On January 15, 2025, the Company and IQVIA entered
into a Settlement Agreement (the “Settlement Agreement”) concerning potential termination payments under the Master Services
Agreement and statements of work. Pursuant to the Settlement Agreement, the Company agreed to pay to IQVIA an aggregate of $150,000 in
exchange for a mutual release of all claims in connection with the Master Services Agreement. As a result of the Settlement Agreement,
the Company will record an adjustment of approximately $(0.9) million in accounts payable.
Components of Results of Operations
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist
principally of commercialization activities , payroll, and personnel expenses, including salaries
and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and tax services, information
technology costs, costs incurred with respect to acquisitions and potential acquisitions, and other general operating expenses.
We anticipate that our selling, general and administrative
expenses related to Proteomedix will increase when compared to historical levels as a result of efforts to commercialize Proclarix, and
costs associated with integration of Proteomedix’s operations.
83
Research and Development Expenses
Historically, substantially all of our research
and development expenses consisted of expenses incurred in connection with the development of our product candidates. These expenses historically
have included fees paid to third parties to conduct certain research and development activities on our behalf, consulting costs, costs
for laboratory supplies, product acquisition and license costs, certain payroll, and personnel-related expenses, including salaries and
bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees. We expense both
internal and external research and development expenses as they are incurred.
We do not allocate our costs by product candidate,
as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, laboratory
supplies, and external costs, such as fees paid to third parties to conduct research and development activities on our behalf, that are
not tracked by product candidate.
As discussed above, we have terminated the vaccine
programs that substantially all of our research and development historically related to. We do not anticipate incurring significant research
and development expenses in the near future, unless we are able to resume such activities. Predicting the timing or cost to complete our
clinical programs for future product candidates, or validation of our commercial manufacturing and supply processes is difficult and delays
may occur because of many factors, including factors outside of our control, such as regulatory approvals. Furthermore, we are unable
to predict when or if our future product candidates will receive regulatory approval with any certainty.
Other Income (Expense)
Other income (expense) is comprised of interest
expense on notes payable, the change in fair value of financial instruments that are recorded as liabilities, which includes the related
party subscription agreement liability and the contingent warrant liability, and other financing-related costs.
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table summarizes our statements
of operations and comprehensive loss for the periods indicated:
Year Ended
December 31,
2024
Year Ended
December 31,
2023
$
Change
%
Change
Revenue
$ 2,524,116
$ 58,465
$ 2,465,651
4217.3 %
Cost of revenue
1,469,018
1,185,630
283,388
23.9 %
Gross profit (loss)
1,055,098
(1,127,165 )
2,182,263
(193.6 )%
Operating expenses
Selling, general and administrative
$ 11,231,982
$ 14,770,678
(3,538,696 )
(24.0 )%
Research and development
154,359
1,949,406
(1,795,047 )
(92.1 )%
Impairment of ENTADFI assets
3,530,716
14,687,346
(11,156,630 )
(76.0 )%
Impairment of Goodwill
32,347,000
-
32,347,000
100.0 %
Impairment of Intangibles
10,279,796
-
10,279,796
100.0 %
Impairment of deposit on asset purchase agreement
-
3,500,000
(3,500,000 )
(100.0 )%
Total operating expenses
57,543,853
34,907,430
22,636,423
64.8 %
Loss from operations
(56,488,755 )
(36,034,595 )
(20,454,160 )
56.8 %
Other income (expense)
Loss on extinguishment of note payable
-
(490,000 )
490,000
(100 )%
Interest expense – related party
(534,245 )
-
(534,245 )
100 %
Interest expense
(873,433 )
(671,625 )
(201,808 )
30 %
Interest Income
18
-
18
100 %
Change in fair value of subscription agreement liability
(3,259,000 )
(134,100 )
(3,124,900 )
2330.3 %
Change in fair value of contingent warrant liabilities
1,250,466
(91,967 )
1,342,433
(1459.7 )%
Other
168,746
-
168,746
100 %
Total other (expense)
(3,247,448 )
(1,387,692 )
(1,859,756 )
134 %
Loss before income taxes
(59,736,203 )
(37,422,287 )
(22,313,916 )
59.6 %
Income tax benefit
1,045,180
12,593
1,032,587
8199.7 %
Net loss
$ (58,691,023 )
$ (37,409,694 )
(21,281,329 )
56.9 %
Deemed dividend Series C preferred stock
(206,404 )
-
(206,404 )
100 %
Net loss applicable to common stockholders’
$ (58,897,427 )
$ (37,409,694 )
(21,487,733 )
57.4 %
84
Revenue, Cost of Revenue, and Gross Margin
For the year ended December 31, 2024, the Company
had $2.5 million in revenue, which was attributable to Proteomedix revenue. Cost of revenue of approximately $1.5 million, and the resulting
positive margin, is attributable to costs incurred on Proteomedix revenue including amortization of the product rights intangible asset
of approximately $457,000, and standard cost of production and sales of $1.01 million.
