Item 1A. Risk Factors
ITEM 1A.
RISK FACTORS
With the exception of the risk factors noted below, there have been no material changes from our risk factors as previously reported in
our Annual Report on Form 10-K for the year ended December 31, 2024. However, any investment in our business involves a high degree of risk. Before making an investment decision, you should carefully consider the information we include in this
Quarterly Report on Form 10-Q, including our unaudited interim Condensed Consolidated Financial Statements and accompanying notes, our Annual Report on Form 10-K for the year ended December 31, 2024 filed on March 27, 2025, including the risk factors
and our financial statements and related notes contained therein, and the additional information in the other reports we file with the Securities and Exchange Commission, including, without limitation, the risk factors previously disclosed in our
prior quarterly reports on Form 10-Q filed during this fiscal year. These risks may result in material harm to our business and our financial condition and results of operations. In this event, the market price of our common stock may decline and you
could lose part or all of your investment. Additional risks that we currently believe are immaterial may also impair our business operations. Our
business, financial conditions and future prospects and the trading price of our common stock could be harmed as a result of any of these risks.
We have identified conditions and events that raise substantial doubt regarding our ability to continue as a going
concern.
We have incurred net losses and utilized cash in operations since inception. We believe that with the receipt of the net proceeds from
the transactions contemplated by that certain securities purchase agreement dated April 30, 2025, between us and certain accredited investors and JGB Collateral LLC, as collateral agent for the investors, or the JGB Purchase Agreement, together with
our existing cash and cash equivalents, and after taking into account the minimum cash covenant pursuant to the terms of the JGB Purchase Agreement, based on our current business plan we will be able to fund our operating expenses and capital
expenditure requirements into the fourth quarter of 2025. Based on recurring losses from operations incurred since inception, the expectation of continued operating losses and the need to raise additional capital to finance our future operations, we
have determined that there is substantial doubt about our ability to continue as a going concern within 12 months from the date of this Quarterly Report. We will continue to seek to raise additional capital, but without additional financing we may
not be able to continue as a going concern.
Our future operations are dependent upon the successful entry into collaborations, strategic alliances, or license agreements with third
parties and/or on the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that we will be successful in completing these
collaborations or alliances, equity or debt financing or in achieving profitability. As such, there can be no assurance that we will be able to continue as a going concern.
Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common
stock, and it may be more difficult for us to obtain financing. If potential collaborators decline to do business with us or potential investors decline to participate in any future financings due to such concerns, our ability to increase our cash
position may be limited. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations. If we are unable to continue as a
going concern, you could lose all or part of your investment.
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Our operating activities may be restricted as a result of covenants related to the outstanding indebtedness issued
pursuant to the transactions contemplated by that certain securities purchase agreement with JGB, and we may be required to repay the outstanding indebtedness in an event of default, which could have a materially adverse effect on our business.
In April 2025, we entered into the JGB Purchase Agreement for the sale of (i) Senior Secured Convertible Debentures, or the Debentures,
in an aggregate principal amount of $22,222,222 and (ii) warrants to purchase up to 1,000,000 shares of our common stock, for an exercise price of $2.52 per share. Beginning on August 28, 2025, the holders of Debentures may require us to redeem a
portion of the Debentures of up to $500,000 in the aggregate per calendar month by providing written notice to us. To secure our obligations under the JGB Purchase Agreement and the Debentures, we granted the investors a first priority lien on
substantially all of our assets, including intellectual property, or the Collateral.
Under the Debentures, we must at all times maintain a cash balance equal to the lesser of (a) $15.0 million and (b) the then-outstanding
principal balance of the Debentures plus $3.0 million, in a deposit account subject to an account control agreement. In addition, for as long as any portion of the Debentures remain outstanding, we are generally subject to covenants restricting us
from: incurring indebtedness; granting or suffering liens on any of our property or assets; amending our organizational documents; repurchasing any of our securities; paying dividends; selling, disposing, licensing or leasing our assets other than in
the ordinary course; and other customary restrictive covenants.
A breach of any of the covenants under the Debentures could result in a default under the Debentures. Upon the occurrence of an event of
default under the Debentures, the investors could elect to declare all amounts outstanding, if any, to be immediately due and payable. If there are any amounts outstanding that we are unable to repay, the investors could proceed against the
Collateral granted to it to secure such indebtedness.
We are currently operating in a period of global economic uncertainty and capital markets disruption, which has been
significantly impacted by geopolitical conflicts, natural and man-made disasters, global health emergencies and uncertainties in regulatory developments and legislative actions, which could adversely affect our business, financial condition and
results of operations.
Our results of operations could be adversely affected by general conditions in the global economy, uncertainty from political conditions
and changing regulations, and disruption of global financial markets that may result in a recession or market correction. The financial markets and the global economy may be adversely affected by the current or anticipated impact of war, terrorism
and geopolitical conflicts, including in Russia and Ukraine, the Middle East and other areas. Sanctions and enhanced export controls imposed by the United States and other countries in response to such conflicts may also adversely impact the
financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.
