10-Q 1 pali-20240930.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33672

 

PALISADE BIO, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

52-2007292

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

7750 El Camino Real, Suite 2A

Carlsbad, California

92009

(Address of principal executive offices)

(Zip Code)

(858) 704-4900

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

PALI

 

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of November 7, 2024, there were 1,329,516 shares of common stock, $0.01 par value, outstanding.

 

 

 

 


 

Palisade Bio, Inc.

Table of Contents

 

Page

PART I -

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Stockholders’ Equity

3

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

29

Item 4.

Controls and Procedures

29

 

 

 

PART II -

OTHER INFORMATION

31

 

 

 

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosure

50

Item 5.

Other Information

50

Item 6.

Exhibits

51

 

 

 

SIGNATURES

57

 

 

 

i


 

PART I

FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Palisade Bio, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,040

 

 

$

12,432

 

Prepaid expenses and other current assets

 

 

830

 

 

 

896

 

Total current assets

 

 

8,870

 

 

 

13,328

 

Restricted cash

 

 

26

 

 

 

26

 

Property and equipment, net

 

 

3

 

 

 

10

 

Operating lease right-of-use asset

 

 

113

 

 

 

198

 

Other noncurrent assets

 

 

324

 

 

 

490

 

Total assets

 

$

9,336

 

 

$

14,052

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

366

 

 

$

698

 

Accrued liabilities

 

 

1,509

 

 

 

831

 

Accrued compensation and benefits

 

 

449

 

 

 

778

 

Current portion of operating lease liability

 

 

122

 

 

 

121

 

Insurance financing debt

 

 

235

 

 

 

158

 

Total current liabilities

 

 

2,681

 

 

 

2,586

 

Warrant liability

 

 

2

 

 

 

2

 

Contingent consideration obligation

 

 

45

 

 

 

61

 

Operating lease liability, net of current portion

 

 

 

 

 

90

 

Total liabilities

 

 

2,728

 

 

 

2,739

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Series A Convertible Preferred Stock, $0.01 par value,
7,000,000 shares authorized; 200,000 issued and
outstanding at September 30, 2024 and December 31, 2023

 

 

2

 

 

 

2

 

Common stock, $0.01 par value; 280,000,000 shares authorized;
1,198,516 and 618,056 shares issued and outstanding
at September 30, 2024 and December 31, 2023, respectively

 

 

11

 

 

 

6

 

Additional paid-in capital

 

 

139,195

 

 

 

132,811

 

Accumulated deficit

 

 

(132,600

)

 

 

(121,506

)

Total stockholders' equity

 

 

6,608

 

 

 

11,313

 

Total liabilities and stockholders' equity

 

$

9,336

 

 

$

14,052

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 


 

Palisade Bio, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

License revenue

 

$

 

 

$

 

 

$

 

 

$

250

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,137

 

 

 

2,104

 

 

 

6,979

 

 

 

5,522

 

General and administrative

 

 

1,456

 

 

 

1,674

 

 

 

4,498

 

 

 

4,644

 

Total operating expenses

 

 

3,593

 

 

 

3,778

 

 

 

11,477

 

 

 

10,166

 

Loss from operations

 

 

(3,593

)

 

 

(3,778

)

 

 

(11,477

)

 

 

(9,916

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(6

)

 

 

(8

)

 

 

(9

)

 

 

(11

)

Other income, net

 

 

112

 

 

 

190

 

 

 

392

 

 

 

598

 

Total other income, net

 

 

106

 

 

 

182

 

 

 

383

 

 

 

587

 

Net loss

 

$

(3,487

)

 

$

(3,596

)

 

$

(11,094

)

 

$

(9,329

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available to common stockholders

 

$

(3,487

)

 

$

(3,612

)

 

$

(11,094

)

 

$

(9,345

)

Basic and diluted weighted average shares used in computing
basic and diluted net loss per common share*

 

 

1,500,409

 

 

 

489,624

 

 

 

1,168,277

 

 

 

402,074

 

Basic and diluted net loss per common share*

 

$

(2.32

)

 

$

(7.38

)

 

$

(9.50

)

 

$

(23.24

)

 

(*) Basic and diluted loss per common share and basic and diluted weighted average share used in computing basic and diluted loss per common share for the three and nine months ended September 30, 2023 has been adjusted to reflect the 1-for-15 reverse stock split effected on April 5, 2024.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