Selling, General and Administrative Expenses
For the year ended December 31, 2024, selling,
general and administrative expenses decreased by approximately $3.5 million to $11.2 million compared to $14.8 million in 2023. The decrease
was mainly due to approximately $1.3 million in expense reduction due to the halting of most of operations in late 2023. In addition,
the Company incurred approximately $2.2 million related to the acquisition of Proteomedix, which consists primarily of transaction costs
and Proteomedix’s selling, general and administrative expenses since the acquisition date.
Research and Development Expenses
For the year ended December 31, 2024, research
and development expenses decreased by approximately $1.8 million compared to 2023. The decrease
was primarily due to the Company’s decision to deprioritize its vaccine programs and focus on commercialization activities, which
occurred during the third quarter of 2023. Decrease is also attributable due to the halting of research and development programs in late
2023 and offset by the true up of accrual estimates in Q2 2024.
Impairments
The Company recorded impairment charge of $3.5
million on a deposit that was made as part of the WraSer APA in 2023. In addition, the Company recorded an impairment charge of $14.7
million on the assets acquired as part of the ENTADFI acquisition during the fourth quarter of 2023.
The Company recorded an impairment of goodwill
related to the PMX acquisition during the year ended December 31, 2024 totaling $32.3 million. The Company also recorded an impairment
of intangible assets related to the PMX acquisition during the year ended December 31, 2024 totaling $10.3 million.
Other Income (Expense)
Other expense incurred during the year ended December
31, 2024 increased by approximately $1.9 million compared to 2023 and relates to the change in fair value of the subscription agreement
liability of approximately $3.1 million, $0.7 million of interest expense, $0.2 million that is attributable to transaction exchange rate
gains and losses, and offset by the change in fair value of the contingent warrant liability of approximately $1.3 million.
85
Income Tax Benefit
The Company recorded an income tax benefit of
approximately $1.0 million during the year ended December 31, 2024, in connection with the acquisition accounting for the Proteomedix
transaction.
Liquidity and Capital Resources
The Company’s operating activities to date
have been primarily devoted to seeking licenses, engaging in research and development activities, potential asset and business acquisitions,
and expenditures associated with the now halted commercial launch of ENTADFI and the commercialization of Proclarix.
The Company has incurred substantial operating
losses since inception and expects to continue to incur significant operating losses for the foreseeable future. As of December 31, 2024,
the Company had cash of approximately $0.6 million, a working capital deficit of approximately $17.3 million and an accumulated
deficit of approximately $115.7 million. During the year ended December 31, 2024, the Company used approximately $10.5 million in cash
for operating activities. The Company’s current cash balance is not sufficient to fund its operations through the end of December
2025. In December 2024, the Company began drawing on the Equity Financing Line of Credit (“ELOC”), which it entered into on
October 2, 2024, referred herein as the ELOC Purchase Agreement. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern within one year from the date of the issuance of these consolidated financial statements. The Company’s
projections are also indicative that it is currently unable to meet its contractual commitments and obligations as they come due in the
ordinary course of business. The Company will require significant additional capital in the short-term to fund its continuing operations,
satisfy existing and future obligations and liabilities, including the remaining payments due for the acquisition of the ENTADFI assets,
and funds needed to support the Company’s working capital needs and business activities. These business activities include the development
and commercialization of Proclarix, and the development and commercialization of the Company’s future product candidates.