Changes in regulations and policies by the new U.S. administration and the resulting political and economic uncertainty in the United
States may also impact us, the financial markets and the global economy. For example, in April 2025, increased tariffs were imposed on all countries and individualized “reciprocal” higher tariffs on certain countries with which the United States has
the largest trade deficits, with the highest tariffs imposed on imports from China. China and other countries responded by announcing retaliatory tariffs on U.S. imports. A few days later, the tariffs imposed on most countries were reduced to 10
percent, with the exception of China, for a period of 90 days to allow trade negotiations with those countries. It is unclear whether the tariff increases with China will continue to escalate. The tariff increases have significantly disrupted the
global markets and may significantly escalate tensions between the U.S. and other countries, especially China. The extent of the impact that such tariffs, trade policies, or new legislation or regulations will have on our business specifically, or on
the U.S. market and global economy generally, are uncertain and in the long term, unpredictable, and could adversely affect our business, financial condition, and results of operations. The continued impact of these tariffs may impair our plans for
further drug development in the U.S. market as well as our ability to generate revenues.
The current U.S. administration has recently issued regulations to restrict direct and indirect investment by U.S. persons into
companies with specified connections to China that use specific technologies of concern. Such changes in the regulations and policies by the current U.S. administration and the resulting political and economic uncertainty materially impact our
operations and those of our third-party service providers and reduce our ability to access capital, which could negatively affect our liquidity and adversely affect our business and the value of our common stock. The new U.S. administration may also
enact other new regulations or policies that affect trade with China or otherwise impact the pharmaceutical industry by enacting laws to restrict U.S. pharmaceutical companies from contracting with Chinese companies on the development, research or
manufacturing of pharmaceutical products. In April 2025, the U.S. Department of Commerce initiated national security investigations into the importation of pharmaceuticals and pharmaceutical ingredients pursuant to Section 232 of the Trade Expansion
Act of 1962, which could result in the imposition of new tariffs on imports within the pharmaceutical industry. Further, in April 2025, an executive order to lower prescription drug prices was signed. The details of such proposed regulations and
policies are unclear and the final terms and impact remain uncertain, and may pose long-term risks to our business.
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In addition, natural and man-made disasters and global health emergencies, including pandemics and epidemics, may adversely affect the
financial markets and global economy, increase inflation and result in significant business disruptions. We and our third-party services providers could be subject to the impact of natural or man-made disasters and other business disruptions, which
include, but are not limited to, hurricanes, flooding, typhoons, tornados, wildfires and fires, drought, extreme heat, earthquakes, water shortages, blizzards and other extreme weather conditions, resulting in significant damage to our facilities,
inventory or equipment, which could disrupt, delay or curtail our operations. Such business disruptions may also heighten the risk of power outages, telecommunications, transportation or other infrastructure failure, cybersecurity incidents or
physical security breaches. The cost of insurance has increase significantly, including as a result of the impact of climate change and inflation, and we may not be able to obtain sufficient coverage at a reasonable cost to protect us against losses
from such disasters and unforeseen events.
The volatile business environment or continued unpredictable and unstable market conditions may result in further deterioration of the
equity and credit markets, significant volatility in commodity prices, as well as supply chain interruptions and result in an economic downturn, which would make any equity or debt financing more difficult, costly and dilutive. Failure to secure any
necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay, limit, reduce, or terminate our product development or
future commercialization efforts.
Although our business has not been materially impacted by the tariffs adopted to date or adverse effects of geopolitical events, natural
or man-made disasters or other business disruptions to date, such matters may affect our business in the future and it is impossible to predict the extent to which our operations, or those of our suppliers and manufacturers, will be impacted in the
short and long term, or the ways in which such matters may impact our business. The extent and duration of such adverse geopolitical events, natural or man-made disasters or other business disruptions and actual or perceived political or economic
instability and resulting market disruptions are impossible to predict but could be substantial. Any such disruptions may also magnify the impact of other risks described herein.
The political and economic environment in the United States could materially impact our business operations and
financial performance, and uncertainty surrounding the potential legal, regulatory and policy changes by a new U.S. presidential administration may directly affect us and the global economy.
The political and economic environment in the United States and elsewhere has resulted in and will continue to result in some
uncertainty. Changing regulatory policies because of the changing political environment could impact our regulatory and compliance costs and future revenues, all of which could materially and adversely affect our business, financial condition and
operating results. For example, significant layoffs or turnover at FDA could affect the FDA’s ability to respond to regulatory filings. Failure to adapt to or comply with evolving regulatory requirements or investor or stakeholder expectations and
standards could negatively impact our reputation, ability to do business with certain partners, access to capital and our stock price.
Further, the new U.S. administration and congressional seat turnover may result in increased regulatory and economic uncertainty.
Changes in federal policy by the executive branch and regulatory agencies may occur over time through the new presidential administration’s and/or Congress’s policy and personnel changes, which could lead to changes involving the level of oversight
and focus on the pharmaceutical industry; however, the nature, timing and economic and political effects of such potential changes remain highly uncertain. Any future changes in federal and state laws and regulations, as well as the interpretation
and implementation of such laws and regulations, could affect us in substantial and unpredictable ways. At this time, it is unclear what laws, regulations and policies may change and whether future changes or uncertainty surrounding future changes
will adversely affect our operating environment and therefore our business, financial condition and results of operations.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.