2


 

Palisade Bio, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30, 2024

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in
Capital*

 

 

Accumulated
Deficit

 

 

Total
Stockholders'
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares*

 

 

Amount*

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2024

 

 

200,000

 

 

$

2

 

 

 

966,345

 

 

$

9

 

 

$

139,051

 

 

$

(129,113

)

 

$

9,949

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,487

)

 

 

(3,487

)

Stock-based compensation expense and related charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95

 

 

 

 

 

 

95

 

Issuance of common stock to vendors

 

 

 

 

 

 

 

 

14,029

 

 

 

 

 

 

51

 

 

 

 

 

 

51

 

Issuance of common stock in connection with exercise of warrants

 

 

 

 

 

 

 

 

218,142

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

Balance, September 30, 2024

 

 

200,000

 

 

$

2

 

 

 

1,198,516

 

 

$

11

 

 

$

139,195

 

 

$

(132,600

)

 

$

6,608

 

 

 

 

 

Three Months Ended September 30, 2023

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in
Capital*

 

 

Accumulated
Deficit

 

 

Total
Stockholders'
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares*

 

 

Amount*

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2023

 

 

200,000

 

 

$

2

 

 

 

456,622

 

 

$

4

 

 

$

130,717

 

 

$

(114,923

)

 

$

15,800

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,596

)

 

 

(3,596

)

Stock-based compensation expense and related charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

202

 

 

 

 

 

 

202

 

Issuance of common stock for vesting of restricted stock units, net of employee withholding tax liability

 

 

 

 

 

 

 

 

1,466

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock and warrants in September 2023 Offering, net of issuance costs of $345

 

 

 

 

 

 

 

 

155,959

 

 

 

2

 

 

 

1,674

 

 

 

 

 

 

1,676

 

Adjustment to record the impact of exercise price reset on outstanding warrants related to down round provisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

(16

)

 

 

 

Balance, September 30, 2023

 

 

200,000

 

 

$

2

 

 

 

614,047

 

 

$

6

 

 

$

132,609

 

 

$

(118,535

)

 

$

14,082

 

 

(*) Adjusted to reflect the 1-for-15 reverse stock split effected on April 5, 2024.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 


 

Palisade Bio, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

 

Nine Months Ended September 30, 2024

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in
Capital*

 

 

Accumulated
Deficit

 

 

Total
Stockholders'
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares*

 

 

Amount*

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2023

 

 

200,000

 

 

$

2

 

 

 

618,056

 

 

$

6

 

 

$

132,811

 

 

$

(121,506

)

 

$

11,313

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,094

)

 

 

(11,094

)

Stock-based compensation expense and related charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

575

 

 

 

 

 

 

575

 

Issuance of common stock to vendors

 

 

 

 

 

 

 

 

29,632

 

 

 

 

 

 

124

 

 

 

 

 

 

124

 

Issuance of common stock for vesting of restricted stock units, net of employee withholding tax liability

 

 

 

 

 

 

 

 

17,270

 

 

 

 

 

 

(25

)

 

 

 

 

 

(25

)

Issuance of common stock in connection with exercise of warrants

 

 

 

 

 

 

 

 

218,142

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

Issuance of common stock under Employee Stock Purchase Plan

 

 

 

 

 

 

 

 

2,256

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Issuance of common stock in connection with warrant inducement, net of issuance costs of $2,412 (Note 5)

 

 

 

 

 

 

 

 

228,162

 

 

 

2

 

 

 

2,158

 

 

 

 

 

 

2,160

 

Issuance of common stock and warrants in May 2024 Offering, net of issuance costs of $705

 

 

 

 

 

 

 

 

85,100

 

 

 

1

 

 

 

3,543

 

 

 

 

 

 

3,544

 

Reverse stock split fractional share settlement

 

 

 

 

 

 

 

 

(102

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2024

 

 

200,000

 

 

$

2

 

 

 

1,198,516

 

 

$

11

 

 

$

139,195

 

 

$

(132,600

)

 

$

6,608

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in
Capital*

 

 

Accumulated
Deficit

 

 

Total
Stockholders'
Equity

 

 

 

Shares

 

 

Amount

 

 

Shares*

 

 

Amount*

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

200,000

 