Management’s plans for funding the Company’s
operations include generating product revenue from sales of Proclarix, which is still subject to further successful commercialization
activities within certain jurisdictions. Management also intends to secure additional funding through equity or debt financings if available,
and to utilize the ELOC entered into in October 2024 (see Note 9) on an as-needed basis to assist with the paydown of the notes and to
fund current operating needs, subject to certain restrictions and beneficial ownership constraints. However, based on the terms of the
ELOC and the current maximum availability, management determined that the funds readily available under the ELOC will not be sufficient
to sustain operations. In addition, there are currently no other commitments in place for further financing nor is there any assurance
that such financing will be available to sustain its operations and expand commercialization of Proclarix. If the Company is unable to
secure additional capital, it may be required to curtail any future clinical trials, development and/or commercialization of Proclarix
and any future product candidates, and it may take additional measures to reduce expenses in order to conserve its cash in amounts sufficient
to sustain operations and meet its obligations, or, if it is required to, file for bankruptcy.
Because of historical and expected operating losses,
net operating cash flow deficits, and debts due within one year, there is substantial doubt about the Company’s ability to continue
as a going concern for one year from the issuance of the consolidated financial statements, which is not alleviated by management’s
plans. The consolidated financial statements have been prepared assuming the Company will continue as a going concern. These consolidated
financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.
Future Funding Requirements
We anticipate that we will continue to incur significant
expenses for the foreseeable future as we continue to commercialize Proclarix.
86
We will require significant amounts of additional
capital in the short-term, to continue to fund our continuing operations, satisfy existing and future obligations and liabilities, including
the remaining payments due under the Veru APA and other contracts entered into in support of the Company’s commercialization plans,
in addition to funds needed to support our working capital needs and business activities, including the development and commercialization
of Proclarix, and the development and commercialization of our future product candidates. Until we can generate a sufficient amount of
revenue from sales of Proclarix if at all, we expect to finance our future cash needs through public or private equity or debt financings,
third-party funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements,
or any combination of these approaches. The future sale of equity or convertible debt securities may result in dilution to our stockholders,
and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges
senior to those of our common stock. Debt financing may subject us to covenant limitations or restrictions on our ability to take specific
actions, such as incurring additional debt, making capital expenditures, or declaring dividends. There can be no assurance that we will
be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us. If
we are unable to obtain adequate financing when needed or on terms favorable or acceptable to us, we may be forced to delay, reduce the
scope of our business activities.
Our future capital requirements will depend on many factors, including:
●
the costs of future commercialization activities, including product manufacturing, marketing, sales, royalties, and distribution, for Proclarix, and other products for which we may receive marketing approval;
●
the timing, scope, progress, results and costs of research and development, testing, screening, manufacturing, preclinical and non-clinical studies and clinical trials;
●
the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform field efficacy studies, require more studies than those that we currently expect or change their requirements regarding the data required to support a marketing application;
●
our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
●
any product liability or other lawsuits related to our product;
●
the expenses needed to attract, hire and retain skilled personnel;
●
the revenue, if any, received from commercial sales of Proclarix, or other products for which we may have received or will receive marketing approval;
●
the costs to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing our patents or other intellectual property rights; and
●
the costs of operating as a public company.
A change in the outcome of any of these or other variables could significantly
change the costs and timing associated with our business activities. Furthermore, our operating plans may change in the future, and we
may need additional funds to meet operational needs and capital requirements associated with such change.
