UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
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 001-41596
CADRENAL THERAPEUTICS, INC.
(Exact name of registrant as specified in its
charter)
Delaware | | 88-0860746 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
822 A1A North, Suite 306 Ponte Vedra, Florida | | 32082 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including
area code: (904) 300-0701
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, par value $0.001 per share | | CVKD | | The Nasdaq Stock Market, LLC |
| | | | (The 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, a 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 August 9, 2023, there
were 13,022,754 outstanding shares of common stock, par value $0.001 per share, of Cadrenal Therapeutics, Inc.
CADRENAL THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023
TABLE OF CONTENTS
|
|
Page |
|
PART I.
FINANCIAL INFORMATION |
1 |
|
|
|
Item 1. |
Financial Statements |
1 |
|
|
|
|
Balance Sheets at June
30, 2023 (unaudited) and December 31, 2022 |
1 |
|
Statements
of Operations and Comprehensive Loss for the Three and Six Months ended June 30, 2023 (unaudited) and for the Three Months ended
June 30, 2022 (unaudited) and the period from January 25, 2022 (inception) through June 30, 2022 |
2 |
|
Statements
of Changes in Stockholders’ Deficit for the Three and Six Months ended June 30, 2023 (unaudited) and for the Three Months
ended June 30, 2022 (unaudited) and the period from January 25, 2022 (inception) through June 30, 2022 |
3 |
|
Statements
of Cash Flows for the Six Months ended June 30, 2023 (unaudited) and for the period from January 25, 2022 (inception) through June
30, 2022 |
4 |
|
Notes to Financial
Statements |
5 |
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 |
30 |
|
|
|
Item 1. |
Legal Proceedings |
30 |
Item 1A. |
Risk Factors |
30 |
Item 2. |
Unregistered Sales of Equity
Securities and Use of Proceeds |
31 |
Item 3. |
Defaults Upon Senior Securities |
31 |
Item 4. |
Mine Safety Disclosures |
31 |
Item 5. |
Other Information |
31 |
Item 6. |
Exhibits |
32 |
|
|
|
SIGNATURES |
33 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CADRENAL
THERAPEUTICS, INC.
BALANCE SHEETS
| |
June 30,
2023 | | |
December 31,
2022 | |
| |
(unaudited) | | |
| |
Assets: | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 3,229,806 | | |
$ | 32,586 | |
Prepaid expenses | |
| 289,328 | | |
| 22,715 | |
Deferred offering costs | |
| - | | |
| 672,295 | |
Total current assets | |
| 3,519,134 | | |
| 727,596 | |
Property, plant and equipment | |
| 3,480 | | |
| 1,013 | |
Right of use assets | |
| 32,620 | | |
| 43,578 | |
Other assets | |
| 3,792 | | |
| 5,987 | |
Total assets | |
$ | 3,559,026 | | |
$ | 778,174 | |
Liabilities: | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 78,139 | | |
$ | 404,897 | |
Accrued liabilities | |
| 272,106 | | |
| 863,564 | |
Operating lease liability | |
| 24,063 | | |
| 22,288 | |
Promissory note payable, net of debt discount | |
| - | | |
| 43,728 | |
Total current liabilities | |
| 374,308 | | |
| 1,334,477 | |
Convertible note payable, net of debt discount - related parties | |
| - | | |
| 442,960 | |
Convertible note payable, net of debt discount | |
| - | | |
| 110,380 | |
Derivative liabilities | |
| - | | |
| 4,379,944 | |
Accrued interest | |
| - | | |
| 40,213 | |
Operating lease liability, noncurrent | |
| 8,796 | | |
| 21,350 | |
Total liabilities | |
| 383,104 | | |
| 6,329,324 | |
Stockholders’ equity (deficit): | |
| | | |
| | |
Common stock, $0.001 par value; 75,000,000 shares authorized, 11,722,754 shares issued and outstanding as of June 30, 2023; 8,193,875 shares issued and outstanding as of December 31, 2022 | |
| 11,722 | | |
| 8,194 | |
Additional paid-in capital | |
| 16,055,104 | | |
| 1,154,985 | |
Accumulated deficit | |
| (12,890,904 | ) | |
| (6,714,329 | ) |
Total stockholders’ equity (deficit) | |
| 3,175,922 | | |
| (5,551,150 | ) |
Total liabilities and stockholders’ equity (deficit) | |
$ | 3,559,026 | | |
$ | 778,174 | |
The accompanying notes are an integral part of these financial statements.
CADRENAL THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| |
Three Months Ended
June 30, | | |
Six Months
Ended
June 30, | | |
January 25,
2022
(inception)
through
June 30,
| |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative expenses | |
$ | 784,623 | | |
$ | 280,112 | | |
$ | 1,749,356 | | |
$ | 432,772 | |
Research and development expenses | |
| 240,957 | | |
| 202,235 | | |
| 3,476,274 | | |
| 220,095 | |
Depreciation expense | |
| 597 | | |
| - | | |
| 786 | | |
| - | |
Total operating expenses | |
| 1,026,177 | | |
| 482,347 | | |
| 5,226,416 | | |
| 652,867 | |
Loss from operations | |
| (1,026,177 | ) | |
| (482,347 | ) | |
| (5,226,416 | ) | |
| (652,867 | ) |
Other expense: | |
| | | |
| | | |
| | | |
| | |
Interest and dividend income | |
| (23,176 | ) | |
| - | | |
| (23,176 | ) | |
| - | |
Interest expense | |
| - | | |
| 6,446 | | |
| 3,534 | | |
| 8,527 | |
Interest expense, amortization of debt discount | |
| - | | |
| 8,324 | | |
| 13,567 | | |
| 10,832 | |
Change in fair value of derivative liabilities | |
| - | | |
| 5,024 | | |
| 216,095 | | |
| 6,562 | |
Loss on extinguishment of debt | |
| - | | |
| - | | |
| 740,139 | | |
| - | |
Total other (income) expenses | |
| (23,176 | ) | |
| 19,794 | | |
| 950,159 | | |
| 25,921 | |
Net loss and comprehensive loss | |
$ | (1,003,001 | ) | |
$ | (502,141 | ) | |
$ | (6,176,575 | ) | |
$ | (678,788 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per common share, basic and diluted | |
$ | (0.09 | ) | |
$ | (0.07 | ) | |
$ | (0.55 | ) | |
$ | (0.09 | ) |
Weighted average number of common shares used in computing net loss per common share, basic and diluted | |
| 11,722,754 | | |
| 7,720,000 | | |
| 11,252,903 | | |
| 7,626,923 | |
The accompanying notes are an integral part
of these financial statements.
CADRENAL THERAPEUTICS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
(unaudited)
| |
Common Stock | | |
Additional Paid-In | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity (Deficit) | |
Balance, March 31, 2023 | |
| 11,722,754 | | |
$ | 11,722 | | |
$ | 15,941,443 | | |
$ | (11,887,903 | ) | |
$ | 4,065,262 | |
Equity-based compensation - options, restricted stock and RSUs | |
| - | | |
| - | | |
| 113,661 | | |
| - | | |
| 113,661 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (1,003,001 | ) | |
| (1,003,001 | ) |
Balance, June 30, 2023 | |
| 11,722,754 | | |
$ | 11,722 | | |
$ | 16,055,104 | | |
$ | (12,890,904 | ) | |
$ | 3,175,922 | |
| |
Common Stock | | |
Additional
Paid-In | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity (Deficit) | |
Balance, December 31, 2022 | |
| 8,193,875 | | |
$ | 8,194 | | |
$ | 1,154,985 | | |
$ | (6,714,329 | ) | |
$ | (5,551,150 | ) |
Issuance of common shares in initial public offering, net of offering costs | |
| 1,400,000 | | |
| 1,400 | | |
| 5,407,175 | | |
| - | | |
| 5,408,575 | |
Issuance of common shares to settle convertible debt | |
| 1,140,700 | | |
| 1,140 | | |
| 1,139,560 | | |
| - | | |
| 1,140,700 | |
De-recognition of derivative liabilities | |
| - | | |
| - | | |
| 4,596,039 | | |
| - | | |
| 4,596,039 | |
Issuance of common shares from exercise of warrants | |
| 250,000 | | |
| 250 | | |
| 249,750 | | |
| - | | |
| 250,000 | |
Issuance of common shares to settle asset purchase obligation | |
| 600,000 | | |
| 600 | | |
| 2,999,400 | | |
| - | | |
| 3,000,000 | |
Issuance of restricted common shares for prepaid consulting services | |
| 77,340 | | |
| 77 | | |
| 108,199 | | |
| - | | |
| 108,276 | |
Equity-based compensation - options, restricted stock and RSUs | |
| 60,839 | | |
| 61 | | |
| 399,996 | | |
| - | | |
| 400,057 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (6,176,575 | ) | |
| (6,176,575 | ) |
Balance, June 30, 2023 | |
| 11,722,754 | | |
$ | 11,722 | | |
$ | 16,055,104 | | |
$ | (12,890,904 | ) | |
$ | 3,175,922 | |
| |
Common Stock | | |
Additional
Paid-In | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance, March 31, 2022 | |
| 7,500,000 | | |
$ | 7,500 | | |
$ | - | | |
$ | (176,647 | ) | |
| (169,147 | ) |
Issuance of founder shares | |
| 450,000 | | |
| 450 | | |
| - | | |
| - | | |
| 450 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (502,141 | ) | |
| (502,141 | ) |
Balance, June 30, 2022 | |
| 7,950,000 | | |
$ | 7,950 | | |
$ | - | | |
$ | (678,788 | ) | |
$ | (670,838 | ) |
| |
Common Stock | | |
Additional
Paid-In | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance, January 25, 2022 | |
| - | | |
$ | - | | |
$ | - | | |
$ | - | | |
| - | |
Issuance of founder shares | |
| 7,950,000 | | |
| 7,950 | | |
| - | | |
| - | | |
| 7,950 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (678,788 | ) | |
| (678,788 | ) |
Balance, June 30, 2022 | |
| 7,950,000 | | |
$ | 7,950 | | |
$ | - | | |
$ | (678,788 | ) | |
$ | (670,838 | ) |
The accompanying notes are an integral part
of these financial statements.
CADRENAL THERAPEUTICS, INC.
STATEMENT OF CASH FLOWS
(unaudited)
| |
Six Months Ended
June 30,
2023 | | |
January 25,
2022
(inception) through
June 30,
2022 | |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
$ | (6,176,575 | ) | |
$ | (678,788 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation expense | |
| 786 | | |
| - | |
Equity-based compensation | |
| 454,195 | | |
| - | |
Amortization of debt discount | |
| 13,567 | | |
| 10,832 | |
Change in fair value of derivative liabilities | |
| 216,095 | | |
| 6,562 | |
Loss on extinguishment of debt | |
| 740,139 | | |
| - | |
Non-cash lease expense | |
| 179 | | |
| - | |
Issuance of shares to settle asset purchase agreement | |
| 3,000,000 | | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses | |
| (212,475 | ) | |
| (27,691 | ) |
Deferred offering costs | |
| 672,295 | | |
| (153,814 | ) |
Other assets | |
| 2,195 | | |
| (2,195 | ) |
Accounts payable | |
| (326,758 | ) | |
| 207,505 | |
Accrued liabilities | |
| (591,745 | ) | |
| 132,201 | |
Accrued interest | |
| - | | |
| 8,544 | |
Net cash used in operating activities | |
| (2,208,102 | ) | |
| (496,844 | ) |
Cash flows used in investing activities: | |
| | | |
| | |
Investment in property and equipment | |
| (3,253 | ) | |
| - | |
Net cash used in investing activities | |
| (3,253 | ) | |
| - | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of convertible notes, net of debt issuance costs | |
| - | | |
| 548,540 | |
Proceeds from issuance of founder shares | |
| - | | |
| 7,950 | |
Proceeds from exercise of warrants | |
| 250,000 | | |
| - | |
Repayment of promissory notes | |
| (250,000 | ) | |
| - | |
Proceeds from sale of common stock in initial public offering, net of offering costs | |
| 5,408,575 | | |
| - | |
Net cash provided by financing activities | |
| 5,408,575 | | |
| 556,490 | |
Net change in cash | |
| 3,197,220 | | |
| 59,646 | |
Cash and cash equivalents – beginning of the period | |
| 32,586 | | |
| - | |
Cash and cash equivalents – end of the period | |
$ | 3,229,806 | | |
$ | 59,646 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash financing activity: | |
| | | |
| | |
Issuance
of common shares to settle convertible debt | |
$ | 1,140,700 | | |
$ | - | |
De-recognition
of derivative liabilities | |
$ | 4,596,039 | | |
$ | - | |
Issuance
of common shares for consulting services | |
$ | 108,276 | | |
$ | - | |
The accompanying notes are an integral part of these financial statements.