 

$

2

 

 

 

196,287

 

 

$

2

 

 

$

121,665

 

 

$

(109,190

)

 

$

12,479

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,329

)

 

 

(9,329

)

Stock-based compensation expense and related charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

439

 

 

 

 

 

 

439

 

Issuance of common stock for vesting of restricted stock units, net of employee withholding tax liability

 

 

 

 

 

 

 

 

2,310

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in connection with exercise of warrants

 

 

 

 

 

 

 

 

146,932

 

 

 

1

 

 

 

1,349

 

 

 

 

 

 

1,350

 

Issuance of common stock and warrants in January 2023 Offering, net of issuance costs of $507

 

 

 

 

 

 

 

 

31,789

 

 

 

 

 

 

2,166

 

 

 

 

 

 

2,166

 

Issuance of common stock and warrants in April 2023 Offering, net of issuance costs of $854

 

 

 

 

 

 

 

 

80,770

 

 

 

1

 

 

 

5,300

 

 

 

 

 

 

5,301

 

Issuance of common stock and warrants in September 2023 Offering, net of issuance costs of $345

 

 

 

 

 

 

 

 

155,959

 

 

 

2

 

 

 

1,674

 

 

 

 

 

 

1,676

 

Adjustment to record the impact of exercise price reset on outstanding warrants related to down round provisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

(16

)

 

 

 

Balance, September 30, 2023

 

 

200,000

 

 

$

2

 

 

 

614,047

 

 

$

6

 

 

$

132,609

 

 

$

(118,535

)

 

$

14,082

 

 

(*) Adjusted to reflect the 1-for-15 reverse stock split effected on April 5, 2024.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

Palisade Bio, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

 

 

 

Net loss

 

$

(11,094

)

 

$

(9,329

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

3

 

 

 

4

 

Non-cash operating lease expense

 

 

85

 

 

 

76

 

Recurring fair value measurements of liabilities

 

 

(159

)

 

 

153

 

Issuance of common stock to vendors

 

 

124

 

 

 

 

Loss on disposal of property and equipment

 

 

4

 

 

 

 

Stock-based compensation and related charges

 

 

575

 

 

 

439

 

Other

 

 

 

 

 

(108

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid and other current assets and other noncurrent assets

 

 

542

 

 

 

596

 

Accounts payable and accrued liabilities

 

 

526

 

 

 

(184

)

Accrued compensation and benefits

 

 

(329

)

 

 

43

 

Operating lease liabilities

 

 

(89

)

 

 

(77

)

Net cash used in operating activities

 

 

(9,812

)

 

 

(8,387

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(4

)

Net cash used in investing activities

 

 

 

 

 

(4

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on insurance financing debt

 

 

(270

)

 

 

(290

)

Proceeds from issuance of common stock and warrants

 

 

4,000

 

 

 

9,419

 

Proceeds from the exercise of warrants

 

 

2,503

 

 

 

2,758

 

Payment of warrant inducement issuance costs

 

 

(343

)

 

 

 

Payment of equity issuance costs

 

 

(456

)

 

 

(567

)

Proceeds from issuance of common stock under Employee Stock Purchase Plan

 

 

11

 

 

 

 

Shares withheld for payment of employee withholding tax liability

 

 

(25

)

 

 

 

Net cash provided by financing activities

 

 

5,420

 

 

 

11,320

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(4,392

)

 

 

2,929

 

Cash, cash equivalents and restricted cash, beginning of year

 

 

12,458

 

 

 

12,409

 

Cash, cash equivalents and restricted cash, end of period

 

$

8,066

 

 

$

15,338

 

Reconciliation of cash, cash equivalents and restricted cash to the balance sheets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,040

 

 

$

15,312

 

Restricted cash

 

 

26

 

 

 

26

 

Total cash, cash equivalents and restricted cash

 

$

8,066

 

 

$

15,338

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Interest paid

 

$

8

 

 

$

10

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

Warrant inducement and equity issuance costs included in accounts payable and accrued liabilities

 

$

 

 

$

50

 

Non-cash impact of exercise price reset on outstanding warrants related to down round provisions

 

 

 

 

 

16

 

Fair value of warrants issued to solicitation agent

 

 

94

 

 

 

 

Fair value of warrants issued to placement agent

 

 

249

 

 

 

384

 