87
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended
December 31,
2024
Year Ended
December 31,
2023
Net cash used in operating activities
$ (10,495,816 )
$ (13,581,018 )
Net cash used in investing activities
(28,471 )
(8,649,035 )
Net cash provided by financing activities
6,743,110
1,035,060
Effect of exchange rate changes on cash
(126,658 )
(3,331 )
Net (decrease) in cash
$ (3,907,835 )
$ (21,198,324 )
Cash Flows from Operating Activities
Net cash used in operating activities for the
year ended December 31, 2024 was approximately $10.5 million, which primarily resulted from the net loss of $58.7 million. This was offset
by impairment losses of goodwill of $32.3 million related to the acquisition of Proteomedix, loss on impairment of ENTADFI assets of $3.5
million, impairment of cash the fair value of the subscription liability agreement of $3.3 million, impairment of intangibles related
to the acquisition of Proteomedix of $10.3 million, depreciation and amortization of $0.7 million noncash stock-based compensation expense
$0.4 million, change in the fair value of contingent warrant liability of $1.3 million, and a net change in our operating assets and liabilities
of $1.5 million.
Net cash used in operating activities for the
year ended December 31, 2023 was $13.6 million, which primarily resulted from a net loss of $37.4 million. This was offset by impairment
losses of $19.3 million related to the ENTADFI assets and the WraSer APA, the fair value of the subscription liability agreement of $0.7
million, non-cash interest expense of $0.7 million, a loss on the extinguishment of a note payable of $0.5 million, noncash stock-based
compensation expense of $0.3 million, $0.3 million loss on impairment of long-lived assets, other non-cash items of $0.4 million, and
a net change in our operating assets and liabilities of $1.6 million.
Cash Flows from Investing Activities
Net cash used in investing activities for the
year ended December 31, 2024 was approximately $30,000, of which all was due to the purchase of property and equipment.
Net cash used in investing activities for the year
ended December 31, 2023 was approximately $8.6 million, of which approximately $6.1 million was used for the acquisition of ENTADFI,
$3.5 million was used for the deposit in connection with the potential WraSer APA, and $0.1 million is the net change in the receivable
from related parties and purchases of long-lived assets. This was offset by approximately $1.1 million in cash acquired in connection
with the acquisition of Proteomedix.
Cash Flows from Financing Activities
Net cash provided by financing activities for
the year ended December 31, 2024 was approximately $6.7 million, which resulted from proceeds from issuance of notes payable for related
parties of $5.0 million, net proceeds from the exercise of preferred investment options of $0.9 million, proceeds from the purchase of
series C preferred stock of $1.9 million, and proceeds from purchases of common stock of $0.7 million. These proceeds from investing activities
was offset by payments in deferred financing costs and payments of note payable totaling $1.7 million.
Net cash
provided by financing activities for the year ended December 31, 2023 was approximately $1.0 million, and resulted from net proceeds from
the exercise of preferred investment options in connection with the warrant inducement transaction of $2.3 million offset by $1.0 million
in principal payments on a note payable, $59,000 in purchases of treasury shares, and $205,000 of payment in deferred offering costs.
88
Legal Contingencies
From time to time, we may become involved in legal
proceedings arising from the ordinary course of business. We record a liability for such matters when it is probable that future losses
will be incurred and that such losses can be reasonably estimated.
Off-Balance Sheet Arrangements
During the periods presented we did not have,
nor do we currently have, any off-balance sheet arrangements as defined in the rules and regulations of the SEC.
Recent Accounting Pronouncements Not Yet Adopted
See Note 3 to our consolidated financial statements
included elsewhere in this Report for more information.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses
and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our
estimates and judgments. We base our estimates on historical experience, known trends and events and various other factors that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions.
While our significant accounting policies are
described in more detail in Note 3 to our consolidated financial statements included elsewhere in this Report, we believe the following
accounting policies and estimates to be most critical to the judgments and estimates used in the preparation of our consolidated financial
statements.