CADRENAL THERAPEUTICS, INC.
Notes to Financial Statements
Note 1. Description of Business and Summary
of Significant Accounting Policies
Cadrenal Therapeutics, Inc. (the “Company”
or “Cadrenal”) was incorporated on January 25, 2022 (inception) in the State of Delaware and is headquartered in Ponte
Vedra, Florida. Cadrenal is developing a novel therapy with orphan drug and fast-track designations, tecarfarin, for the prevention of
systemic thromboembolism (blood clots) of cardiac origin in patients with end-stage renal disease and atrial fibrillation (irregular heartbeat)
or AFib. Tecarfarin is an anticoagulant (blood thinner) designed using a drug design process which targets a different pathway than most
commonly prescribed drugs for the treatment of thrombosis and AFib.
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and applicable rules
and regulations of the U.S. Securities and Exchange Commission (“SEC”) for the fair presentation of the Company’s
financial statements for the periods presented. The Company’s date of inception was January 25, 2022 and the fiscal year-end
is December 31.
Liquidity
The accompanying 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 and commitments
in the normal course of business. The financial statements do not reflect any adjustments relating to the recoverability and reclassification
of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. Since inception, the Company
has incurred operating losses, and negative cash flows from operations. For the six months ended June 30, 2023, the Company had a net
loss of $6,176,575, which included $4,424,961 of non-cash expenses. Cash used in operations for the six months ended June 30, 2023 totaled
$2,208,102. As of June 30, 2023, the Company had cash and cash equivalents of $3,229,806, working capital of $3,144,826, and an accumulated
deficit of $12,890,903.
On July 14, 2023, the Company closed on private
placement financing raising $7.5 million in gross proceeds before deducting the placement agent commissions and estimated offering expenses.
See Note 12 for further discussion.
The Company is projecting that its existing cash
balance of [$9.5] million as of August XX, 2023 is sufficient to fund its operations for at least the next twelve months from the
date of the filing of its Quarterly Report on Form 10-Q, however, the Company will require additional funding to complete its planned
Phase 3 clinical trial and submit its NDA.
Management intends to raise additional funds
through partnering and equity and debt financings. However, there can be no assurance that the Company will be able to complete partnering
transactions or financings on terms acceptable to the Company or at all. If the Company is unable to raise additional funding to meet
its working capital needs in the future, it will be forced to delay or reduce the scope of its research programs and/or limit or cease
its operations.
Emerging Growth Company Status
As an “emerging growth company” (“EGC”)
under the Jumpstart Our Business Startups Act (“JOBS Act”), the Company may elect to take advantage of certain forms of relief
from various reporting requirements that are applicable to public companies. The relief afforded under the JOBS Act includes an extended
transition period for the implementation of new or revised accounting standards. The Company has elected to take advantage of this extended
transition period and, as a result, the Company’s financial statements may not be comparable to those of companies that implement
accounting standards as of the effective dates for public companies. The Company may take advantage of the relief afforded under the
JOBS Act up until the last day of the fiscal year following the fifth anniversary of an offering or such earlier time that it is
no longer an EGC.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting
period. Significant estimates and assumptions made in the accompanying financial statements include but are not limited to the fair value
of financial instruments, the fair value of common stock, deferred tax assets and valuation allowance, income tax uncertainties, and
certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors
and adjusts those estimates and assumptions when facts and circumstances change. Actual results could differ from those estimates.
Concentration of Credit and other Risks
and Uncertainties
Financial instruments, which potentially subject
the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents. Cash is maintained at high
credit quality financial institutions and, at times, balances may exceed federally insured limits. All interest-bearing and non-interest-bearing
cash balances are insured up to $250,000 per depositor at each financial institution. The Company has never experienced any losses related
to these balances. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s
financial condition, results of operations, and cash flows.
The Company is subject to a number of risks common
for early-stage biopharmaceutical companies including, but not limited to, dependency on the clinical and commercial success of its product
candidate, ability to obtain regulatory approval of its product candidate, the need for substantial additional financing to achieve its
goals, uncertainty of broad adoption of its approved products, if any, by physicians and patients, significant competition and untested
manufacturing capabilities.
Segments
Operating segments are defined as components
of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker
(CODM) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief
Executive Officer. The Company has determined it operates in a single operating segment and has one reportable segment.
Cash and Cash Equivalents
The Company considers all highly liquid investments
purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash and cash equivalents
include cash and money market funds.
Derivative Financial Instruments
The Company evaluates all of its agreements to
determine if such instruments have derivatives or contain features that qualify as embedded derivatives. The Company accounts for certain
redemption features that are associated with convertible notes as liabilities at fair value and adjusts the instruments to their fair
value at the end of each reporting period. Derivative financial liabilities are initially recorded at fair value, with gains and losses
arising from changes in the fair value recognized in other income (expense) in the accompanying statements of operations and comprehensive
loss for each reporting period while such instruments are outstanding. The embedded derivative liabilities are valued using a probability-weighted
expected return model. If the Company repays the noteholders or if, during the next round of financing, the noteholders convert the debt
into equity, the derivative financial liabilities will be de-recognized and reclassified to stockholders’ equity (deficit) on that
date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Concurrent with the closing of the initial public offering in January
2023 (the “IPO”), the note holders converted the debt into common stock, accordingly, the derivative financial liabilities
were de-recognized and reclassified to stockholders’ equity (deficit) on January 24, 2023.
Stock-Based Compensation
The Company measures its stock-based awards granted
to employees, consultants, and directors based on the estimated fair values of the awards and recognizes the compensation over the requisite
service period. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards. Stock-based
compensation is recognized using the straight-line method. As the stock compensation expense is based on awards ultimately expected to
vest, it is reduced by forfeitures. The Company accounts for forfeitures as they occur.
Deferred Offering Costs
The Company capitalizes certain legal, professional,
and other third-party costs that are directly associated with in-process equity financings until such financings are consummated, at
which time such costs are recorded against the gross proceeds of the offering. Should an in-process equity financing be abandoned, the
deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations and comprehensive
loss. The Company completed its initial public offering on January 24, 2023, and the offering costs were recorded against the proceeds
of the offering. As of June 30, 2023, there were no deferred offering costs.
Acquisitions
The Company evaluates acquisitions of assets
and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition
by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated
in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition.
If not, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to
create outputs, which would meet the definition of a business. Significant judgment is required in the application of the screen test
to determine whether an acquisition is a business combination or an acquisition of assets.
Acquisitions meeting the definition of business
combinations are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the
net assets acquired at their respective fair values. In a business combination, any excess of the purchase price over the estimated fair
values of the net assets acquired is recorded as goodwill.
For asset acquisitions, a cost accumulation model
is used to determine the cost of an asset acquisition. Direct transaction costs are recognized as part of the cost of an asset acquisition.
The Company also evaluates which elements of a transaction should be accounted for as a part of an asset acquisition and which should
be accounted for separately. The cost of an asset acquisition, including transaction costs, is allocated to identifiable assets acquired
and liabilities assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. Any difference between
the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based
on their relative fair values. When a transaction accounted for as an asset acquisition includes an in-process research and development
(“IPR&D”) asset, the IPR&D asset is only capitalized if it has an alternative future use other than in a particular
research and development project. For an IPR&D asset to have an alternative future use: (a) the Company must reasonably expect
that it will use the asset acquired in an alternative manner and anticipate economic benefit from that alternative use, and (b) the
Company’s use of the asset acquired is not contingent on the further development of the asset subsequent to the acquisition date
(that is, the asset can be used in an alternative manner in the condition in which it existed at the acquisition date). Otherwise, amounts
allocated to IPR&D that have no alternative use are expensed to research and development. Asset acquisitions may include contingent
consideration arrangements that encompass obligations to make future payments to sellers contingent upon the achievement of future financial
targets. Contingent consideration is not recognized until all contingencies are resolved and the consideration is paid or probable of
payment, at which point the consideration is allocated to the assets acquired on a relative fair value basis.
Income Taxes
Income taxes are accounted for under the asset
and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Management makes an assessment of the likelihood that the resulting deferred tax assets will be realized. A
valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Due to the Company’s historical operating performance and net losses, the net deferred tax assets have been fully offset by a valuation
allowance.
The Company recognizes uncertain income tax positions
at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax
position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected
in the period in which judgment occurs. The Company’s policy is to recognize interest and penalties related to the underpayment
of income taxes as a component of the provision for income taxes.
Net Loss Per Common Share
Basic net loss per common share is calculated
by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for
potential dilutive shares of common stock. Diluted net loss per common share is computed by dividing net loss by the weighted average
number of shares of common stock and common stock equivalents of potentially dilutive securities outstanding for the period determined
using the treasury stock or if-converted methods. Since the Company was in a loss position for all periods presented, basic net loss
per common share is the same as diluted net loss per common share since the effects of potentially dilutive securities are anti-dilutive.
Shares of common stock subject to repurchase are excluded from the weighted-average shares.
Comprehensive Loss
Comprehensive loss is defined as the change in
equity during a period from transactions and other events or circumstances from non-owner sources. Net loss and comprehensive loss were
the same for the periods presented in the accompanying financial statements.
Research and Development Expenses
Research and development costs are expensed as
incurred and consist of fees paid to other entities that conduct certain research and development activities on the Company’s behalf.
Acquired intangible assets are expensed as research and development costs if, at the time of payment, the technology is under development;
is not approved by the FDA or other regulatory agencies for marketing; has not reached technical feasibility; or otherwise has no foreseeable
alternative future use. Non-refundable advance payments for goods or services to be received in the future for use in research and development
activities are capitalized and then expensed as the related goods are delivered or the services are performed.
Patents
Patent costs are comprised primarily of external
legal fees, filing fees incurred to file patent applications, and periodic renewal fees to keep the patent in force and are expensed
as incurred as a component of general and administrative expenses.
Note 2. Recent Accounting Guidance
Recently Issued Accounting Pronouncements
Not Yet Adopted
We do not expect any recently issued accounting
pronouncements will have a material effect on our financial statements.
Note 3. Fair Value Measurements
Assets and liabilities recorded at fair value
on a recurring basis in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure
their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid
to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and
minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy
for disclosure of fair value measurements as follows:
|
● |
Level
1 — |
Observable inputs such
as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. |
|
● |
Level 2 — |
Inputs (other than quoted
prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices
for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that
are not active. |
|
● |
Level 3 — |
Unobservable inputs that
are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company classified its embedded derivative
liability as a Level 3 financial instrument and measured and reported its embedded derivatives at fair value. Concurrent with the closing
of the initial public offering in January 2023, the note holders converted the debt into common stock, accordingly, the derivative financial
liabilities were de-recognized and reclassified to stockholders’ equity (deficit) on January 24, 2023.