Deferred equity issuance costs recognized as a reduction in additional paid-in capital from financing activities

 

 

37

 

 

 

 

Insurance financing debt included in prepaid and other current assets and other noncurrent assets

 

 

347

 

 

 

461

 

Incremental fair value of modified warrants (Note 5)

 

 

1,975

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 


 

PALISADE BIO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization, Business and Financial Condition

As used in this Quarterly Report on Form 10-Q, unless the context indicates or otherwise requires, “Palisade,” “Palisade Bio,” the "Company,” “we,” “us,” and “our” or similar designations in this report refer to Palisade Bio, Inc., a Delaware Corporation, and its subsidiaries. Any reference to “common shares” or “common stock,” refers to the Company's $0.01 par value common stock. Any reference to “Series A Preferred Stock” refers to the Company's Series A 4.5% Convertible Preferred Stock. Any reference to “Leading Biosciences, Inc.” or “LBS” refers to the Company’s operations prior to the completion of its merger with Seneca Biopharma, Inc. ("Seneca") on April 27, 2021 (the "Merger"). Any reference herein that refers to pre-clinical studies also refers to nonclinical studies.

Description of Business

The Company is a clinical-stage biopharmaceutical company focused on developing and advancing novel therapeutics for patients living with autoimmune, inflammatory, and fibrotic diseases. The Company's lead product candidate, PALI-2108, is being developed as a treatment for patients living with inflammatory bowel disease, or IBD, including ulcerative colitis and Crohn's disease.

Liquidity and Going Concern

The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven. The Company has experienced losses and negative cash flows from operations since its inception. As of September 30, 2024, the Company had an accumulated deficit of $132.6 million and cash and cash equivalents of approximately $8.0 million. The Company expects to continue to incur losses in the foreseeable future. The successful transition to achieving profitability is dependent upon achieving a level of revenues adequate to support the Company’s costs. There can be no assurances that such profitability will ever be achieved.

Based on the Company’s current working capital, anticipated operating expenses, and anticipated net operating losses, there is substantial doubt about the Company's ability to continue as a going concern for a period of one year following the date that these condensed consolidated financial statements are issued. The condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments for the recovery and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Historically, the Company has funded its operations primarily through equity financings. The Company plans to continue to fund its operations through its cash and cash equivalents on hand, as well as through future equity offerings, debt financings, other third-party funding, and potential licensing or collaboration arrangements. Refer to Note 5, Stockholders' Equity, for discussion of the recent financings undertaken by the Company. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to the Company. Even if the Company is successful in raising additional capital, it may also be required to modify, delay or abandon some of its plans, which could have a material adverse effect on the Company’s business, operating results and financial condition and the Company’s ability to achieve its intended business objectives. Any of these occurrences could materially harm the Company’s business, results of operations and future prospects.

2. Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

In management’s opinion, the accompanying interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company's financial position, results of operations and cash flows. The interim results of operations are not necessarily indicative of the results that may occur for the full year. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). The Company believes that the disclosures provided herein

6


 

are adequate to make the information presented not misleading when these condensed consolidated financial statements are read in conjunction with the consolidated financial statements and notes included in the Company’s financial statements filed in the Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 26, 2024, and any Quarterly Reports on Form 10-Q filed thereafter.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, LBS and Suzhou Neuralstem Biopharmaceutical Co., Ltd. All the entities are consolidated in the Company's condensed consolidated financial statements and all intercompany activity and transactions, if any, have been eliminated.

Reverse Stock Split

On April 5, 2024, the Company effected a 1-for-15 reverse stock split of its issued and outstanding common stock (the "Reverse Stock Split"). As a result of the Reverse Stock Split, each of the Company’s stockholders received one share of common stock for every 15 shares such stockholder held immediately prior to the effective time of the Reverse Stock Split. The Reverse Stock Split affected all the Company’s issued and outstanding shares of common stock equally. The par value and authorized shares of the Company's common stock were not adjusted as a result of the Reverse Stock Split. The Reverse Stock Split also affected the Company’s outstanding stock-based awards, common stock warrants, and other exercisable or convertible securities and resulted in the shares underlying such instruments being reduced and the exercise price or conversion price being increased proportionately. Unless otherwise noted, all common stock shares, common stock per share data and shares of common stock underlying convertible preferred stock, stock-based awards and common stock warrants included in these condensed consolidated financial statements, including the exercise price or conversion price of such equity instruments, as applicable, have been retrospectively adjusted to reflect the Reverse Stock Split for all periods presented.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments, and assumptions that impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet, and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s condensed consolidated financial statements relate to accrued research and development expenses and its contingent consideration obligation. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions.