Acquisitions
The Company evaluates acquisitions to first
determine whether a set of assets acquired constitutes a business and should be accounted for as a business combination. If the assets
acquired are not a business, the transaction is accounted as an asset acquisition in accordance with Accounting Standards Codification
(“ASC”) 805-50, Asset Acquisitions (“ASC 805-50”), which requires the acquiring entity to recognize
assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, except for non-qualifying assets including
financial assets such as inventory. Further, the cost of the acquisition includes the fair value of consideration transferred and direct
transaction costs attributable to the acquisition. Goodwill is not recognized in an asset acquisition and any excess consideration transferred
over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values. Contingent consideration
payments in asset acquisitions are recognized when the contingency is determined to be probable and reasonably estimable. If the assets
acquired are a business, the Company accounts for the transaction as a business combination. Business combinations are accounted for by
using the acquisition method of accounting. Under the acquisition method, assets acquired, and liabilities assumed are recorded at their
respective fair values. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded
as goodwill. Acquisition-related expenses are expensed as incurred, and are included in selling, general and administrative expenses in
the consolidated statements of operations and comprehensive loss.
89
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost
of a business combination over the fair value of the net assets acquired. Goodwill and intangible assets deemed to have
indefinite lives are not amortized but are subject to impairment tests on an annual basis, and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Goodwill is allocated to the reporting unit from which it was
created. A reporting unit is an operating segment or sub-segment to which goodwill is assigned when initially recorded. The
Company tests indefinite lived intangible assets for impairment, on an annual basis in the fourth quarter, or more frequently if an event
occurs or circumstances indicate that the indefinite lived assets may be impaired. The Company may perform a qualitative assessment to
determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If the Company
determines this is the case, the Company then performs further quantitative analysis to identify and measure the amount of goodwill impairment
loss to be recognized, if any. To perform its quantitative test, the Company compares the fair value of the reporting unit to its carrying
value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not impaired, and no
further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company measures the amount
of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. The Company did not test
its goodwill or indefinite lived assets for impairment during the year ended December 31, 2023, given that the acquisition date occurred
after the annual testing date and given that there were no impairment indicators from the date of acquisition through the end of the reporting
period. The Company performed an evaluation of goodwill and indefinitely lived assets for impairment during the year ended December 31,
2024 and has determined that impairment of its goodwill and indefinite lived intangible assets occurred as of December 31, 2024.
Intangible assets with finite lives are reported
at cost, less accumulated amortization, and are amortized over their estimated useful lives, starting when sales for the related product
begin. Amortization is calculated using the straight-line method, and recorded within selling, general, and administrative expenses, or
cost of revenue, depending on the nature and use of the asset.
During the ordinary course of business, the Company
has entered into certain license and asset purchase agreements. Potential milestone payments for development, regulatory, and commercial
milestones are recorded when the milestone is probable of achievement. Upon a milestone being achieved, the associated milestone payment
is capitalized and amortized over the remaining useful life for approved products, or expensed as research and development expense for
milestones relating to products whose FDA approval has not yet been obtained.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including
intangible assets with finite useful lives, for impairment whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable (a “triggering event”). Factors that the Company considers in deciding when
to perform an impairment review include significant underperformance of the long-lived asset in relation to expectations, significant
negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is
performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result
from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount.
Subscription Agreement
The Subscription Agreement is accounted for as
a liability in accordance with ASC 480, Distinguishing Liabilities from Equity, (“ASC 480”), as the make-whole provision
could result in a variable number of shares being issued upon settlement. The related party subscription agreement liability is measured
at fair value at the commitment date and at each subsequent reporting period, with changes in fair value recorded as a component of other
income (expense), net in the consolidated statements of operations and comprehensive loss.
Quantitative and Qualitative Disclosures About
Market Risk
We are a smaller reporting company as defined
by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
JOBS Act
Section 107 of the JOBS Act also provides that
an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption
of new or revised accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves
of this extended transition period.
90
For as long as we remain an “emerging growth
company” under the recently enacted JOBS Act, we will, among other things:
●
be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;
●
be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation; and
●
be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.
We currently intend to take advantage of some
or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth
company,” including the extension of time to comply with new or revised financial accounting standards available under Section 102(b)
of the JOBS Act. Among other things, this means that our independent registered public accounting firm will not be required to provide
an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth
company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise,
so long as we qualify as an emerging growth company, we may elect not to provide you with certain information, including certain financial
information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide
in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. As a
result, investor confidence in our company and the market price of our common stock may be materially and adversely affected.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required
to provide the information required by this item.