Financial liabilities subject to fair value measurements
on a recurring basis and the level of inputs used in such measurements by major security type are presented in the following table:
| |
| June 30, 2023 | |
| |
| Level 1 | | |
| Level 2 | | |
| Level 3 | | |
| Fair Value | |
Financial Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative liabilities | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Total Financial Liabilities | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
December 31, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Fair Value | |
Financial Liabilities: | |
| | |
| | |
| | |
| |
Derivative liabilities | |
$ | - | | |
$ | - | | |
$ | 4,379,944 | | |
$ | 4,379,944 | |
Total Financial Liabilities | |
$ | - | | |
$ | - | | |
$ | 4,379,944 | | |
$ | 4,379,944 | |
| |
Derivative liabilities | |
Balance at January 25, 2022 | |
$ | - | |
Fair value of financial instruments at issuance | |
| 474,348 | |
Change in fair value | |
| 3,905,596 | |
Balance at December 31, 2022 | |
$ | 4,379,944 | |
| |
Derivative liabilities | |
Balance at December 31, 2022 | |
$ | 4,379,944 | |
Change in fair value | |
| 216,095 | |
Settlement of derivative liability | |
| (4,596,039 | ) |
Balance at June 30, 2023 | |
$ | - | |
The carrying amounts of cash, prepaid expenses,
deferred offering costs, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature. There
were no transfers of liabilities among the fair value measurement categories during any of the periods presented.
Note 4. Accrued Liabilities
Accrued liabilities consist of the following:
| |
June 30,
2023 | | |
December 31,
2022 | |
| |
| | |
| |
Accrued consulting fees | |
$ | 4,718 | | |
$ | 165,192 | |
Accrued compensation | |
| 234,866 | | |
| 605,290 | |
Other | |
| 32,522 | | |
| 93,082 | |
Total accrued liabilities | |
$ | 272,106 | | |
$ | 863,564 | |
Note 5. Asset Purchase Agreement
On April 1, 2022, the Company completed
an asset purchase agreement with HESP LLC, the assignee of tecarfarin and related assets (the “Asset Purchase Agreement”).
Pursuant to the terms of the Asset Purchase Agreement, the Company acquired all of the assets of HESP LLC, including all intellectual
property and other rights related to tecarfarin, the tecarfarin IND 77041, all rights under the license, development and commercialization
agreement dated as of September 16, 2015 by and between Armetheon, Inc. (“Armetheon”) (which was later assigned by Armetheon
to Espero BioPharma, Inc. (“Espero”), and China Cardiovascular Focus Ltd, an affiliate of Lee’s Pharmaceutical Holdings
Limited (“Lee’s Pharmaceutical”), relating to tecarfarin and related trademarks. In consideration of the purchase of
the assets, the Company paid HESP LLC $100,000 on the closing date and paid an additional $100,000 on June 1, 2022. As additional
consideration, the Company agreed to pay HESP LLC the following development milestone payments:
Development Milestones | |
Milestone Payments | |
Completion of enrollment of Lee’s Pharmaceutical Phase 3 clinical trial | |
$ | 250,000 | |
First MAA submitted in the People’s Republic of China | |
| 350,000 | |
First Commercial Sale to a Third Party | |
$ | 1,200,000 | |
The development milestones have not occurred as
of June 30, 2023.
Financing Milestones
As additional consideration, the Company agreed
to pay the following amounts, up to $2,000,000, upon each financing milestone as follows (i) 35% of any proceeds received from any
licensing or partnering revenue; and (ii) IPO proceeds. The aggregate payments under the development milestone payments and financing
milestone payments shall not exceed $2,000,000.
The Company accounted for the transaction as
an asset acquisition as substantially all of the estimated fair value of the gross assets acquired was concentrated in a single identified
in-process research and development asset, the tecarfarin asset, thus satisfying the requirements of the screen test in accordance with
the criteria under ASC 805-10-55-5C. The assets acquired in the transaction were measured based on the fair value of the consideration
paid including the direct transaction costs of $20,095, as the fair value of the consideration paid was more readily determinable than
the fair value of the assets acquired. The following table summarizes the initial purchase price of the assets acquired:
In process research and development | |
$ | 200,000 | |
Transaction costs | |
| 20,095 | |
Total | |
$ | 220,095 | |
All costs the Company incurred in connection
with this Asset Purchase Agreement were recognized as research and development expenses in the Company’s statement of operations
and comprehensive loss as these assets had no alternative future use at the time of the acquisition transaction. Due to the nature of
the regulatory, sales and financing-based milestones, the contingent consideration was not included in the initial cost of assets purchased
as they are contingent upon events that are outside the Company’s control.
However, upon achievement or anticipated achievement
of each milestone, the Company will recognize the related appropriate payment as additional research and development expense. Contingent
consideration will not be recorded until it is probable the milestone events occur.
On August 18, 2022, the Company entered
into an Amendment to Asset Purchase Agreement, whereby in lieu of the $1,800,000 cash payment that would have been due to HESP LLC pursuant
to the Asset Purchase Agreement as a result of an initial public offering, HESP LLC agreed to accept shares of the Company’s common
stock, such number of shares to be calculated based upon a 40% discount to the price of the Company’s common stock sold in the
initial public offering.
On January 19, 2023, the Company issued 600,000 shares of common stock to HESP LLC, pursuant to the terms of an
Amendment to the Asset Purchase Agreement, dated August 18, 2022, between the Company and HESP LLC. The Company recognized the stock
payment of $3.0 million as research and development expense on January 19, 2023.
Note 6. Debt
Debt outstanding is presented on the balance
sheet as follows:
| |
June 30, 2023 | | |
December 31, 2022 | |
Convertible notes payable - related parties | |
$ | - | | |
$ | 550,000 | |
Debt issuance costs | |
| - | | |
| (107,040 | ) |
| |
| - | | |
| 442,960 | |
| |
| | | |
| | |
Convertible note payable | |
| - | | |
| 575,000 | |
Debt issuance costs | |
| - | | |
| (464,620 | ) |
| |
| - | | |
| 110,380 | |
| |
| | | |
| | |
Promissory note payable | |
| - | | |
| 250,000 | |
Debt issuance costs | |
| - | | |
| (206,272 | ) |
| |
| - | | |
| 43,728 | |
| |
| | | |
| | |
Total debt, net | |
$ | - | | |
$ | 597,068 | |
March 2022 Convertible Note
In March 2022, the Company entered into
a convertible promissory note agreement (the “March 2022 Note”) and received cash proceeds of $500,000. The March 2022
Note bore interest at a rate equal to simple interest of 5.0% per annum computed on the basis of the 360-day year of twelve (12) 30-day months.
The March 2022 Note was due and payable on March 1, 2025, unless earlier converted or repaid.
Pursuant to the March 2022 Note, the principal
and accrued but unpaid interest was to be automatically converted into equity securities sold in the Next Equity Financing of the Company
comprising a single transaction or a series of related transactions in which total proceeds of at least $3.0 million is raised.
The principal and unpaid and accrued interest of the March 2022 Note at the date of conversion was to be converted into shares at
a conversion price equal to 80% of the price per share paid by investors purchasing such shares in the Next Equity Financing. If the
Company consummated a Change of Control (as defined in the March 2022 Note) prior to repayment in full of the March 2022 Note, immediately
prior to the Change of Control, the outstanding principal and any unpaid and accrued interest would be automatically converted into common
equity of the Company (or directly into proceeds paid to the holders of common equity in connection with the Change of Control) at a
price per share that is 80% of the price per share of common equity paid at the Change of Control.
The Company evaluated whether the March 2022
Note contained embedded features that met the definition of derivatives under FASB ASC 815, Derivatives and Hedging. The Company
determined that these redemption features contained rights and obligations for conversion contingent upon a potential future financing
event or a change in control. Thus, the embedded put options were bifurcated from the face value of the March 2022 Note and accounted
for as a derivative liability to be remeasured at the end of each reporting period with the change in the fair value included in other
expense, in the accompanying statement of operations and comprehensive loss. The fair value of the put option derivative liability at
issuance was $104,883, with the offsetting amount being recorded as a debt discount. Debt issuance costs totaled $1,460. The debt discount
and debt issuance costs were being amortized to interest expense using the effective interest method over the expected term of the March 2022
Note. The effective interest rate of the March 2022 Note was 12.1% compared to a stated interest rate of 5.0%.
June 2022 Convertible Note
In June 2022, the Company entered into a
convertible promissory note agreement (the “June 2022 Note”) and received cash proceeds of $50,000. The June 2022
Note bore interest at a rate equal to simple interest of 6.0% per annum computed on the basis of the 360-day year of twelve (12) 30-day months.
The June 2022 Note was due and payable on June 13, 2025, unless earlier converted or repaid.
Pursuant to the June 2022 Note, the principal
and accrued but unpaid interest was to be automatically converted into equity securities sold in the Next Equity Financing of the Company
comprising a single transaction or a series of related transactions in which total proceeds of at least $3.0 million is raised.
The principal and unpaid and accrued interest of the June 2022 Note at the date of conversion was to be converted into shares at
a conversion price equal to 60% of the price per share paid by investors purchasing such shares in the Next Equity Financing. If the
Company consummated a Change of Control (as defined in the June 2022 Note) prior to repayment in full of the June 2022 Note, immediately
prior to the Change of Control, the outstanding principal and any unpaid and accrued interest would automatically convert into common
equity of the Company (or directly into proceeds paid to the holders of common equity in connection with the Change of Control) at a
price per share that is 60% of the price per share of common equity paid at the Change of Control.
The Company evaluated whether the June 2022
Note contained embedded features that meet the definition of derivatives under FASB ASC 815, Derivatives and Hedging. The Company
determined that these redemption features contained rights and obligations for conversion contingent upon a potential future financing
event or a change in control. Thus, the embedded put options were bifurcated from the face value of the June 2022 Note and accounted
for as a derivative liability to be remeasured at the end of each reporting period with the change in the fair value included in other
expenses, in the accompanying statement of operations and comprehensive loss. The fair value of the put option derivative liability at
issuance was $29,532, with the offsetting amount being recorded as a debt discount. The debt discount was amortized to interest expense
using the effective interest method over the expected term of the June 2022 Note. The effective interest rate of the June 2022
Note was 25.7% compared to a stated interest rate of 6.0%.
Boustead Private Placement Notes
In July 2022, the Company issued convertible
promissory notes in the aggregate amount of $450,000 (the “July 2022 Notes”), in August 2022, the Company
issued a convertible promissory note in the amount of $50,000 (the “August 2022 Note”) and in September 2022, the
Company issued convertible promissory notes in the aggregate amount of $75,000 (the “September 2022 Notes” and together
with the July 2022 Note and the August 2022 Note, the “Private Placement Notes”). The July 2022 Notes, the August 2022
Note and the September 2022 Note bore interest at 6% and mature on September 13, 2025 (“Maturity Date”).
The principal amount due under the
July 2022 Notes, the August 2022 Note and the September 2022 Notes (and, at the Company’s option, any accrued
but unpaid interest under the July 2022 Notes, the August 2022 Note and the September 2022 Notes) was to be
automatically converted, on or before the Maturity Date, into Next Equity Securities in the Next Equity Financing. The
July 2022 Notes, the August 2022 Note and September 2022 Notes were convertible into shares of common stock at a
conversion price equal to the quotient obtained by dividing (i) the entire principal amount of the July 2022 Notes, the
August 2022 Note and the September 2022 Notes, plus (if applicable) any accrued but unpaid interest under the
July 2022 Notes, the August 2022 Note and the September 2022 Notes by (ii) sixty percent (60%) of the price per
share of the Next Equity Securities sold in the Next Equity Financing. In the event of a Change of Control (as defined in the
Private Placement Notes) which occurred prior to repayment in full of the July 2022 Notes, the August 2022 Note or the
September 2022 Notes, immediately prior to the Change of Control, the outstanding principal and any accrued but unpaid interest
on the July 2022 Notes, the August 2022 Note and the September 2022 Notes was to convert directly into our common
equity (or directly into proceeds paid to the holders of our common equity in connection with the Change of Control) at a price per
share that is 60% of the price per share of common equity paid at the Change of Control. Boustead Securities, LLC
(“Boustead”) acted as the placement agent for the private placement and received as part of its compensation and
five-year warrants to purchase shares of the Company’s common stock at a price equal to the conversion price of the Private
Placement Notes in an amount equal to 6% of the shares of common stock underlying the Private Placement Notes. The Company has
determined that the warrants issued to the placement agent receive equity treatment. The warrants were recorded at fair value at
issuance and recorded as debt issuance costs associated with the Boustead Private Placement Notes.