Significant Accounting Policies

The Company’s significant accounting policies used in the preparation of these condensed consolidated financial statements for the three and nine months ended September 30, 2024 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 26, 2024.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. During the fourth quarter of 2023, the Company reclassified the fair value of the contingent consideration milestone payment obligation associated with the Giiant License Agreement (as defined below), including transaction related costs, in the amount of $362,000 from In-process research and development expenses to Research and development expenses at the consolidated statement of operations, which impacted amounts previously reported for the three and nine months ended September 30, 2023.

Comprehensive Loss

Comprehensive income (loss) is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was the same as its reported net loss for all periods presented.

Recently Issued or Adopted Accounting Pronouncements

No new accounting pronouncements issued or adopted during the three and nine months ended September 30, 2024 that had or are expected to have a material impact on the Company’s condensed consolidated financial statements or disclosures.

7


 

3. Balance Sheet Details

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Prepaid insurance

 

$

473

 

 

$

428

 

Other receivables

 

 

96

 

 

 

148

 

Prepaid subscriptions and fees

 

 

148

 

 

 

138

 

Prepaid software licenses

 

 

19

 

 

 

64

 

Deposits

 

 

12

 

 

 

 

Deferred equity issuance costs

 

 

76

 

 

 

112

 

Prepaid other

 

 

6

 

 

 

6

 

 

$

830

 

 

$

896

 

 

Deferred equity issuance costs consist of the legal, accounting and other direct and incremental costs incurred by the Company related to its equity offerings, if not yet finalized as of the balance sheet date, or shelf registration statement. These costs will be netted against additional paid-in capital as a cost of the future equity issuances to which they relate. During the nine months ended September 30, 2024, the Company netted previously deferred equity issuance costs of approximately $37,000 against the additional paid-in capital recognized in conjunction with the warrant inducement transaction that closed on February 1, 2024 (see Note 5, Stockholders' Equity).

Other noncurrent assets consisted of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Prepaid insurance, less current portion

 

$

324

 

 

$

478

 

Other noncurrent assets

 

 

 

 

 

12

 

 

$

324

 

 

$

490

 

Accrued liabilities consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued accounts payable

 

$

118

 

 

$

146

 

Accrued clinical trial expenses

 

 

174

 

 

 

20

 

Accrued CMC expenses

 

 

264

 

 

 

5

 

Accrued director stipends

 

 

59

 

 

 

106

 

Accrued severance and benefits (Note 9)

 

 

 

 

 

131

 

Accrued joint development expenses (Note 7)

 

 

669

 

 

 

98

 

Current portion of contingent consideration obligation (Note 4)

 

 

 

 

 

143

 

Accrued other

 

 

225

 

 

 

182

 

 

$

1,509

 

 

$

831

 

 

8


 

4. Fair Value Measurements

The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash, other current receivables, accounts payable, accrued liabilities, insurance financing debt, liability-classified warrants and a contingent consideration obligation. The carrying amounts of financial instruments such restricted cash, other current receivables, accounts payable, and accrued liabilities approximate their related fair values due to the short-term nature of these instruments. The carrying value of the Company’s insurance financing debt as of September 30, 2024 and December 31, 2023 approximates its fair value due to the market rate of interest, which is based on level 2 inputs. The Company’s liability-classified common stock warrants and its contingent consideration obligation are carried at fair value based on level 3 inputs. None of the Company’s non-financial assets or liabilities are recorded at fair value on a nonrecurring basis.

Cash and Cash Equivalents

The Company invests its excess cash in money market funds that are classified as level 1 in the fair value hierarchy, due to their short-term maturity, and measured the fair value based on quoted prices in active markets for identical assets. The fair value of the Company's cash and cash equivalents invested in money market funds was $7.7 million and $12.3 million as of September 30, 2024 and December 31, 2023, respectively.

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions and in money market accounts, and at times balances may exceed federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held nor has the Company experienced any losses in these accounts.