The Company had determined the redemption features in the Private Placement
Notes contained rights and obligations for conversion contingent upon a potential future financing event or a change in control, and that
such features were required to be bifurcated from the host debt instrument and accounted for as a derivative liability to be remeasured
at the end of each reporting period.
The Company evaluated whether the July, August,
and September 2022 Notes contained embedded features that meet the definition of derivatives under FASB ASC 815, Derivatives
and Hedging. The Company determined that these redemption features contained rights and obligations for conversion contingent upon a
potential future financing event or a change in control. Thus, the embedded put options were bifurcated from the face value of the July,
August and September Notes and accounted for as derivative liabilities to be remeasured at the end of each reporting period with the
change in the fair value included in other expenses, in the accompanying statements of operations and comprehensive loss. The fair value
of the put option derivative liabilities at issuance was $339,934, with the offsetting amount being recorded as a debt discount. The
debt discount was being amortized to interest expense using the effective interest method over the expected term of the July, August
and September 2022 Notes. The effective interest rates of the July, August and September 2022 Notes were 36.3%, 26.1%, and
28.8%, respectively, compared to a stated interest rate of 6.0%.
Non-Convertible Promissory Note
On November 30, 2022, the Company closed a $250,000
note offering (the “November Private Placement”) pursuant to which the Company sold to two accredited investors units consisting
of (i) notes in the aggregate principal amount of $250,000, which bore interest at the rate of 10%, repayable at the earlier of the time
of the completion of the IPO or November 30, 2023 (the “November Notes”) and (ii) warrants to purchase up to an aggregate
of 250,000 shares of common stock exercisable at $1.00 per common share, which were exercisable at any time and were automatically exercised
into shares of the Company’s common stock upon the consummation of the IPO (the “November Warrants”). At the time the
November Notes and November Warrants were sold, it was intended that the principal amount of the November Notes would be repaid upon
the consummation of the IPO out of the proceeds of the November Warrants exercise.
The issuance of the November Warrants triggered
an adjustment to the conversion price of the Private Placement Notes (the July 2022, August 2022 and September 2022 Notes) to $1.00 per
share, pursuant to down-round protection included in those notes. As a result of the adjustment of the conversion price of the Private
Placement Notes, the five-year warrants issued to Boustead Securities, LLC in connection with the Private Placement, were amended to
provide for the purchase of an aggregate of 11,500 shares of the Company’s common stock at an exercise price equal to 60% of the
initial public offering price per share.
The Company also issued 15,000 warrants to Boustead
for the placement of the November financing. The November placement agent warrants have an exercise price of $1.00 per common share.
In December 2022, the Company entered into amendments
to the March 2022 Note and the June 2022 Note to adjust the conversion price of the March 2022 Note and the June 2022 Note to $1.00 per
common share. The March 2022 Note and June 2022 Note originally had a conversion price equal to 80% and 60%, respectively, of the IPO
price. While this amendment was not required, as the March 2022 Note and June 2022 did not have down-round protection like the Private
Placement Notes, the amendment was entered into to provide the investors in the March and June Notes with the same conversion price as
the Private Placement Notes.
The Company incurred debt issuance costs attributed to the November
Notes, which were recorded as a debt discount.
January 2023 Settlement of Debt
On January 24, 2023, concurrent with the consummation
of the IPO, the Company issued 1,140,700 shares of common stock upon conversion of the convertible promissory notes. All convertible
notes and related accrued interest were settled in full on January 24, 2023.
On January 24, 2023, the Company issued 250,000
shares of common stock upon the exercise of the November Warrants. The $250,000 of proceeds of the warrant exercise were used to concurrently
pay off the $250,000 November Notes. All of the November Notes were settled in full on January 24, 2023.
Upon pay-off and settlement of the convertible
promissory notes and November Notes, the Company had $740,139 of unamortized debt discount costs remaining on the balance sheet. During
January 2023, the Company recorded a $740,139 loss on the extinguishment of debt for the unamortized debt issuance costs.
Note 7. Related Party Transactions
On January 25, 2022, the Company into an
agreement with Phamace, LLC, a consulting firm of which Quang Pham, the Company’s Chief Executive Officer, is the sole member,
for an initial term of January 25, 2022 through February 28, 2022. Pursuant to the agreement, the Company shall pay the sum
of $115,000 to Phamace, LLC for advisory and administrative services rendered relating to preparing the Company to launch as an operating
company, which was due and payable on September 30, 2022. The Company settled this obligation in January 2023.
On January 25, 2022, the Company issued
7,500,000 shares of common stock, pursuant to a subscription agreement, to Quang Pham, the Company’s Chief Executive Officer, of
which 3,000,000 were subsequently transferred to a related trust, of which Mr. Pham’s child is a beneficiary and Mr. Pham
is the trustee with sole voting and disposition power with respect to the shares owned by the trust, 1,100,000 were subsequently transferred
to friends, family and a trust of which Mr. Pham’s child is a beneficiary, but of which Mr. Pham has no voting or disposition power,
and 125,000 were transferred to non-profit organizations. Mr. Pham paid a total of $7,500 for such founders shares.
On March 1, 2022, the Company issued a convertible promissory
note in the amount of $500,000 to John Murphy, a member of the Company’s board of directors, which bore interest at 5% and matures
on March 1, 2025. The note, as amended in December 2022, converted into 514,792 shares of the Company’s common Stock at a conversion
price equal to $1.00 upon consummation of the initial public offering. See Note 6 for further discussion.
On May 17, 2022, the Company issued 450,000
shares of restricted common stock, pursuant to a restricted stock purchase agreement, to Matthew Szot its Chief Financial Officer, which
shares shall vest quarterly over a period of two years, subject to certain adjustments, as provided in the Restricted Stock Purchase
Agreement dated May 17, 2022.
On August 22, 2022, the Company issued a convertible
promissory note in the amount of $50,000 to Glynn Wilson, a member of the Company’s board of directors, which bears interest at
6% and matures on September 13, 2025. The note was converted into 50,000 shares of the Company’s common Stock at a conversion price
equal to $1.00 upon consummation of the initial public offering. See Note 6 for further discussion.
Note 8. Leases, Commitments, and Contingencies
Leases
At lease inception, the Company determines if
an arrangement is an operating or capital lease. For operating leases, the Company recognized rent expense, inclusive of rent escalation,
on a straight-line basis over the lease term.
In accordance with ASC 842, Leases, the Company
determines if an arrangement is or contains a lease at inception. A contract is or contains a lease if the contract conveys the right
to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease
commencement date as operating or finance leases and records a right-of-use asset and a lease liability on the balance sheet for all
leases with an initial lease term of greater than 12 months. Leases with an initial term of 12 months or less are not recorded in the
balance sheet, but payments are recognized as expenses on a straight-line basis over the lease term. The Company has elected not to recognize
leases with terms of 12 months or less.
A lease qualifies as a finance lease if any of
the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company
by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise,
(iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease
payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized
to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded
as operating leases.
The Company enters into contracts that contain
both lease and non-lease components. Non-lease components may include maintenance, utilities, and other operating costs. The Company
combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such
as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities but rather are expensed
when the event determining the amount of variable consideration to be paid occurs.
Finance and operating lease assets and liabilities
are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount
rate implicit in the lease. If the rate implicit is not readily determinable, the Company utilizes an estimate of its incremental borrowing
rate based upon the available information at the lease commencement date. Operating lease assets are further adjusted for prepaid or
accrued lease payments. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term.
The Company’s operating lease ROU assets
and liabilities as of June 30, 2023 and December 31, 2022 are as follows:
| |
June 30,
2023 | | |
December 31,
2022 | |
Assets | |
| | |
| |
Operating lease ROU assets | |
$ | 32,620 | | |
$ | 43,578 | |
Liabilities | |
| | | |
| | |
Current | |
| | | |
| | |
Operating lease liabilities | |
$ | 24,063 | | |
$ | 22,288 | |
Noncurrent | |
| | | |
| | |
Operating lease liabilities | |
| 8,796 | | |
| 21,350 | |
Total operating lease liabilities | |
$ | 32,859 | | |
$ | 43,638 | |
Operating lease expense was $6,638 and $13,274
for the three and six months ended June 30, 2023, respectively. Operating lease expense was $4,889 for the three months ended June 30,
2022 and for the period January 25, 2022 (inception) to June 30, 2022. Cash paid for amounts included in the measurement of operating
lease liabilities included in operating cash flows was $6,501 for the three months ended June 30, 2023. The remaining operating lease
term was 16 months, and the operating lease discount rate was 12% as of June 30, 2023.
Future annual lease payments under non-cancellable
operating leases as of June 30, 2023 were as follows:
2023 | |
$ | 13,067 | |
2024 | |
| 22,319 | |
Total lease payments | |
| 35,386 | |
Less: Imputed interest | |
| 2,527 | |
Total operating lease liabilities | |
$ | 32,859 | |
Contingencies
In the normal course of business, the Company
enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.
The Company’s exposure under these agreements is unknown, because it involves claims that may be made against the Company in the
future, but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will
be made and such expenditures can be reasonably estimated.
Indemnification
In accordance with the Company’s certificate
of incorporation and bylaws, the Company indemnifies its officers and directors for certain events or occurrences, subject to certain
limits, while they are serving in such capacity. In addition, the Company has entered into indemnification agreements with its officers
and directors. There have been no claims to date, and the Company has a directors and officers liability insurance policy that may enable
it to recover a portion of any amounts paid for future claims.
Note 9. Stockholders’ Equity and
Warrants
Common Stock
Pursuant to the Certificate of Incorporation
filed on January 25, 2022, the Company was authorized to issue a total of 10,000,000 shares of common stock with a par value of
$0.001 per share. On December 5, 2022, the Company filed an Amended and Restated Certificate of Incorporation to increase the authorized
capital stock of the Company to 82,500,000 shares, consisting of 75,000,000 shares of common stock, par value $0.001 per share, and 7,500,000
shares of preferred stock, par value $0.001 per share, which was approved by the Company’s Board of Directors, as well as a majority
of the Company’s shareholders, on December 5, 2022.
Holders of common stock are entitled to one vote
for each share of common stock held of record for the election of the Company’s directors and all other matters requiring stockholder
action. Holders of common stock will be entitled to receive such dividends, if any, as may be declared from time to time by the Company’s
Board in its discretion out of funds legally available therefor.
On January 24, 2023, the Company consummated its IPO of 1,400,000 shares
of its common stock at a public offering price of $5.00 per share, generating gross proceeds of $7,000,000 and net proceeds of $5,408,575.
The Company’s shares of common stock commenced trading on the Nasdaq Capital Market on January 20, 2023, under the symbol “CVKD.”
In connection with the IPO, on January 19, 2023, the Company entered
into an underwriting agreement (the “Underwriting Agreement”) with Boustead, as representative of the underwriters (the “Representative”). Pursuant
to the Underwriting Agreement, the Company agreed to issue to the underwriters a five-year warrant (the “Representative’s
Warrant”) to purchase an aggregate of 84,000 shares of the Company’s common stock, which is equal to six percent (6%)
of the shares of common stock sold in the IPO. Such Representative’s Warrant has an exercise price of $6.00, which is equal to 120%
of the public offering price of the common stock in the IPO.
Warrants
The following table summarizes the total warrants
outstanding at June 30, 2023:
| |
Issue Date | |
Exercise Price Per Share | | |
Expiration Date | |
Outstanding as of December 31, 2022 | | |
New Issuance | | |
Exercised | | |
Outstanding as of June 30, 2023 | |
Placement agent warrants | |
July - Sept 2022 | |
$ | 3.00 | | |
July - Sept 2027 | |
| 11,500 | | |
| - | | |
| - | | |
| 11,500 | |
Placement agent warrants | |
Nov 2022 | |
$ | 1.00 | | |
Nov 2027 | |
| 15,000 | | |
| - | | |
| - | | |
| 15,000 | |
Investor warrants | |
Nov 2022 | |
$ | 1.00 | | |
Earlier of IPO or
Nov 2027 | |
| 250,000 | | |
| - | | |
| (250,000 | ) | |
| - | |
Representative warrants | |
Jan 2023 | |
$ | 6.00 | | |
Jan 2028 | |
| - | | |
| 84,000 | | |
| - | | |
| 84,000 | |
| |
| |
| | | |
| |
| 276,500 | | |
| 84,000 | | |
| (250,000 | ) | |
| 110,500 | |
Note 10. Equity-Based Compensation
The Company adopted the Cadrenal Therapeutics,
Inc. 2022 Equity Incentive Plan (the “Initial Plan”), on July 11, 2022, which was later amended and restated on October 16,
2022, for purposes of clarifying the application of certain of the rules of the Initial Plan to awards approved before such amendment
and restatement of the Initial Plan and to facilitate the transition to the Cadrenal Therapeutics, Inc. 2022 Successor Equity Incentive
Plan (the “Successor Plan”) for the issuance and approval of awards after consummation of the IPO. On October 16, 2022,
the Board adopted and the Company’s stockholders approved the Cadrenal Therapeutics, Inc. 2022 Successor Equity Incentive Plan
(the “2022 Plan”), which is a successor to and continuation of the Initial Plan and became effective on January 19, 2023.
Upon the effectiveness of the 2022 Plan, it replaced the Initial Plan, except with respect to awards outstanding under the Initial Plan,
and no further awards will be available for grant under the Initial Plan.
Subject to certain adjustments, the maximum number
of shares of common stock that could have been issued under the Plans in connection with awards was 2,000,000 shares, of which 760,000
remained available for issuance as of June 30, 2023. The maximum number of shares of common stock that may be issued under the 2022 Plan
will automatically increase on January 1 of each calendar year for a period of ten years commencing on January 1, 2024
and ending on (and including) January 1, 2033, to a number of shares of common stock equal to 20% of the total number of shares
of common stock outstanding on December 31 of the preceding calendar year; provided, however that the board of directors, or the
compensation committee, may act prior to January 1 of a given calendar year to provide that the increase for such year will be a
lesser number of shares of common stock. All available shares may be utilized toward the grant of any type of award under the 2022 Plan.
The Company measures its stock-based awards granted
to employees, consultants and directors based on the estimated fair values of the awards and recognizes the compensation over the requisite
service period. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards. Stock-based
compensation is recognized using the straight-line method. As the stock compensation expense is based on awards ultimately expected to
vest, it is reduced by forfeitures. The Company accounts for forfeitures as they occur.
Weighted average assumptions used in the Black-Scholes
model are set forth below:
| |
| June 30, 2023 | |
Risk-free interest rate | |
| 2.98% – 4.10% | |
Dividend yield | |
| — | |
Expected term (years) | |
| 5.27 – 5.81 | |
Volatility | |
| 62.4% – 62.5% | |
Activity under the Plans for the period from
December 31, 2022 to June 30, 2023 is set forth below:
| |
Number Outstanding | | |
Weighted-Average Exercise Price
Per Share | | |
Weighted-Average Remaining Contractual Life (Years) | | |
Aggregate
Intrinsic Value | |
Outstanding at December 31, 2022 | |
| 1,100,000 | | |
$ | 0.84 | | |
| 9.57 | | |
$ | 4,578,000 | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Canceled/forfeited/expired | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding at June 30, 2023 | |
| 1,100,000 | | |
$ | 0.84 | | |
| 9.08 | | |
$ | 997,500 | |
Options vested and exercisable at June 30, 2023 | |
| 258,326 | | |
$ | 0.64 | | |
| 9.06 | | |
$ | 108,027 | |
Options vested and expected to vest as of June 30, 2023 | |
| 1,100,000 | | |
$ | 0.84 | | |
| 9.08 | | |
$ | 997,500 | |
The weighted average grant date fair value of
options granted to date was $1.11. At June 30, 2023, the Company had $821,528 of unrecognized stock-based compensation expense related
to stock options which will be recognized over the weighted average remaining requisite service period of 1.7 years. The Company
settles employee stock option exercises with newly issued shares of common stock.
On January 24, 2023, the Company granted 50,000
shares of the Company’s common stock to the Company’s Chief Financial Officer. The shares were fully vested on the date of
grant.
On March 30, 2023, the Company issued 10,839
shares of its common stock to a consultant for services rendered.
On March 31, 2023, the Company issued 77,340
shares of its common stock for services to be performed from April through September 2023.
Total stock-based compensation expense and the
allocation of stock-based compensation for the periods presented below were as follows:
| |
Three Months
Ended
June 30, | | |
Three Months
Ended
June 30, | | |
Six Months
Ended
June 30, | | |
January 25, 2022
(Inception)
to June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
General and administrative | |
$ | 74,520 | | |
$ | - | | |
$ | 268,658 | | |
$ | - | |
Research and development | |
| 93,281 | | |
| - | | |
| 185,537 | | |
| - | |
Total stock-based compensation | |
$ | 167,801 | | |
$ | - | | |
$ | 454,195 | | |
$ | - | |
Note 11. Net Loss Per Share
The following table sets forth the computation
of the basic and diluted net loss per common share:
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | | |
January 25,
2022 (Inception) to
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (1,003,001 | ) | |
$ | (502,141 | ) | |
$ | (6,176,575 | ) | |
$ | (678,788 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding | |
| 11,722,754 | | |
| 7,720,000 | | |
| 11,252,903 | | |
| 7,626,923 | |
Net loss per share, basic and diluted | |
$ | (0.09 | ) | |
$ | (0.07 | ) | |
$ | (0.55 | ) | |
$ | (0.09 | ) |
Since the Company was in a loss position for
the periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential dilutive
securities would have been anti-dilutive. For the periods presented, there were no potential dilutive securities other than the convertible
notes, stock options, and warrants.
Note 12. Subsequent Events
The Company has evaluated events that occurred
through August 9, 2023, the date that the financial statements were issued, and determined that there have been no events that have occurred
that would require adjustments to our disclosures in the financial statements except for the transactions described below.
On July 12, 2023, the Company entered into a securities purchase agreement
(the “Purchase Agreement”) with an institutional investor (the “Investor Selling Stockholder”) pursuant to which
the Company sold to the Investor Selling Stockholder in a private placement (the “Private Placement”) priced at-the-market
consistent with the rules of the Nasdaq Stock Market LLC, (i) an aggregate of 1,300,000 shares of Common Stock (the “Shares”), (ii) in lieu of additional Shares, the Pre-Funded Warrants to purchase up to an aggregate of 2,985,715 shares of Common Stock, and (iii)
accompanying Common Warrants to purchase up to an aggregate of 4,285,715 shares of Common Stock (the “Common Warrants”). The
combined purchase price of each Share and accompanying Common Warrants was $1.75. The combined purchase price of each Pre-Funded Warrant
and accompanying Common Warrants was $1.7499.
The Private Placement closed on July 14, 2023.
The Company received aggregate gross proceeds from the Private Placement of approximately $7.5 million before deducting the placement
agent commissions and estimated offering expenses payable by the Company. H.C.W. acted as the placement agent in the Private Placement
and as part of its compensation the Company issued to designees of H.C.W. Placement Agent Warrants to purchase up to 278,571 shares of
Common Stock at an exercise price of $2.1875.
Each Pre-Funded Warrant has an exercise price
equal to $0.0001 per share. The Pre-Funded Warrants are exercisable at any time after their original issuance and will not expire until
exercised in full. Each Common Warrant has an exercise price equal to $1.75 per share. The Common Warrants are exercisable at any time
after their original issuance and will expire on the five and one-half (5.5) year anniversary of their issuance. The exercise price and
number of shares of Common Stock issuable upon exercise of the Common Warrant and pre-Funded Warrant are subject to appropriate adjustment
in the event of stock dividends, stock splits, reorganizations or similar events.
The Pre-Funded Warrants and the Common
Warrants issued in the Private Placement provide that a holder of Pre- Funded Warrants or Common Warrants, as applicable, will not
have the right to exercise any portion of its Pre- Funded Warrants or Warrants if such holder, together with its affiliates, and any
other party whose holdings would be aggregated with those of the holder for purposes of Section 13(d) or Section 16 of the Exchange
Act would beneficially own in excess of 9.99% for the Pre-Funded Warrants and 4.99% for the Common Warrants of the number of shares
of Common Stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership
Limitation”); provided, however, that the holder may increase or decrease the Beneficial Ownership Limitation by giving
notice to the Company, with any such increase not taking effect until the sixty-first day after such notice is delivered to the
Company but not to any percentage in excess of 9.99%. The Common Warrants may be exercised on a cashless basis if a registration
statement registering the shares of Common Stock underlying the Common Warrants is not effective. The Pre-Funded Warrants may be
exercised on a cashless basis.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
You should read the following management’s
discussion and analysis of our financial condition and results of operations in conjunction with our unaudited financial statements and
notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements
and notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2022 filed on March 30, 2023 (the “Annual Report”) with the U.S. Securities and Exchange Commission
(the “SEC”). This discussion, particularly information with respect to our future results of operations or
financial condition, business strategy, plans and objectives for future operations, includes forward-looking statements that involve
risks and uncertainties as described under the heading “Special note regarding forward-looking statements” in
this Quarterly Report on Form 10-Q. You should review the disclosure under Part 1, Item 1A of the Annual Report for a discussion of important
factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. References
in this Quarterly Report on Form 10-Q to “we,” “us,” “our” and similar
first-person expressions refer to Cadrenal Therapeutics, Inc. ("Cadrenal").
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking
statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,”
“believe,” “can,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,”
“target,” “will,” “would” and similar expressions or variations intended to identify forward-looking
statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management.
Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the
timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to, those identified under Part 1, Item 1A of the Annual Report.
Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation
to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Company Overview
We are developing tecarfarin, a novel therapy
with orphan drug and fast-track designations, designed for the prevention of systemic thromboembolism (blood clots) of cardiac origin
in patients with end-stage renal disease (also known as end-stage kidney disease (“ESKD”), and atrial fibrillation (irregular
heartbeat) (“AFib”). We secured the rights to tecarfarin on April 1, 2022 via an asset purchase agreement from HESP LLC, a
wholly owned subsidiary of Horizon Technology Finance Corporation. HESP LLC acquired the assets of Espero BioPharma, Inc., or Espero,
including tecarfarin, in an assignment for the benefit of creditors in which the creditor, Horizon Technology Finance Corporation and
Horizon Credit II LLC (collectively, Horizon), a secured lender of Espero, designated HESP LLC as the assignee of Espero’s assets.