Contingent Consideration Obligation

On September 1, 2023, the Company and Giiant Pharma, Inc. ("Giiant") entered into a research collaboration and license agreement (“Giiant License Agreement”). Pursuant to the Giiant License Agreement, the Company incurred a contingent consideration obligation related to future milestone payments. The Company has an obligation to make contingent consideration payments to Giiant, in either cash or shares of the Company’s common stock solely at the Company’s election, upon the achievement of development milestones (as set forth in the Giiant License Agreement). Because the contingent consideration may be settled in shares of the Company's common stock, the Company has determined it should be accounted for under Accounting Standards Codification ("ASC") 480, and accordingly has recognized it as a liability measured at its estimated fair value. On August 2, 2024, the Company and Giiant entered into an amendment to the Giiant License Agreement, which among other things, reduced the milestone payments due to Giiant upon the achievement certain development milestones (see Note 7, Collaborations and License Agreements, for further details).

At the end of each reporting period, the Company re-measures the contingent consideration obligation to its estimated fair value and any resulting change is recognized in research and development expenses in the condensed consolidated statements of operations. The fair value of the contingent consideration obligation is determined using a probability-based model that estimates the likelihood of success in achieving each of the defined milestones that is then discounted to present value using the Company's incremental borrowing rate. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting. The significant assumptions used in the calculation of the fair value as of September 30, 2024 included a discount rate of 12.1% and management's updated projections of the likelihood of success in achieving each of the defined milestones based on empirical, published industry data.

The following table summarizes the activity of the Company's Level 3 contingent consideration obligation, which is fair valued on a recurring basis (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Contingent Consideration Obligation

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Fair value at beginning of period

 

$

209

 

 

$

 

 

$

204

 

 

$

 

Initial fair value at the original issuance date

 

 

 

 

 

212

 

 

 

 

 

 

212

 

Change in fair value during the period

 

 

(164

)

 

 

 

 

 

(159

)

 

 

 

Fair value at end of period

 

$

45

 

 

$

212

 

 

$

45

 

 

$

212

 

 

9


 

As of December 31, 2023, approximately $143,000 of the contingent consideration obligation was recognized in accrued liabilities in the condensed consolidated balance sheets as it was expected to be settled within one-year of the balance sheet date. None of the contingent consideration obligation is expected to be settled within one-year of the balance sheet date as of September 30, 2024. A contingent consideration obligation of approximately $45,000 and $61,000, respectively, was recognized as a noncurrent liability in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. The change in the fair value of the contingent consideration obligation of approximately $164,000 and $159,000 for the three and nine months ended September 30, 2024, respectively, was primarily due to the reduction in the milestone payments due to Giiant upon the achievement certain development milestones pursuant to the amendment to the Giiant License Agreement, partially offset by a decrease in the discount rate used. The resulting gains on the revaluation of the liability was recognized in research and development expenses in the condensed consolidated statements of operations for the three and nine months ended September 30, 2024. There was no change in the fair value of the contingent consideration obligation for the three and nine months ended September 30, 2023.

Liability-Classified Warrants

The Company has issued warrants that are accounted for as liabilities based upon the guidance of with ASC 480 and ASC 815. Estimating fair values of liability-classified financial instruments requires the development of estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. Changes in fair value of the liability-classified warrants, if any, are recognized as a component of other income, net in the condensed consolidated statement of operations.

As of September 30, 2024, the fair value of the Company's liability-classified warrants outstanding was determined to be insignificant using a Black-Scholes option pricing model valuation model due to the low market price of the Company's stock at the date of valuation relative to the exercise price of the underlying warrants outstanding.

The following table summarizes the activity of the Company’s Level 3 liability-classified warrants during the three and nine months ended September 30, 2024 and 2023 (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Warrant Liabilities

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Fair value at beginning of period

 

$

2

 

 

$

2

 

 

$

2

 

 

$

61

 

Change in fair value during the period

 

 

 

 

 

 

 

 

 

 

 

(59

)

Fair value at end of period

 

$

2

 

 

$

2

 

 

$

2

 

 

$

2

 

 

5. Stockholders’ Equity

Classes of Stock

Common Stock

As of September 30, 2024, the Company was authorized to issue 280,000,000 shares of $0.01 par value common stock. Each share of common stock entitles the holder thereof to one vote on each matter submitted to a vote at a meeting of stockholders.

On April 5, 2024, the Company effected the Reverse Stock Split. Accordingly, each of the Company’s stockholders received one share of the Company's common stock for every 15 shares of the Company's common stock that such stockholder held immediately prior to the effective time of the Reverse Stock Split. The Reverse Stock Split affected all of the Company’s issued and outstanding shares of the Company's common stock equally. The Reverse Stock Split also affected the Company’s outstanding stock-based awards, warrants and other exercisable or convertible securities and resulted in the shares underlying such instruments being reduced and the exercise price or conversion price being increased proportionately by the Reverse Stock Split ratio. No fractional shares were issued as a result of the Reverse Stock Split with any fractional shares that would have otherwise resulted from the Reverse Stock Split paid in cash, at an amount equal to the resulting fractional interest in one share of the Company's common stock that the stockholder would otherwise be entitled, multiplied by the closing trading price of the Company's common stock on April 5, 2024. The amount of cash paid for fractional shares was immaterial to the Company's financial statements.

As a result of the Reverse Stock Split, on April 5, 2024, the number of issued and outstanding shares of the Company's common stock was adjusted from 12,771,015 shares to 851,302 shares.

10


 

Preferred Stock

As of September 30, 2024, the Company was authorized to issue 7,000,000 shares of $0.01 par value preferred stock of which 1,000,000 shares have been designated as Series A 4.5% Convertible Preferred Stock ("Series A Convertible Preferred Stock") and 200,000 of which are issued and outstanding. As of September 30, 2024, all of the Company's 200,000 shares of Series A Convertible Preferred Stock outstanding are convertible into an aggregate of 8 shares of the Company's common stock.

Recent Equity Offerings

May 2024 Offering

On May 1, 2024, the Company entered into a securities purchase agreement with an institutional investor, pursuant to which the Company sold in a private placement, (i) 85,100 shares of common stock at a purchase price per share of $6.5015, (ii) 530,142 prefunded warrants to purchase shares common stock at a purchase price of $6.5014 per prefunded warrant, with such prefunded warrants being immediately exercisable, having an exercise price of $0.0001 per share, and a perpetual term, and (iii) common stock warrants to purchase 922,863 shares of the common stock at an exercise price of $6.314 per share and a term of seven years from the date of issuance (the "May 2024 Warrants") (collectively, the “May 2024 Offering”).

The Company issued warrants to the placement agent in the May 2024 Offering to purchase an aggregate 36,914 shares of common stock (the “May 2024 Placement Agent Warrants”). The May 2024 Placement Agent Warrants have substantially the same terms as the May 2024 Warrants, except that the exercise price of each of the May 2024 Placement Agent Warrants is $10.727 per share and the term is five years from issuance. The fair value of the May 2024 Placement Agent Warrants was recognized by the Company as an equity issuance cost which reduced the additional paid-in capital recognized from the May 2024 Offering.

The May 2024 Offering closed on May 6, 2024 for net cash proceeds to the Company of approximately $3.5 million, consisting of gross cash proceeds of $4.0 million less cash equity issuance costs of approximately $0.5 million, which excludes the grant date fair value of the May 2024 Placement Agent Warrants of approximately $0.2 million.

Other Recent Equity Offerings

On September 11, 2023, the Company completed a registered direct offering of common stock pursuant to an effective shelf registration statement on Form S-3 (the "September 2023 Offering"). Gross cash proceeds from the September 2023 Offering were $2.0 million and net cash proceeds were $1.7 million after deducting cash equity issuance costs of approximately $0.3 million.

On April 3, 2023, the Company completed a registered direct offering and concurrent private placement of common stock and warrants to purchase common stock (the "April 2023 Offering"). Gross cash proceeds from the April 2023 Offering were $6.0 million and net cash proceeds were $5.3 million after deducting cash equity issuance costs of approximately $0.7 million.

On January 4, 2023, the Company completed a registered direct offering and concurrent private placement of common stock and warrants to purchase common stock (the "January 2023 Offering"). Gross cash proceeds from the January 2023 Offering were $2.5 million and net cash proceeds were approximately $2.2 million after deducting cash equity issuance costs of approximately $0.3 million.

Common Stock Warrants and Warrant Exercises

February 2024 Warrant Inducement

On J