Tecarfarin is an oral anticoagulant (blood thinner)
that uses a small molecule drug design process which targets a different pathway than the most commonly prescribed drugs used in the treatment
of thrombosis and AFib. Tecarfarin has been evaluated in eleven (11) human clinical trials conducted by its previous owners and other
third parties in over 1,003 individuals (269 patients were treated for at least six months and 129 patients were treated for one year
or more). In Phase 1, Phase 2 and Phase 2/3 clinical trials, tecarfarin has generally been well-tolerated in both healthy adult subjects
and patients with chronic kidney disease, or CKD. In the Phase 2/3 trial, EMBRACE-AC, the largest tecarfarin trial with 607 patients having
completed it, only 1.6% of the blinded tecarfarin subjects suffered from major bleeding and there were no thrombotic events. Five patients
died during the trial, but only one death due to intracerebral hemorrhage was considered to be possibly related to the tecarfarin.
In 2019, the United States Food and Drug Administration(“FDA”),
provided input on the Phase 3 trial design for tecarfarin, which was submitted by Espero, the previous owner of tecarfarin. We intend
to submit our Phase 3 trial design to the FDA using the same protocol that was submitted by Espero. Assuming the FDA accepts our Phase
3 trial design, we intend to commence the Phase 3 pivotal trial in the first half of 2024. However, there can be no assurance that the
trial design will be accepted by the FDA. We are pursuing regulatory approval of tecarfarin as an individual treatment, although we might
evaluate, in consultation with the FDA, other potential uses in the future, including the treatment of patients with Left Ventricular
Assist Devices (“LVAD”) and antiphospholipid syndrome (“APS”) who require chronic anticoagulation. These patients
have historically been treated with warfarin, which can be challenging and unreliable in this patient population. The direct oral anticoagulants, which are an alternative to warfarin, are contraindicated for LVAD patients and have
increased the risk for recurrent thrombosis in APS patients with arterial thrombosis.
In March 2019, the FDA granted orphan drug designation(“ODD”),
for tecarfarin for the prevention of systemic thromboembolism of cardiac origin in patients with ESKD and AFib. The FDA grants ODD status
to drugs that are intended for the treatment, diagnosis, or prevention of rare diseases or conditions, which are defined as a disease
or condition that affects fewer than 200,000 people in the U.S. The ODD program provides a drug developer with certain benefits and incentives,
including a seven-year period of U.S. marketing exclusivity from the date of marketing authorization, waiver of FDA user fees, and tax
credits for clinical research. The granting of an orphan drug designation does not alter the FDA’s regulatory requirements to establish
safety and effectiveness of a drug through adequate and well-controlled studies to support approval and commercialization. Furthermore,
orphan drug designation does not indicate or guarantee FDA approval of the New Drug Application(“NDA”), and we might not receive
exclusivity.
Tecarfarin was developed by researchers using
a small molecule retrometabolic drug design process which targets a different metabolic pathway than the most commonly prescribed drugs
for the treatment of thrombosis and AFib. “Drug metabolism” refers to the process by which a drug is inactivated by the body
and rendered easier to eliminate or to be cleared by the body. Most approved drugs, including warfarin, the only FDA-approved Vitamin
K antagonists, or VKAs, which is a prescribed drug for the treatment of thrombosis, are metabolized in the liver through a pathway known
as the Cytochrome CYP450 system, or CYP450, by the enzymes known as CYP2C9 and CYP3A4. By using a different metabolic pathway, tecarfarin
eliminates or minimizes the CYP450 metabolism in the liver. Patients taking multiple medications that interact with CYP2C9, or CYP3A4
or those with impaired kidney function, can experience an overload in the pathway, creating a bottleneck that often leads to insufficient
clearance, which results in a toxic build-up of one or more drugs. In some instances, patients taking multiple medications metabolized
by the same CYP450 pathway may experience decreased efficacy of one or more of the medications due to rapid metabolism or increased drug
effect and/or toxicity due to enzyme induction. Patient-specific genetic differences can also hinder drug clearance in the CYP450 pathway.
Our product candidate tecarfarin was designed to follow a metabolic pathway distinct from the CYP450 pathway and is metabolized by both
CYP450 and non-CYP450 pathways. We believe this may allow elimination by large capacity and non-saturable tissue esterase pathways that
exist throughout the body rather than just in the liver.
Tecarfarin is an orphan designated, vitamin K
antagonist, oral, once-daily and reversible anticoagulant in the same drug class as warfarin designed for use in patients requiring chronic
VKA anticoagulation, to prevent systemic thromboembolism of cardiac origin in patients with ESKD and AFib. The prevailing treatment for
thrombosis is with an oral anticoagulant, either a VKA, like warfarin, or non-vitamin K oral anticoagulant (“NOAC”). VKAs
block the production of vitamin K-dependent blood clotting factors, such that the blood is “thinned,” preventing clots, while
NOACs directly block the activity of certain of these clotting factors. Tecarfarin, like warfarin, is a VKA.
Vitamin K epoxide Reductase Complex subunit 1
(VKORC1) is a significant enzyme for effective clotting. VKORC1 reduces vitamin K epoxide to its active form (Vitamin K), which is the
rate-limiting step in the physiological process of vitamin K recycling. Vitamin K serves as a cofactor for normal function of several
clotting/anticoagulation factors including Factors II, VII, IX and X and Proteins C, S, and Z. VKORC1 genetic deficiencies result in
increased sensitivity to VKAs, which results in an increase in the risk of significant hemorrhaging. We believe tecarfarin has similar
potency for VKORC1 inhibition as warfarin, but it is an investigational new drug, and we must demonstrate it is safe and effective for
its proposed indication.
AFib is the most common arrhythmia, with its incidence
and prevalence increasing over the last 20 years. AFib is associated with an approximate five-fold increased risk of stroke. The risk
of developing AFib increases in patients with CKD. According to 2021 estimates by the Centers for Disease Control and Prevention, approximately
15% of the U.S. adult population, or 37 million people, have CKD. An estimated 0.4% of people in the U.S. suffer from Stage 4 CKD and
0.1% of people in the U.S. have ESKD.
Patients with ESKD and AFib represent a spectrum
of disorders involving both the heart and kidneys (known as cardiorenal syndrome “CRS”) in which acute or chronic dysfunction
in one organ may induce acute or chronic dysfunction in the other organ. These patients have typically been excluded from randomized clinical
trials because the approved therapies for AFib have metabolic profiles that may increase drug exposures thereby increasing the known risks
and challenges in managing these patients. The presence of either CKD or AFib, increases the risk of serious thromboembolic adverse clinical
outcomes, such as stroke and death. Antithrombotic therapy is typically recommended to decrease this risk in AFib patients, but there
are no approved treatment options for patients with ESKD and AFib. Warfarin may cause substantial harm in these patients. Low-dose apixaban
(Eliquis) was approved by the FDA for use in ESKD patients on hemodialysis based upon limited pharmacokinetic data by 8 subjects, despite
that randomized trials to date of apixaban versus warfarin for AFib excluded patients with severe and end-stage kidney disease. The RENAL-AF
(Trial to Evaluate Anticoagulation Therapy in Hemodialysis Patients With Atrial Fibrillation) was terminated early in 2019 by its sponsor.
There are more than 809,000 Americans with ESKD,
with approximately 70% on dialysis, according to the United States Renal Data System. Approximately 150,000 ESKD patients also have AFib.
AFib nearly doubles the anticipated mortality and increases the stroke risk by approximately five-fold in these patients. There is evidence
that AFib is an independent risk factor for developing ESKD in CKD patients. Both diseases share common risk factors including hypertension,
diabetes, vascular disease, and advancing age. Cardiovascular disease contributes to more than half of all deaths among patients with
ESKD. According to the Annual Data Report published by the United States Renal Data System, total Medicare spending for patients with
ESKD reached $51 billion in 2019, accounting for approximately 7% of the Medicare paid claims costs.
We have licensed out the rights to tecarfarin
for several Asian markets including China, to Lee’s Pharmaceutical Holdings Limited, an integrated research-driven and market-oriented
biopharmaceutical publicly listed company based in Hong Kong with over 25 years’ experience in the pharmaceutical industry in China.
Lee’s Pharmaceutical Holdings Limited is developing tecarfarin as an anti-thrombotic for patients with mechanical heart valves.
In 2020 and 2021, Lee’s Pharmaceutical Holdings Limited completed two Phase 1 studies in China and Hong Kong and is currently preparing
for its Phase 2 trial.
As more fully set forth in our risk factors,
we are a clinical development biopharmaceutical company with a limited operating history. We have a history of operating losses and expect
to continue to incur substantial losses for the foreseeable future. Our cash and the proceeds of our initial public offering will only
fund our operations for a limited time. The proceeds from our initial public offering are insufficient to allow us to commence and complete
our planned Phase 3 clinical trial and submit our NDA. We will need to raise additional capital for the initiation of enrollment
of patients and completion of the planned pivotal Phase 3 trial.
With respect to tecarfarin, we have two issued
U.S. patents directed to tecarfarin. While the patents currently expire in 2024, we expect to seek extensions of patent terms. In the
United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years
beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during
the period of extension). We also intend to seek exclusivity for our proprietary product candidates through market and data exclusivity
granted by regulatory agencies in the United States and other countries. Further, as discussed above, the ODD program provides a drug
developer with certain benefits and incentives, including a seven-year period of U.S. marketing exclusivity from the date of marketing
authorization.
While we have engaged intellectual property counsel
to assist in protecting our patent ownership rights, to date, we have not had intellectual property counsel conduct a freedom to operate
analysis regarding our tecarfarin product. As a result, we cannot be certain that we will not be exposed to third party legal claims,
liabilities and/or litigation actions when we seek to develop, make and market products using our tecarfarin technology.
Clinical Trials
Tecarfarin has been evaluated in 11 human clinical
trials in over 1,003 individuals which includes eight Phase 1 trials, two Phase 2 trials and one Phase 2/3 trial evaluating the efficacy
and safety of tecarfarin.
In a Phase 2/3 randomized and blinded trial sponsored by ARYx Therapeutics,
Inc. in 2008, 607 patients with indications for chronic anticoagulation were treated with either tecarfarin or warfarin. The Time in Therapeutic
Range, (“TTR”), with tecarfarin was similar to that with well-managed warfarin and tecarfarin appeared to have a favorable
safety profile and be well tolerated with only 1.6% of the blinded tecarfarin subjects suffering from major bleeding and no thrombotic
events. When thrombotic and major bleeding events during the blinded period were combined, a numerical imbalance favoring tecarfarin over
warfarin was seen (warfarin 11 subjects, 3.6%; tecarfarin 5 subjects, 1.6%). The trial however did not meet its primary endpoint as superiority
of tecarfarin over warfarin as measured by TTR was not demonstrated.
In a subsequent Phase 1 study with 23 patients
with CKD sponsored by Armetheon, Inc. in 2016, the metabolism of warfarin was inhibited, but not tecarfarin. The safety of repeated dosing
of tecarfarin in CKD patients remained unknown. However, if the pharmacokinetic findings of this single-dose study are present with repeated
dosing, tecarfarin may lead to dosing that is more predictable than warfarin in CKD patients who require anticoagulation therapy.
Recent Events
Fast Track Designation
On January 13, 2023, the FDA designated as a Fast
Track development program the investigation of tecarfarin for the prevention of systemic thromboembolism of cardiac origin in patients
with ESKD and AFib. Fast Track is a process designed to facilitate the development and expedite the review of drugs to treat serious conditions
and fill an unmet medical need.
Initial Public Offering
On January 24, 2023, we consummated our initial
public offering (the “IPO”) of 1,400,000 shares of our common stock at a public offering price of $5.00 per share, generating
gross proceeds of $7,000,000. Our shares of common stock commenced trading on the Nasdaq on January 20, 2023 under the symbol “CVKD.”
In connection with our initial public offering, on January 19, 2023,
we entered into the Underwriting Agreement with Boustead, pursuant to which we issued to Boustead the Representative’s Warrant to
purchase an aggregate of 84,000 shares of our common stock, which is equal to six percent (6%) of the shares of common stock sold in the
initial public offering. Such Representative’s Warrant has an exercise price of $6.00, which is equal to 120% of the public offering
price of the common stock in the initial public offering.
In connection with the closing of the initial
public offering, we entered into separate indemnification agreements with each of our directors (we had previously entered into separate
indemnification agreements with each of our executive officers). The indemnification agreements, in addition to our Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws, require us to indemnify our directors, executive officers and certain controlling
persons to the fullest extent permitted by Delaware law.
Private Placement
On July 12, 2023, we entered into a securities purchase agreement (the
“Purchase Agreement”) with the Investor Selling Stockholder pursuant to which we sold to the Investor Selling Stockholder
in the Private Placement priced at-the-market consistent with the rules of the Nasdaq Stock Market LLC, (i) an aggregate of 1,300,000
Shares, (ii) in lieu of additional Shares, the Pre-Funded Warrants to purchase up to an aggregate of 2,985,715 shares of Common Stock,
and (iii) accompanying Common Warrants to purchase up to an aggregate of 4,285,715 shares of Common Stock. The combined purchase price
of each Share and accompanying Common Warrants was $1.75. The combined purchase price of each Pre-Funded Warrant and accompanying Common
Warrants was $1.7499.
The Private Placement closed on July 14, 2023.
We received aggregate gross proceeds from the Private Placement of approximately $7.5 million before deducting the placement agent commissions
and estimated offering expenses payable by us. We intend to use the net proceeds from the Private Placement for working capital purposes.
H.C.W. acted as the placement agent in the Private Placement and as part of its compensation we issued to designees of H.C.W. Placement
Agent Warrants to purchase up to 278,571 shares of Common Stock.
Results of Operations
Three Months Ended June 30, 2023 compared
to the Three Months Ended June 30, 2022
The following table summarizes our results of
operations for the three months ended June 30, 2023 and 2022, respectively.
| |
Three Months Ended | |
| |
June 30, | |
| |
2023 | | |
2022 | |
Operating expenses: | |
| | |
| |
General and administrative expenses | |
$ | 784,623 | | |
$ | 280,112 | |
Research and development expenses | |
| 240,957 | | |
| 202,235 | |
Depreciation expense | |
| 597 | | |
| - | |
Total operating expenses | |
| 1,026,177 | | |
| 482,347 | |
Loss from operations | |
| (1,026,177 | ) | |
| (482,347 | ) |
Other expense: | |
| | | |
| | |
Interest and dividend income | |
| (23,176 | ) | |
| - | |
Interest expense | |
| - | | |
| 6,446 | |
Interest expense, amortization of debt discount | |
| - | | |
| 8,324 | |
Change in fair value of derivative liabilities | |
| - | | |
| 5,024 | |
Total other (income) expenses | |
| (23,176 | ) | |
| 19,794 | |
Net loss and comprehensive loss | |
$ | (1,003,001 | ) | |
$ | (502,141 | ) |
General and administrative expenses
General and administrative expenses were $784,623
for the three months ended June 30, 2023. General and administrative expenses included $336,826 of personnel-related expenses, $118,178
of consulting, $74,520 of stock-based compensation, $74,878 in insurance and $180,221 of other expenses.
General and administrative expenses were $280,112
for the three months ended June 30, 2022. General and administrative expenses for this period included $113,033 of personnel-related
expenses, $64,349 of professional fees and $102,730 of other expenses.
Research and development expenses
Research and development expenses were $240,957 for the three months
ended June 30, 2023. Research and development expenses for the three months ended June 30, 2023 included $134,273 of personnel related
expenses, $93,281 of stock-based compensation and $13,403 of other expenses.
Research and development expenses were $202,235
for the three months ended June 30, 2022. Research and development expenses primarily consisted of $200,000 of in-process R&D and
$20,095 of transaction costs which were expensed as in-process research and development.
Interest and dividend income
Interest and dividend income was $23,176 for the three months ended
June 30, 2023. This represents the interest and dividend income earned from our investments in money market funds.
Results of Operations
Six Months Ended June 30, 2023 compared to
the period from January 25, 2022 (inception) through June 30, 2022
The following table summarizes our results of
operations for the six months ended June 30, 2023 and the period from January 25, 2022 (inception) through June 30 2022.
| |
Six Months
Ended
June 30,
2023 | | |
January 25,
2022
(inception)
through
June 30, 2022 | |
Operating expenses: | |
| | |
| |
General and administrative expenses | |
$ | 1,749,356 | | |
$ | 432,772 | |
Research and development expenses | |
| 3,476,274 | | |
| 220,095 | |
Depreciation expense | |
| 786 | | |
| - | |
Total operating expenses | |
| 5,226,415 | | |
| 652,867 | |
Loss from operations | |
| (5,226,415 | ) | |
| (652,867 | ) |
Other expense: | |
| | | |
| | |
Interest and dividend income | |
| (23,176 | ) | |
| - | |
Interest expense | |
| 3,534 | | |
| 8,527 | |
Interest expense, amortization of debt discount | |
| 13,567 | | |
| 10,832 | |
Change in fair value of derivative liabilities | |
| 216,095 | | |
| 6,562 | |
Loss on extinguishment of debt | |
| 740,139 | | |
| - | |
Total other (income) expenses | |
| 950,159 | | |
| 25,921 | |
Net loss and comprehensive loss | |
$ | (6,176,574 | ) | |
$ | (678,788 | ) |
General and administrative expenses
General and administrative expenses were $1,749,356 for the six months
ended June 30, 2023. General and administrative expenses included $776,129 of personnel-related expenses, $126,008 of consulting, $268,658
of stock-based compensation, $135,915 in insurance and $442,646 of other expenses.
General and administrative expenses were $432,772
for the period from January 25, 2022 (inception) through June 30 2022. General
and administrative expenses included $115,000 of consulting services, $191,483 of personnel related expenses, $28,683 of patent renewal
fees, $80,546 of professional fees, and $17,060 of other expenses.
Research and development expenses
Research and development expenses were $3,476,274
for the six months ended June 30, 2023. This included the issuance of 600,000 shares of common stock (valued at $3.0 million) in
January 2023 to HESP LLC, pursuant to the terms of an Amendment to the Asset Purchase Agreement. Research and development expenses for
the six months ended June 30, 2023 also included $185,537 of stock-based compensation and the remaining expenses related to personnel
costs.
Research and development expenses were $220,095
for the period January 25, 2022 (inception) to June 30, 2022. Research and development expenses included $200,000 of acquired intangible
assets and $20,095 of transaction costs which are expensed as in-process research and development.
Interest and dividend income
Interest and dividend income was $23,176 for the six months ended June
30, 2023. This represents the interest and dividend income earned from our investments in money market funds.
Change in fair value of derivative liabilities
We determined that the redemption features in
the convertible notes that we issued in March 2022, June 2022, July 2022, August 2022 and September 2022 in the aggregate principal amount
of $1,125,000 contained rights and obligations for conversion contingent upon a potential future financing event or a change in control.
Thus, the embedded put options were bifurcated from the face value of the convertible notes and accounted for as derivative liabilities
to be remeasured at the end of each reporting period with the change in the fair value included in other expense, in the accompanying
statement of operations and comprehensive loss.
Concurrent with the closing of the IPO in January
2023, the note holders converted the debt into common stock, accordingly, the derivative financial liabilities were de-recognized and
reclassified to stockholders’ equity (deficit) on January 24, 2023.
The derivative liabilities were considered a
level 3 fair value financial instrument and were remeasured up to January 24, 2023 which was the date of derecognition. We recorded a
non-cash charge of $216,095 in January 2023. This charge represented the increase in the fair value of the derivative liabilities since
the previous measurement date of December 31, 2022.
Loss on extinguishment of debt
We recorded a $740,139 loss on the extinguishment
of debt during the six months ended June 30, 2023. This loss represents the unamortized debt discount associated with the convertible
notes and the November promissory notes, which were settled concurrent with the IPO.
Liquidity
and Capital Resources
Since inception, we have incurred losses and negative
cash flows from operations. To date, we have funded our operations from the proceeds of the sale of convertible notes, and the nonconvertible
notes and warrants issued in November 2022, as well as our recently completed IPO in January 2023 and our Private Placement in July 2023.
We had a net loss of $6,176,575 for the six months ended June 30, 2023 which included $ 4,424,961 of non-cash expenses. Cash used in operating
activities for the six months ended June 30, 2023 totaled $2,208,102. As of June 30, 2023, we had cash of approximately $3.2 million and
no debt. In July 2023, we raised $7.5 million of gross proceeds in a Private Placement. Our current cash balance as of August 7, 2023
of $9.6 million is sufficient to fund our operations for at least the next twelve months, however, we expect to require additional
funding to complete our planned Phase 3 clinical trial and submit our NDA, the cost of which we anticipate will be approximately
$45 million. In order to fund the commencement and completion of our Phase 3 clinical trial, we intend to raise additional funds
through equity and debt financings as well as potential partnering relationships. However, there can be no assurance that we will be able
to complete any additional financings on terms acceptable to the Company or at all. If we are unable to raise additional funding to meet
our working capital needs in the future, we will be forced to delay or reduce the scope of our research programs and/or limit or cease
our operations.
Cash Flows
The following table summarizes our cash flows
for the six months ended June 30, 2023 and for the period January 25, 2022 (inception) to June 30, 2022:
| |
| | |
January 25,
2022 | |
| |
Six Months
Ended | | |
(inception)
trough | |
| |
June 30,
2023 | | |
June 30,
2022 | |
Cash used in operating activities | |
$ | (2,208,102 | ) | |
$ | (496,844 | ) |
Cash used in investing activities | |
| (3,253 | ) | |
| - | |
Cash provided by financing activities | |
| 5,408,575 | | |
| 556,490 | |
Net increase in cash | |
| 3,197,220 | | |
| 59,646 | |
Cash and cash equivalents, beginning of period | |
| 32,586 | | |
| - | |
Cash and cash equivalents, end of period | |
$ | 3,229,806 | | |
$ | 59,646 | |
Operating activities
During the six months ended June 30, 2023, cash
used in operating activities was $2,208,102. Net loss adjusted for the non-cash items as detailed on the statement of cash flows, used
$1,751,613 in cash, and the changes in operating assets and liabilities, as detailed on the statement of cash flows, used $456,489 in
cash primarily from a decrease in accrued liabilities of $591,746 and a decrease in accounts payable of $326,758, partially offset by
a $459,820 decrease in deferred equity offering costs and other prepaid expenses.
During the period from January 25, 2022 (inception)
to June 30, 2022, cash used in operating activities was $496,844. Net loss adjusted for the non-cash items, as detailed on the statement
of cash flows, used $661,394 in cash, and the changes in operating assets and liabilities, as detailed on the statement of cash flows,
provided $164,550 in cash primarily from a $207,505 increase in accounts payable, a $132,201 increase in accrued liabilities, offset
by a $153,814 increase in deferred offering costs.
Financing activities
During the six months ended June 30, 2023, net
cash provided by financing activities totaled $5,408,575 as we completed our IPO of 1,400,000 shares of our common stock at a public
offering price of $5.00 per share, generating gross proceeds of $7,000,000 and net proceeds of $5,408,575. We also received $250,000
from the exercise of warrants that we issued in November 2022, which proceeds were used to repay the notes that were issued in November,
with accrued interest on the notes being paid in cash.
During the period January 25, 2022 (inception) to June 30, 2022, net
cash provided by financing activities was $556,490, primarily consisting of the $548,540 of net proceeds from the issuance of a convertible
notes in March and June 2022.
Critical Accounting Estimates
This discussion and analysis of our financial
condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted
accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based
on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimated under different assumptions or conditions. While our significant accounting policies are
described in more detail in the notes to our financial statements, we believe that the following accounting policies are critical to
understanding our historical and future performance, as these policies relate to the more significant areas involving management’s
judgments and estimates.
Acquisitions
We evaluate acquisitions of assets and other
similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition
by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated
in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition.
If not, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create
outputs, which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine
whether an acquisition is a business combination or an acquisition of assets.
Acquisitions meeting the definition of business
combinations are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the
net assets acquired at their respective fair values. In a business combination, any excess of the purchase price over the estimated fair
values of the net assets acquired is recorded as goodwill.
For asset acquisitions, a cost accumulation model
is used to determine the cost of an asset acquisition. Direct transaction costs are recognized as part of the cost of an asset acquisition.
We also evaluate which elements of a transaction should be accounted for as a part of an asset acquisition and which should be accounted
for separately. The cost of an asset acquisition, including transaction costs, is allocated to identifiable assets acquired and liabilities
assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. Any difference between the cost of
an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their
relative fair values. When a transaction accounted for as an asset acquisition includes an in-process research and development (“IPR&D”)
asset, the IPR&D asset is only capitalized if it has an alternative future use other than in a particular research and development
project. For an IPR&D asset to have an alternative future use: (a) we must reasonably expect that we will use the asset acquired
in the alternative manner and anticipate economic benefit from that alternative use, and (b) our use of the asset acquired is not
contingent on further development of the asset subsequent to the acquisition date (that is, the asset can be used in the alternative
manner in the condition in which it existed at the acquisition date). Otherwise, amounts allocated to IPR&D that have no alternative
use are expensed to research and development. Asset acquisitions may include contingent consideration arrangements that encompass obligations
to make future payments to sellers contingent upon the achievement of future financial targets. Contingent consideration is not recognized
until all contingencies are resolved and the consideration is paid or probable of payment, at which point the consideration is allocated
to the assets acquired on a relative fair value basis.
Research and Development Expenses
Research and development costs are expensed as
incurred and consist of fees paid to other entities that conduct certain research and development activities on our behalf. Acquired
intangible assets are expensed as research and development costs if, at the time of payment, the technology is under development; is
not approved by the FDA or other regulatory agencies for marketing; has not reached technical feasibility; or otherwise has no foreseeable
alternative future use. Nonrefundable advance payments for goods or services to be received in the future for use in research and development
activities are capitalized and then expensed as the related goods are delivered or the services are performed.
Derivative Financial Instruments
We evaluate all of our agreements to determine
if such instruments have derivatives or contain features that qualify as embedded derivatives. We account for certain redemption features
that are associated with convertible notes as liabilities at fair value and adjust the instruments to their fair value at the end of
each reporting period. Derivative financial liabilities are initially recorded at fair value, with gains and losses arising from changes
in the fair value recognized in other income (expense) in the accompanying statements of operations and comprehensive loss for each reporting
period while such instruments are outstanding. The embedded derivative liability is valued using a probability-weighted expected return
model. If we repay the note holders or if, during the next round of financing, the note holders convert the debt into equity, the derivative
financial liability will be de-recognized on that date. Derivative instrument liabilities are classified in the balance sheet as current
or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the
balance sheet date.
Stock-Based Compensation
We measure our stock-based awards granted to
employees, consultants and directors based on the estimated fair values of the awards and recognize the compensation over the requisite
service period. We use the Black-Scholes option-pricing model to estimate the fair value of our stock option awards. Stock-based compensation
is recognized using the straight-line method. As the stock compensation expense is based on awards ultimately expected to vest, it is
reduced by forfeitures. We account for forfeitures as they occur.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting
period. Significant estimates and assumptions made in the accompanying financial statements include but are not limited to the fair value
of financial instruments, the fair value of common stock prior to our IPO, deferred tax assets and valuation allowance, income tax uncertainties,
and certain accruals. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors and
adjusts those estimates and assumptions when facts and circumstances change. Actual results could differ from those estimates.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have during the period presented,
and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Item 3. 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 required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June
30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in
the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We have adopted and
maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to
provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly
Report on Form 10-Q, is collected, recorded, processed, summarized, and reported within the time periods specified in the rules of the
SEC. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management
to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and
procedures as of June 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such a date, our disclosure
controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2023, there were no changes in our
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings.
Item 1A. Risk Factors
Investing in our securities involves a high
degree of risk. Please refer to Part I, Item 1A, “Risk Factors,” contained
in our Annual Report for a description of certain significant risks and uncertainties to which our business, financial condition and
results of operations are subject., There have been no material changes from these risk factors as of the date of filing of this Quarterly
Report on Form 10-Q.
Risks Related to the Private Placement and Ownership of the Warrants
we issued in the Private Placement
There is no public market for the Pre-Funded
Warrants, Common Warrants or Placement Agent Warrants.
There is no established public trading market for the Pre-Funded Warrants,
Common Warrants or Placement Agent Warrants, and we do not expect a market to develop. In addition, we do not intend to apply to list
the Pre-Funded Warrants, Common Warrants or Placement Agent Warrants on Nasdaq or any national securities exchange or other nationally
recognized trading system. Without an active market, the liquidity of the Pre-Funded Warrants, Common Warrants and Placement Agent Warrants
will be limited.
The Pre-Funded
Warrants, Common Warrants and Placement Agent Warrants are speculative in nature.
The Pre-Funded Warrants, Common Warrants and Placement Agent Warrants
do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather
merely represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically, commencing on
the date of issuance, holders of the Common Warrants may exercise their right to acquire common stock and pay an exercise price of $1.75
per share, subject to certain adjustments, prior to five and a half years from the date on which such Common Warrants were issued, after
which date any unexercised Common Warrants will expire and have no further value. Holders of Placement Agent Warrants may exercise their
right to acquire common stock and pay an exercise price of $2.1875 per share, subject to certain adjustments, prior to five and a half
years from the date on which such Placement Agent Warrants were issued, after which date any unexercised Placement Agent Warrants will
expire and have no further value. Holders of Pre-Funded Warrants have identical rights, except that the Pre-Funded Warrants have an exercise
price of $0.0001 and do not expire until exercised in full. The market value of the Pre-Funded Warrants, Common Warrants and Placement
Agent Warrants, if any, is uncertain and there can be no assurance that the market value of the Pre-Funded Warrants, Common Warrants and
Placement Agent Warrants will equal or exceed their imputed offering price. The Pre-Funded Warrants, Common Warrants and Placement Agent
Warrants will not be listed or quoted for trading on any market or exchange. There can be no assurance that the market price of the common
stock will ever equal or exceed the exercise price of the Common Warrants or Placement Agent Warrants and consequently, whether it will
ever be profitable for holders of the Common Warrants or Placement Agent Warrants to exercise the warrants.
Holders of the
Common Warrants, Pre-Funded Warrants and Placement Agent Warrants will have no rights as common stockholders with respect to the shares
our Common Stock underlying the warrants until such holders exercise their warrants and acquire our Common Stock, except as otherwise
provided in the Common Warrants, and Pre-Funded Warrants and Placement Agent Warrants.
Until holders of the Common Warrants, Pre-Funded Warrants and/or and
Placement Agent Warrants acquire shares of our Common Stock upon exercise thereof, such holders will have no rights with respect to the
shares of our Common Stock underlying such warrants, except to the extent that holders of such Common Warrants, Pre-Funded Warrants and
Placement Agent Warrants will have certain rights to participate in distributions or dividends paid on our common stock as set forth in
such warrants. Upon exercise of the Common Warrants, Pre-Funded Warrants and Placement Agent Warrants, the holders will be entitled to
exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
We did not sell any equity securities during the quarter ended June
30, 2023 in transactions that were not registered under the Securities Act.
Use of Proceeds
On January 24, 2023, we consummated our IPO of
1,400,000 shares of our common stock at a public offering price of $5.00 per share, generating gross proceeds of $7.0 million which resulted
in net proceeds to us of approximately $5.4 million, after deducting underwriting discounts and commissions of $490,000, underwriter
non-accountable expenses of $70,000, and offering-related transaction costs of approximately $1.0 million. None of the expenses associated
with the IPO were paid to directors, officers, persons owning ten percent or more of any class of equity securities, or to their associates,
or to our affiliates. Our shares of common stock commenced trading on the Nasdaq Capital Market (“Nasdaq”) on January 20,
2023 under the symbol “CVKD.” The offering has terminated.
In connection with our initial public offering,
on January 19, 2023, we entered into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities, LLC,
as representative of the underwriters (the “Representative”), a form of which was previously filed as an exhibit to our registration
statement on Form S-1, as amended (File No. 333-267562), which was declared effective by the SEC on January 19, 2023 (the “Registration
Statement”). Pursuant to the Underwriting Agreement, we agreed to issue to the underwriters a five-year warrant (the “Representative’s
Warrant”) to purchase an aggregate of 84,000 shares of our common stock, which is equal to six percent (6%) of the shares of common
stock sold in the initial public offering. Such Representative’s Warrant has an exercise price of $6.00, which is equal to
120% of the public offering price of the common stock in the initial public offering.
There has been no material change in the planned
use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on January 23, 2023 pursuant
to Rule 424(b)(4), of $3 million of proceeds to be used for CMC preparation, research and development, and other trial preparation
expenses necessary for initiation of our planned Phase 3 pivotal trial and $2.4 million of proceeds to be used for working capital,
including payments made to officers in accordance with the terms of their employment agreements and payment to Phamace, LLC, a consulting
firm of which Quang Pham, our Chief Executive Officer, is the sole member as described in the Note 7 to the Notes to Financial Statements.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits.
The exhibits filed or furnished as part of this
Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation (Incorporated by reference as Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 333-267562) filed on December 6, 2022) |
3.2 |
|
Amended and Restated Bylaws (Incorporated by reference as Exhibit 3.2 to the Registration Statement on Form S-1 (File No. 333-267562) filed on December 6, 2022) |
10.1# |
|
Amendment No. 1 to Employment Agreement between Cadrenal Therapeutics, Inc. and Matthew Szot, dated May 25, 2023 (Incorporated by reference as Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-41596) filed on May 26, 2023) |
31.1* |
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Certification of the Principal Executive Officer Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* |
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Certification of the Principal Financial Officer and Principal Accounting Officer Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1* |
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Certification by the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2* |
|
Certification by the Principal Financial Officer and Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS |
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Inline XBRL Instance* |
101.SCH |
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Inline XBRL Taxonomy Extension
Schema* |
101.CAL |
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Inline XBRL Taxonomy Extension
Calculation* |
101.DEF |
|
Inline XBRL Taxonomy Extension
Definition* |
101.LAB |
|
Inline XBRL Taxonomy Extension
Labeled* |
101.PRE |
|
Inline XBRL Taxonomy Extension
Presentation* |
104 |
|
Cover Page Interactive
Data File (the cover page XBRL tags are embedded within the inline XBRL document) |
* |
Filed herewith. |
# |
Management contract or
compensatory plan or arrangement required to be identified pursuant to Item 15(a)(3) of this Quarterly Report on Form 10-Q. |
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
CADRENAL THERAPEUTICS, INC. |
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(Registrant) |
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Date: August
10, 2023 |
By: |
/s/
Quang Pham |
|
|
Quang Pham |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
CADRENAL THERAPEUTICS, INC. |
|
(Registrant) |
|
|
|
Date: August 10, 2023 |
By: |
/s/
Matthew Szot |
|
|
Matthew Szot |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer and
Principal Accounting Officer) |
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I, Quang Pham, Chief Executive
Officer (Principal Executive Officer) of Cadrenal Therapeutics, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
I, Matthew Szot, Chief Financial
Officer (Principal Financial Officer and Principal Accounting Officer) of Cadrenal Therapeutics, Inc. (the “Company”), do
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge: