PROSPECTUS
SUPPLEMENT |
Filed
pursuant to Rule 424(b)(3) |
|
Registration
Number 333-268934 |
ZYVERSA
THERAPEUTICS, INC.
5,858,714
Shares of Common Stock
723,234
Shares of Common Stock Underlying Series B Preferred Stock
4,878,875
Shares of Common Stock Underlying PIPE Warrants
5,825,358
Shares of Common Stock Underlying Public Warrants
240,204
Shares of Common Stock Underlying Private Placement Warrants
7,121,213
Shares of the Common Stock Underlying the Inducement Warrants
This
prospectus supplement updates and supplements the prospectus dated October 20, 2023 (as may be further supplemented or amended from time
to time, the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (File No. 333-268934).
This
prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus,
which is required to be delivered with this prospectus supplement. If there is any inconsistency between the information in the Prospectus
and this prospectus supplement, you should rely on the information in this prospectus supplement.
Our
Common Stock is listed on the Nasdaq Global Market of The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “ZVSA”.
On November 17, 2023, the last quoted sale price for our Common Stock as reported on Nasdaq was $0.08.
We
are an “emerging growth company” and a “smaller reporting company” as such terms are defined under the federal
securities laws and, as such, are subject to certain reduced public company reporting requirements.
Investing
in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading
“Risk Factors” beginning on page 12 of the Prospectus, and under similar headings in any amendments or supplements
to the Prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of the Prospectus. Any representation to the contrary is a criminal offense.
The
date of this prospectus supplement is November 20, 2023.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2023
☐
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: 001-41184
ZYVERSA
THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
Delaware |
|
86-2685744 |
(State
or other jurisdiction
of
incorporation or organization) |
|
(I.R.S.
Employer
Identification
No.) |
2200
N. Commerce Parkway, Suite 208
Weston,
FL 33326 |
|
33326 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(754)
231-1688
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol |
|
Name
of each exchange on which registered |
Common
Stock, $0.0001 par value per share |
|
ZVSA |
|
The
Nasdaq Global 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 if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes: ☐ No: ☒
As
of November 10, 2023, the number of shares outstanding of the registrant’s common stock, $0.0001 par value per share, was 43,519,719.
ZYVERSA
THERAPEUTICS, INC.
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PART I FINANCIAL INFORMATION |
|
1 |
|
|
|
ITEM 1. Financial Statements |
|
1 |
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 (Successor) |
|
1 |
|
|
|
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 (Successor) and September 30, 2022 (Predecessor) |
|
2 |
|
|
|
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the Three and Nine Months Ended September 30, 2023 (Successor) and September 30, 2022 (Predecessor) |
|
3 |
|
|
|
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 (Successor) and September 30, 2022 (Predecessor) |
|
4 |
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
|
5 |
|
|
|
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
|
18 |
|
|
|
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. |
|
26 |
|
|
|
ITEM 4. Controls and Procedures. |
|
26 |
|
|
|
PART II - OTHER INFORMATION |
|
28 |
|
|
|
ITEM 1. Legal Proceedings. |
|
28 |
|
|
|
ITEM 1A. Risk Factors. |
|
28 |
|
|
|
ITEM 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities. |
|
29 |
|
|
|
ITEM 3. Defaults Upon Senior Securities. |
|
29 |
|
|
|
ITEM 4. Mine Safety Disclosures. |
|
29 |
|
|
|
ITEM 5. Other Information. |
|
29 |
|
|
|
ITEM 6. Exhibits. |
|
30 |
|
|
|
SIGNATURES |
|
31 |
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZYVERSA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
September 30, | | |
December 31, | |
Financial Designation, Predecessor and Successor
[Fixed List] | |
Successor | | |
Successor | |
| |
Successor | |
| |
September 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
(Unaudited) | | |
| |
Assets | |
| | |
| |
| |
| | |
| |
Current Assets: | |
| | | |
| | |
Cash | |
$ | 1,578,721 | | |
$ | 5,902,199 | |
Prepaid expenses and other current assets | |
| 426,519 | | |
| 225,347 | |
Vendor deposits | |
| - | | |
| 235,000 | |
Total Current Assets | |
| 2,005,240 | | |
| 6,362,546 | |
Equipment, net | |
| 9,533 | | |
| 17,333 | |
In-process research and development | |
| 30,806,158 | | |
| 100,086,329 | |
Goodwill | |
| - | | |
| 11,895,033 | |
Security deposit | |
| - | | |
| 46,659 | |
Operating lease right-of-use asset | |
| 31,078 | | |
| 98,371 | |
| |
| | | |
| | |
Total Assets | |
$ | 32,852,009 | | |
$ | 118,506,271 | |
| |
| | | |
| | |
Liabilities, Temporary Equity and Stockholders’ Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 8,897,534 | | |
$ | 6,025,645 | |
Accrued expenses and other current liabilities | |
| 2,775,485 | | |
| 2,053,559 | |
Operating lease liability | |
| 34,349 | | |
| 108,756 | |
Total Current Liabilities | |
| 11,707,368 | | |
| 8,187,960 | |
Deferred tax liability | |
| 1,440,982 | | |
| 10,323,983 | |
Total Liabilities | |
| 13,148,350 | | |
| 18,511,943 | |
| |
| | | |
| | |
Commitments and contingencies (Note 8) | |
| - | | |
| - | |
| |
| | | |
| | |
Successor redeemable common stock, subject to possible redemption, 0 and 65,783 shares outstanding as of September 30, 2023 and December 31, 2022, respectively | |
| - | | |
| 331,331 | |
Stockholders’ Equity: | |
| | | |
| | |
Successor preferred stock, $0.0001 par value, 1,000,000 shares authorized:
Series A preferred stock, 8,635 shares designated, 50 and 8,635 shares issued and outstanding as of September 30, 2023 and December
31, 2022, respectively | |
| - | | |
| 1 | |
Series B preferred stock, 5,062 shares designated, 5,062 shares issued and
outstanding as of September 30, 2023 and December 31, 2022 | |
| 1 | | |
| 1 | |
Preferred stock, value | |
| | | |
| | |
Successor common stock, $0.0001 par value, 110,000,000 shares authorized; 43,517,560 and 9,016,139
shares issued at September 30, 2023 and December 31, 2022, respectively, and 43,515,401 and 9,016,139 shares outstanding as of
September 30, 2023 and December 31, 2022, respectively | |
| 4,353 | | |
| 902 | |
Additional paid-in-capital | |
| 109,587,097 | | |
| 104,583,271 | |
Accumulated deficit | |
| (89,880,624 | ) | |
| (4,921,178 | ) |
Treasury stock, at cost, 2,159 and 0 shares at September 30, 2023 and
December 31, 2022, respectively | |
| (7,168 | ) | |
| - | |
Total Stockholders’ Equity | |
| 19,703,659 | | |
| 99,662,997 | |
| |
| | | |
| | |
Total Liabilities, Temporary Equity and Stockholders’ Equity | |
$ | 32,852,009 | | |
$ | 118,506,271 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
ZYVERSA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
| | |
| | |
| | |
| |
Financial Designation, Predecessor and Successor [Fixed List] | |
Successor | | |
Predecessor | | |
Successor | | |
Predecessor | |
| |
Successor | | |
Predecessor | | |
Successor | | |
Predecessor | |
| |
For the Three Months Ended
September 30, 2023 | | |
For the Three Months Ended
September 30, 2022 | | |
For the Nine Months Ended
September 30, 2023 | | |
For the Nine Months Ended
September 30, 2022 | |
Operating Expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
$ | 673,943 | | |
$ | 2,334,120 | | |
$ | 2,950,462 | | |
$ | 4,120,477 | |
General and administrative | |
| 2,228,735 | | |
| 1,061,046 | | |
| 9,694,097 | | |
| 4,526,428 | |
Impairment of in-process research and development | |
| - | | |
| - | | |
| 69,280,171 | | |
| - | |
Impairment of goodwill | |
| - | | |
| - | | |
| 11,895,033 | | |
| - | |
Total Operating Expenses | |
| 2,902,678 | | |
| 3,395,166 | | |
| 93,819,763 | | |
| 8,646,905 | |
| |
| | | |
| | | |
| | | |
| | |
Loss From Operations | |
| (2,902,678 | ) | |
| (3,395,166 | ) | |
| (93,819,763 | ) | |
| (8,646,905 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other (Income) Expense: | |
| | | |
| | | |
| | | |
| | |
Interest (income) expense | |
| 210 | | |
| 69,352 | | |
| (555 | ) | |
| 377,820 | |
Change in fair value of derivative liabilities | |
| - | | |
| 228,100 | | |
| - | | |
| 420,600 | |
| |
| | | |
| | | |
| | | |
| | |
Pre-Tax Net Loss | |
| (2,902,888 | ) | |
| (3,692,618 | ) | |
| (93,819,208 | ) | |
| (9,445,325 | ) |
Income tax benefit | |
| 485 | | |
| - | | |
| 8,859,762 | | |
| - | |
Net Loss | |
| (2,902,403 | ) | |
| (3,692,618 | ) | |
| (84,959,446 | ) | |
| (9,445,325 | ) |
Deemed dividend to preferred stockholders | |
| (32,373 | ) | |
| (9,684,637 | ) | |
| (7,948,209 | ) | |
| (10,015,837 | ) |
Net Loss Attributable to Common Stockholders | |
$ | (2,934,776 | ) | |
$ | (13,377,255 | ) | |
$ | (92,907,655 | ) | |
$ | (19,461,162 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Loss Per Share | |
| | | |
| | | |
| | | |
| | |
- Basic and Diluted | |
$ | (0.09 | ) | |
$ | (0.55 | ) | |
$ | (4.79 | ) | |
$ | (0.81 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted Average Number of Common Shares Outstanding | |
| | | |
| | | |
| | | |
| | |
- Basic and Diluted | |
| 30,978,540 | | |
| 24,167,257 | | |
| 19,403,027 | | |
| 24,167,257 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
ZYVERSA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
| |
For the Three and Nine Months Ended September 30, 2023 | |
| |
Series A | | |
Series B | | |
| | |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Preferred Stock | | |
Preferred Stock | | |
Common Stock | | |
Treasury Stock | | |
Paid-In | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Successor | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Successor | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance - January 1, 2023 | |
| 8,635 | | |
$ | 1 | | |
| 5,062 | | |
$ | 1 | | |
| 9,016,139 | | |
$ | 902 | | |
| - | | |
$ | - | | |
$ | 104,583,271 | | |
$ | (4,921,178 | ) | |
$ | 99,662,997 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Reclassification of formerly redeemable common stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| 65,783 | | |
| 7 | | |
| - | | |
| - | | |
| 331,324 | | |
| - | | |
| 331,331 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock pursuant to vendor agreements | |
| - | | |
| - | | |
| - | | |
| - | | |
| 130,000 | | |
| 13 | | |
| - | | |
| - | | |
| 395,187 | | |
| - | | |
| 395,200 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Registration costs associated with preferred stock issuance | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (34,674 | ) | |
| - | | |
| (34,674 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 287,461 | | |
| - | | |
| 287,461 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,543,950 | ) | |
| (3,543,950 | ) |
Balance - March 31, 2023 | |
| 8,635 | | |
| 1 | | |
| 5,062 | | |
| 1 | | |
| 9,211,922 | | |
| 922 | | |
| - | | |
| - | | |
| 105,562,569 | | |
| (8,465,128 | ) | |
| 97,098,365 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Registered offering of common stock [1] | |
| - | | |
| - | | |
| - | | |
| - | | |
| 11,015,500 | | |
| 1,102 | | |
| - | | |
| - | | |
| 9,829,917 | | |
| - | | |
| 9,831,019 | |
Redemption of Series A Preferred Stock | |
| (8,400 | ) | |
| (1 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (10,080,000 | ) | |
| - | | |
| (10,080,001 | ) |
Conversion of Series A Preferred Stock into common stock | |
| (35 | ) | |
| - | | |
| - | | |
| - | | |
| 17,500 | | |
| 2 | | |
| - | | |
| - | | |
| (2 | ) | |
| - | | |
| - | |
Shares issued as consideration for extension of lock-up period | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,044,152 | | |
| 304 | | |
| - | | |
| - | | |
| 1,156,474 | | |
| - | | |
| 1,156,778 | |
Issuance of common stock pursuant to vendor agreements | |
| - | | |
| - | | |
| - | | |
| - | | |
| 380,000 | | |
| 38 | | |
| - | | |
| - | | |
| 209,962 | | |
| - | | |
| 210,000 | |
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 365,742 | | |
| - | | |
| 365,742 | |
Treasury stock acquired, at cost | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,159 | ) | |
| (7,168 | ) | |
| - | | |
| - | | |
| (7,168 | ) |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (78,513,093 | ) | |
| (78,513,093 | ) |
Balance - June 30, 2023 | |
| 200 | | |
| - | | |
| 5,062 | | |
| 1 | | |
| 23,669,074 | | |
| 2,368 | | |
| (2,159 | ) | |
| (7,168 | ) | |
| 107,044,662 | | |
| (86,978,221 | ) | |
| 20,061,642 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Registered offering of common stock [2] | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,256,060 | | |
| 326 | | |
| - | | |
| - | | |
| 1,575,612 | | |
| - | | |
| 1,575,938 | |
Warrant modification | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 181,891 | | |
| - | | |
| 181,891 | |
Redemption of Series A Preferred Stock | |
| (150 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (215,048 | ) | |
| - | | |
| (215,048 | ) |
Exercise of pre-funded warrants | |
| - | | |
| - | | |
| - | | |
| - | | |
| 9,471,213 | | |
| 947 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 947 | |
Warrant inducement offer - exercise proceeds [3] | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,121,213 | | |
| 713 | | |
| - | | |
| - | | |
| 756,935 | | |
| - | | |
| 757,647 | |
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 243,045 | | |
| - | | |
| 243,045 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,902,403 | ) | |
| (2,902,403 | ) |
Balance - September 30, 2023 | |
| 50 | | |
$ | - | | |
| 5,062 | | |
$ | 1 | | |
| 43,517,560 | | |
$ | 4,353 | | |
| (2,159 | ) | |
$ | (7,168 | ) | |
$ | 109,587,097 | | |
$ | (89,880,624 | ) | |
$ | 19,703,659 | |
Predecessor | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficiency | |
| |
For the Three and Nine Months Ended September 30, 2022 | |
| |
Series A | | |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Preferred Stock | | |
Common Stock | | |
Paid-In | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficiency | |
Predecessor | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Predecessor | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance - January 1, 2022 | |
| - | | |
$ | - | | |
| 24,167,257 | | |
$ | 242 | | |
$ | 40,065,109 | | |
$ | (52,896,817 | ) | |
$ | (12,831,466 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of preferred stock in private placement [4] | |
| 133,541 | | |
| 1 | | |
| - | | |
| - | | |
| 393,300 | | |
| - | | |
| 393,301 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,941,746 | | |
| - | | |
| 1,941,746 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,748,495 | ) | |
| (3,748,495 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance - March 31, 2022 | |
| 133,541 | | |
| 1 | | |
| 24,167,257 | | |
| 242 | | |
| 42,400,155 | | |
| (56,645,312 | ) | |
| (14,244,914 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 695,940 | | |
| - | | |
| 695,940 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,004,212 | ) | |
| (2,004,212 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance - June 30, 2022 | |
| 133,541 | | |
| 1 | | |
| 24,167,257 | | |
| 242 | | |
| 43,096,095 | | |
| (58,649,524 | ) | |
| (15,553,186 | ) |
Balance | |
| 133,541 | | |
| 1 | | |
| 24,167,257 | | |
| 242 | | |
| 43,096,095 | | |
| (58,649,524 | ) | |
| (15,553,186 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of preferred stock in private placement [5] | |
| 317,322 | | |
| 4 | | |
| - | | |
| - | | |
| 959,196 | | |
| - | | |
| 959,200 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of convertible notes payable and accrued interest into preferred
stock | |
| 1,802,193 | | |
| 18 | | |
| - | | |
| - | | |
| 5,658,870 | | |
| - | | |
| 5,658,888 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation: | |
| - | | |
| - | | |
| - | | |
| - | | |
| 494,022 | | |
| - | | |
| 494,022 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,692,618 | ) | |
| (3,692,618 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance - September 30, 2022 | |
| 2,253,056 | | |
$ | 23 | | |
| 24,167,257 | | |
$ | 242 | | |
$ | 50,208,183 | | |
$ | (62,342,142 | ) | |
$ | (12,133,694 | ) |
Balance | |
| 2,253,056 | | |
$ | 23 | | |
| 24,167,257 | | |
$ | 242 | | |
$ | 50,208,183 | | |
$ | (62,342,142 | ) | |
$ | (12,133,694 | ) |
[1] | | Includes gross proceeds of $11,015,500 less issuance costs of $1,184,482 |
[2] | | Includes gross proceeds of $2,099,053 less issuance costs of $523,115 |
[3] | | Includes gross proceeds of $966,349 less issuance costs of $208,702 |
[4] | | Includes gross proceeds of $419,320 less issuance costs of $26,019 |
[5] | | Includes gross proceeds of $996,400 less issuance costs of $37,200 |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
ZYVERSA
THERAPEUTICS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
September 30, | | |
September 30, | |
Financial Designation, Predecessor and Successor [Fixed
List] | |
Successor | | |
Predecessor | |
| |
Successor | | |
Predecessor | |
| |
For the Nine | | |
For the Nine | |
| |
Months Ended | | |
Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash Flows From Operating Activities: | |
| | | |
| | |
Net loss | |
$ | (84,959,446 | ) | |
$ | (9,445,325 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Impairment of in-process research and development | |
| 69,280,171 | | |
| - | |
Impairment of goodwill | |
| 11,895,033 | | |
| - | |
Stock-based compensation | |
| 896,248 | | |
| 3,131,708 | |
Issuance of common stock pursuant to vendor agreements | |
| 605,200 | | |
| - | |
Shares issued as consideration for extension of lock-up period | |
| 1,156,778 | | |
| - | |
Amortization of debt discount | |
| - | | |
| 39,492 | |
Change in fair value of derivative liability | |
| - | | |
| 420,600 | |
Depreciation of fixed assets | |
| 7,800 | | |
| 7,800 | |
Non-cash rent expense | |
| 67,293 | | |
| - | |
Deferred tax benefit | |
| (8,883,001 | ) | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| (201,172 | ) | |
| (57,366 | ) |
Security deposit | |
| 46,659 | | |
| (1 | ) |
Vendor deposits | |
| 235,000 | | |
| 160,000 | |
Accounts payable | |
| 2,871,889 | | |
| 3,448,439 | |
Operating lease liability | |
| (74,407 | ) | |
| - | |
Accrued expenses and other current liabilities | |
| 1,122,488 | | |
| 1,216,322 | |
| |
| | | |
| | |
Net Cash Used In Operating Activities | |
| (5,933,467 | ) | |
| (1,078,331 | ) |
| |
| | | |
| | |
Cash Flows From Financing Activities: | |
| | | |
| | |
Proceeds from issuance of common stock in public offering | |
| 13,114,555 | | |
| - | |
Registration and issuance costs associated with common stock issuance | |
| (1,763,584 | ) | |
| - | |
Redemption of Series A Preferred Stock | |
| (10,695,610 | ) | |
| - | |
Proceeds from issuance of preferred stock in private placement | |
| - | | |
| 1,415,720 | |
Purchase of treasury stock | |
| (7,168 | ) | |
| - | |
Exercise of pre-funded warrants | |
| 947 | | |
| - | |
Warrant inducement offer - exercise proceeds | |
| 966,349 | | |
| - | |
Registration and issuance costs associated with preferred stock issuance | |
| (5,500 | ) | |
| (63,219 | ) |
| |
| | | |
| | |
Net Cash Provided By Financing Activities | |
| 1,609,989 | | |
| 1,352,501 | |
| |
| | | |
| | |
Net (Decrease) Increase in Cash | |
| (4,323,478 | ) | |
| 274,170 | |
| |
| | | |
| | |
Cash - Beginning of Period | |
| 5,902,199 | | |
| 328,581 | |
| |
| | | |
| | |
Cash - End of Period | |
$ | 1,578,721 | | |
$ | 602,751 | |
| |
| | | |
| | |
Supplemental Disclosures of Cash Flow Information: | |
| | | |
| | |
Conversion of convertible notes payable and accrued interest into preferred stock | |
$ | - | | |
$ | 5,658,888 | |
Reclassification of formerly redeemable common stock | |
$ | 331,331 | | |
$ | - | |
Recognition of ROU asset and lease liability upon adoption of ASC 842 | |
$ | - | | |
$ | 182,732 | |
Accounts payable for deferred offering costs | |
$ | 44,892 | | |
$ | 1,506,211 | |
Warrant modification - incremental value | |
$ | 181,891 | | |
$ | - | |
Warrant inducement offer - incremental value | |
$ | 134,591 | | |
$ | - | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
ZYVERSA THERAPEUTICS,
INC.
Notes to Condensed Consolidated
Financial Statements
Note
1 – Business Organization, Nature of Operations and Basis of Presentation
Organization
and Operations
Larkspur
Health Acquisition Corp. (“Larkspur”), a blank-check special purpose acquisition company, was incorporated in Delaware on
March 17, 2021. On December 12, 2022, Larkspur consummated the Business Combination (as defined below) with ZyVersa Therapeutics, Inc.
(“Predecessor”) which was incorporated in the State of Florida on March 11, 2014 as Variant Pharmaceuticals, Inc. Pursuant
to the terms of the Business Combination Agreement (the “Business Combination Agreement”) (and upon all other conditions
of the Business Combination Agreement being satisfied or waived), on the date of the consummation (the “Closing Date”) of
the Business Combination and transactions contemplated thereby (the “Business Combination”), Larkspur (“New Parent”)
changed its name to ZyVersa Therapeutics, Inc. and the Predecessor changed its name to ZyVersa Therapeutics Operating, Inc. (the “Operating
Company”) after merging with a subsidiary of the New Parent, with the Operating Company being the surviving entity, which resulted
in it being incorporated in Delaware and it being a wholly-owned subsidiary of the New Parent (collectively the “Successor”).
References to the “Company” or “ZyVersa” refer to the Successor for the three and nine months ended September
30, 2023, and to the Predecessor for the three and nine months ended September 30, 2022.
ZyVersa
is a clinical stage biopharmaceutical company leveraging proprietary technologies to develop first-in-class drugs for patients with chronic
renal or inflammatory diseases with high unmet medical needs. The Company’s mission is to develop drugs that optimize health outcomes
and improve patients’ quality of life.
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include
all of the information and disclosures required by accounting principles generally accepted in the United States of America for annual
financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items)
which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as
of September 30, 2023 and for the nine months ended September 30, 2023 and 2022. The results of operations for the nine months ended
September 30, 2023 are not necessarily indicative of the operating results for the full year. It is suggested that these unaudited condensed
consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the
Company’s annual report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”)
on March 31, 2023.
The
accompanying unaudited condensed consolidated financial statements have been derived from the accounting records of the Company and its
consolidated subsidiaries. As a result of the Business Combination, for accounting purposes, Larkspur was the acquirer and Predecessor
ZyVersa Therapeutics, Inc. was the acquiree and accounting predecessor. Therefore, the financial statement presentation includes the
financial statements of the Predecessor for the periods prior to December 13, 2022 and the Successor for the periods including and after
December 13, 2022, including the consolidation of the Operating Company. All significant intercompany balances have been eliminated in
the unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared
in accordance with U.S. GAAP and pursuant to the accounting rules and regulations of the SEC.
Note
2 - Going Concern and Management’s Plans
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
As
of September 30, 2023, the Company had cash of approximately $1.6 million and a working capital deficit of approximately $9.7 million.
During the nine months ended September 30, 2023, the Company incurred a net loss of approximately $85.0 million and used cash in operations
of approximately $5.9 million. The Company has an accumulated deficit of approximately $89.9 million as of September 30, 2023.
The
Company has not yet achieved profitability and expects to continue to incur cash outflows from operations. The Company will need
substantial cash to complete development of its proprietary technologies and is currently managing costs to maintain cash. It is
expected that its research and development and general and administrative expenses will continue to increase and, as a result, the
Company will eventually need to generate significant product revenues to achieve profitability.
Consequently,
the Company will be required to raise additional funds through equity or debt financing. Management believes that the Company has access
to capital resources and continues to evaluate additional financing opportunities; however, there can be no assurance that it will be
successful in securing additional capital or that the Company will be able to obtain funds on commercially acceptable terms, if at all.
There is also no assurance that the amount of funds the Company might raise will enable the Company to extinguish its working capital
deficit, complete its development initiatives or attain profitable operations. The aforementioned conditions raise substantial doubt
about the Company’s ability to continue as a going concern for at least one year from the issuance date of these financial statements.
Note
3 – Summary of Significant Accounting Policies
Since
the date the Company’s December 31, 2022 financial statements were issued in its 2022 Annual Report on Form 10-K for the year ended
December 31, 2022, there have been no material changes to the Company’s significant accounting policies.
Use
of Estimates
Preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the
amounts reported in the financial statements and the amounts disclosed in the related notes to the financial statements. The Company
bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the
circumstances. The amounts of assets and liabilities reported in the Company’s balance sheets and the amounts of expenses reported
for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, fair value calculations
for equity securities, derivative liabilities, share based compensation and acquired intangible assets, as well as establishment of valuation
allowances for deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including those
unique to the Company and general economic conditions. It is reasonably possible that actual results could differ from those estimates.
Net
Loss Per Common Share
Basic
net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during
the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common and dilutive
common-equivalent shares outstanding during each period.
The
following table sets forth the outstanding potentially dilutive securities that have been excluded from the calculation of diluted net
loss per share because to do so would be anti-dilutive:
Schedule
of Anti-dilutive Securities Excluded from Calculation of Diluted Net Loss Per Share
| |
2023 | | |
2022 | |
| |
Successor | | |
Predecessor | |
| |
September 30, | | |
September 30, | |
| |
2023 | | |
2022 | |
Predecessor warrants [1] | |
| - | | |
| 8,699,397 | |
Successor warrants [1] | |
| 36,375,319 | | |
| - | |
Predecessor options | |
| - | | |
| 10,039,348 | |
Successor options | |
| 3,559,342 | | |
| - | |
Successor Series A Convertible Preferred Stock | |
| 25,000 | | |
| - | |
Successor Series B Convertible Preferred Stock | |
| 723,234 | | |
| - | |
Predecessor Series A Convertible Preferred Stock | |
| - | | |
| 5,945,045 | |
Predecessor convertible notes payable [2] | |
| - | | |
| 2,977,528 | |
Total potentially dilutive shares | |
| 40,682,895 | | |
| 27,661,318 | |
[1] |
As
part of the InflamaCORE, LLC license agreement, warrants to purchase 600,000 Predecessor or 119,125 Successor shares of common stock
are to be issued upon the satisfaction of certain milestones and, accordingly, are not included in the amount currently reported.
See Note 8 - Commitments and Contingencies - License Agreements for details. |
|
|
[2] |
The
Company’s convertible notes payable have embedded conversion options that result in the automatic issuance of common stock
upon the consummation of certain qualifying transactions. The conversion price is a function of the implied common stock price associated
with the qualifying transaction. For the purpose of disclosing the potentially dilutive securities in the table above, we used the
number of shares of common stock issuable if a qualifying transaction occurred with an implied common stock price equal to the fair
value of the common stock of $1.94 per share as of September 30, 2022. |
Segment
Reporting
The
Company operates and manages its business as one reportable and operating segment. All assets and operations are in the U.S. The Company’s
Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes
of allocating resources and evaluating financial performance.
Note
4 – Business Combination, Goodwill and In-Process Research and Development
On
December 12, 2022, Larkspur consummated the Business Combination with ZyVersa Therapeutics, Inc. (see Note 1 – Business Organization,
Nature of Operations and Basis of Presentation). The Company accounted for the Business Combination as a forward acquisition of the Operating
Company, as it was determined that the Operating Company was a variable interest entity as of the date of the Business Combination. The
New Parent was determined to be the primary beneficiary, as its ownership provides the power to direct the activities of the Operating
Company and the obligation to absorb the losses and/or receive the benefits of the Operating Company.
Given
the non-recurring nature of Larkspur’s activities as a SPAC, pro forma financial data combining the pre-Business Combination results
of both Larkspur and the Operating Company would not be meaningful and have not been presented.
Purchase
Price Allocation
The
Business Combination was recorded using the acquisition method of accounting and the initial purchase price allocation was based on the
Company’s preliminary assessment of the fair value of the purchase consideration and the fair value of the Operating Company’s
tangible and intangible assets acquired and liabilities assumed at the date of acquisition. At December 31, 2022, the purchase price allocation
was not complete due to the proximity of the acquisition date to the calendar year end.
As
of June 30, 2023, the preliminary estimates of the acquisition-date fair value of the purchase consideration and the preliminary estimates
of the purchase price allocation were confirmed, do not require measurement period adjustments, and were considered final. The acquisition-date
fair value of the elements of the purchase consideration were estimated using a market approach with Level 1 inputs (observable inputs)
in the case of the fair value of the Successor’s common stock and Level 3 inputs (unobservable inputs) in the case of the fair
value attributed to the Successor warrants and options. The acquiror was obligated to replace the Operating Company’s existing
warrants and options pursuant to the Business Combination Agreement. Accordingly, it was necessary to allocate the fair value of the
replacement warrants and options between purchase consideration (the fair value attributable to pre-combination services) and compensation
for post-combination services. The fair value of the replacement warrants and options attributable to post-combination services was $584,260
and $1,731,237, respectively.
The
final estimates of the acquisition-date fair value of the purchase consideration were as follows:
Schedule
of Fair Value of the Purchase Consideration
| |
| | |
Successor common stock | |
$ | 67,197,300 | |
Successor warrants | |
| 12,190,015 | |
Successor options | |
| 11,864,556 | |
Total fair value of the purchase consideration | |
$ | 91,251,871 | |
The
final acquisition-date fair values of the assets acquired and liabilities assumed (see the table below) were determined by management,
with the assistance of a third-party valuation expert specifically for the in-process research and development (“IPR&D”).
The estimated fair value of the IPR&D assets was determined using the “income approach” which is a valuation technique
that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate
over its remaining useful life using Level 3 inputs. Some of the more significant assumptions utilized in the valuations include the
estimated net cash flows for each year for each asset, the appropriate discount rate necessary to measure the risk inherent in the future
cash flows, the life cycle of each asset, the potential regulatory and commercial success risk, royalties on net sales, as well as other
factors. There are inherent uncertainties related to these factors and management’s judgment in applying them to arrive at the
estimated fair values. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded
as goodwill, which management believes is attributable to the assembled workforce and other intangible assets that do not qualify
for separate recognition.
Schedule
of Estimated Fair Values of Identifiable Net Assets Acquired Recorded as Goodwill
| |
| | |
Current assets, including cash of $699,324 | |
$ | 1,093,223 | |
In-process research and development | |
| 100,086,329 | |
Goodwill | |
| 11,895,033 | |
Other non-current assets | |
| 64,523 | |
Total assets acquired | |
| 113,139,108 | |
| |
| | |
Current liabilities | |
| 10,818,204 | |
Deferred tax liabilities | |
| 11,069,033 | |
Total assumed liabilities | |
| 21,887,237 | |
| |
| | |
Net assets acquired | |
$ | 91,251,871 | |
IPR&D
recorded for book purposes is considered an indefinite-lived intangible asset until the completion or the abandonment of the research
and development efforts. Because the acquisition was structured as a stock sale, the IPR&D and the goodwill do not have any tax basis
and will not be deductible for tax purposes.
Impairment
While
management did not identify any unfavorable developments related to its IPR&D assets, management did determine that it was more likely
than not that the Company’s single reporting unit’s fair value was below its carrying amount, due to a significant and sustained
decline in the Company’s market capitalization. Accordingly, it was necessary to perform interim impairment testing as of June
30, 2023.
The
fair value of the Company was determined using an income approach. The income approach was based on the present value of the future cash
flows, which were derived from financial forecasts and required significant assumptions and judgment, including the estimated net cash
flows for each year for each asset, the appropriate discount rate necessary to measure the inherent risk of the future cash flows, the
life cycle of each asset, the potential regulatory and commercial success risk, royalties on net sales, as well as other factors. The
resulting estimated fair value was reconciled to the Company’s market capitalization.
The
reconciliation included an estimated implied control premium of approximately 100% above the Company’s market capitalization on
June 30, 2023.
The
summation of the Company’s goodwill and IPR&D fair values, as indicated by the Company’s discounted cash flow calculations,
were compared to the Company’s consolidated fair value, as indicated by the Company’s market capitalization, to evaluate
the reasonableness of the Company’s calculations. The Company’s determination of a reasonable control premium that an investor
would pay, over and above market capitalization for a control position, included a number of factors:
|
● |
Market
control premium. The identification of recent public market information of comparable peer acquisition transactions. The selection
of comparable peer acquisition transactions is subject to judgment and uncertainty. |
|
|
|
|
● |
Impact
of low public float and limited trading activity on market capitalization: A significant portion of the Company’s common shares
are owned by a concentrated number of investors. The public float of the Company’s common shares, calculated as the percentage
of common shares freely traded by public investors divided by the Company’s total shares outstanding, is significantly lower
than that of the Company’s publicly traded peers. Based on the Company’s evaluation of third-party market data, we believe
there is an inherent discount impacting the Company’s share price due to the low public float and limited trading volume, thus
impacting the Company’s market capitalization. |
As
a result of the Company’s analysis, on June 30, 2023, the Company fully impaired its $11.9 million of goodwill and also recorded
a $69.3 million impairment charge for its other indefinite-lived intangible assets, namely the IPR&D.
The
Company determined that there were no new events or circumstances as of September 30, 2023 that indicate that the fair value of the IPR&D
has decreased below its carrying value and intends to perform its annual impairment testing as of October 1, 2023.
Note
5 – Accrued Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities consisted of the following as of September 30, 2023 and December 31, 2022:
Schedule of Accrued Expenses and
Other Current Liabilities
| |
September 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
L&F milestone payment liability | |
$ | 500,000 | | |
$ | 1,500,000 | |
L&F Note [1] | |
| - | | |
| (351,579 | ) |
| |
| | | |
| | |
L&F, net | |
| 500,000 | | |
| 1,148,421 | |
Payroll accrual | |
| 894,416 | | |
| 584,226 | |
Other accrued expenses | |
| 31,969 | | |
| 214,229 | |
Federal income tax payable | |
| 129,922 | | |
| 106,683 | |
Bonus accrual | |
| 1,212,359 | | |
| - | |
Registration delay liability [2] | |
| 6,819 | | |
| - | |
Total accrued expenses and other current liabilities | |
$ | 2,775,485 | | |
$ | 2,053,559 | |
[1] |
See
Note 8 – “Commitments and Contingencies” for details of the forgiveness of the L&F Note. |
|
|
[2] |
See
Note 9 – “Stockholders’ Permanent and Temporary Equity” for details of the registration delay liability. |
Note
6 – Derivative Liabilities
As
of January 1, 2022, the Company had Level 3 derivative liabilities that were measured at fair value at issuance, related to the redemption
features and put options of certain convertible notes. The redemption features were valued using a combination of a discounted cash flow
and a Black-Scholes valuation technique. There were no derivative liabilities as of September 30, 2023 or December 31, 2022.
During
the three and nine months ended September 30, 2022, the Predecessor recorded a loss on the change in the fair value of the derivative
liabilities of $228,100 and $420,000, respectively.
Note
7 – Income Taxes
The
tax provisions for the nine months ended September 30, 2023 and 2022 were computed using the estimated effective tax rates applicable
to the taxable jurisdictions for the full year. The Company’s tax rate is subject to management’s quarterly review and revision,
as necessary. The Company’s effective tax rate was 9.44% and 0% for the nine months ended September 30, 2023 and 2022, respectively.
The increase in the quarterly rates is primarily the result of changes in its valuation allowance. As of September 30, 2022, the Company
recorded a full valuation allowance due to historical and projected losses. As of December 31, 2022, the Company recorded a significant
deferred tax liability, which was established in connection with the Business Combination on December 12, 2022, which was a source of
future taxable income to realize its net deferred tax assets. During the nine months ended September 30, 2023, the Company recorded an
impairment on the asset related to the deferred tax liability which decreased the deferred tax liability. Accordingly, the effective
tax rate for the nine months ended September 30, 2023 of 9.44% is primarily due to the adjustment to the net deferred tax liability.
Note
8 – Commitments and Contingencies
Litigations,
Claims and Assessments
In
the ordinary course of business, the Company may be involved in legal proceedings, claims and assessments. The Company records contingent
liabilities resulting from such claims, if any, when a loss is assessed to be probable and the amount of the loss is reasonably estimable.
License
Agreements
L&F
Research LLC
The
Company entered into a License Agreement with L&F Research LLC (“L&F Research”) effective December 15, 2015, as amended
(the “L&F License Agreement”) pursuant to which L&F granted us an exclusive royalty-bearing, worldwide, sublicensable
license under the patent and intellectual property rights and know-how specific to and for the development and commercialization of VAR
200, for the treatment, inhibition or prevention of kidney disease in humans and symptoms thereof, including focal segmental glomerulosclerosis.
On February 28, 2023, the Company and L&F executed an Amendment and Restatement Agreement that waived L&F’s right to terminate
the L&F License Agreement or any other remedies, for non-payment of the First Milestone Payment, until (a) March 31, 2023 as to $1,000,000
of such milestone payments (“Waiver A”) and (b) January 31, 2024 as to $500,000 milestone payments (“Waiver B”).
Waiver A was contingent upon (i) forgiveness by the Company of $351,579 in aggregate principal amount outstanding under a certain convertible
note, and (ii) a cash payment by the Company to L&F in the amount of $648,421, on or before March 31, 2023. Waiver B is contingent
upon a cash payment by the Company to L&F in the amount of $500,000 on or before the earlier of (x) January 31, 2024, and (y) ten
business days from the date that the Company receives net proceeds of at least $30,000,000 from the issuance of new equity capital. All
other terms of the L&F License remain in effect.
On
March 29, 2023, the Company forgave $351,579 in aggregate principal amount outstanding on a certain note and paid $648,421 of cash to
L&F, thus meeting the conditions of Waiver A. L&F’s put option expired upon meeting the Waiver A conditions, which resulted
in a reclassification of 65,783 shares of common stock and $331,331 classified as temporary equity to permanent equity.
Operating
Leases
On
January 18, 2019, the Predecessor entered into a lease agreement for approximately 3,500 square feet of office space in Weston, Florida
for a term of five years. Under the lease agreement, the annual base rent, which excludes the Predecessor’s share of taxes and
operating costs, is approximately $89,000 for the first year and increases approximately 3% every year thereafter for a total base rent
lease commitment of approximately $497,000.
The
Successor recognized right-of-use asset amortization of $38,885 and $116,083 in connection with its operating lease for the three and
nine months ending September 30, 2023, respectively, and the Predecessor recognized rent expense of $42,225 and $118,519 in connection
with its operating lease for the three and nine months ending September 30, 2022, respectively.
A
summary of the Company’s right-of-use assets and liabilities is as follows:
Schedule of Right of
Use Assets and Liabilities
Financial Designation, Predecessor and Successor [Fixed List] | |
Successor | | |
Predecessor | |
| |
For the Nine | | |
For the Nine | |
| |
Months Ended | | |
Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | |
Operating cash flows used in operating activities | |
$ | 74,405 | | |
$ | 67,567 | |
| |
| | | |
| | |
Right-of-use assets obtained in exchange for lease obligations | |
| | | |
| | |
Operating leases | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Weighted Average Remaining Lease Term | |
| | | |
| | |
Operating leases | |
| 0.34 Years | | |
| 1.34 Years | |
| |
| | | |
| | |
Weighted Average Discount Rate | |
| | | |
| | |
Operating leases | |
| 6.5 | % | |
| 6.5 | % |
Future
minimum payments under these operating lease agreements are as follows:
Schedule
of Future Minimum Payments Under Lease
| |
Amount | |
| |
| |
October 1, 2023 to December 31, 2023 | |
$ | 34,822 | |
Less: amount representing imputed interest | |
| (472 | ) |
Total | |
$ | 34,349 | |
Note
9 – Stockholders’ Permanent and Temporary Equity
Common
Stock
On
June 5, 2023, the Company issued 3,044,152 shares of common stock valued at $1.2 million to certain investors in a private placement
(including to certain members of the Company’s sponsor) in exchange for increasing the duration of their lockup period until July
31, 2023 with respect to an aggregate of 1,977,749 shares of common stock underlying all securities of the Company held by such investors.
The $1,156,778 fair value of the common stock issued was recorded in general and administrative expense in the Statement of Operations
during the nine-months ended September 30, 2023.
During
the nine months ended September 30, 2023, the Company entered into investor marketing agreements with two vendors in which the
Company issued an aggregate of 510,000
shares of common stock and cash in exchange for marketing services. The $605,200
fair value of the common stock was established as a prepaid expense and the Company is recognizing the expense over the terms of the
contracts.
Equity
Offerings
On
April 28, 2023, the Company completed an offering of 11,015,500
shares of common stock and warrants to purchase 11,015,500
shares of common stock for gross proceeds of $11.0
million (the “Registered Offering”). Each share of common stock was sold together with a five-year warrant to purchase
one share of common stock at an exercise price of $1.00
per share, which was exercisable upon issuance. The Company determined that the warrant should be equity-classified, primarily
because it is indexed to the Company’s own stock and it met the requirements for equity classification. Accordingly, because
both the common stock and the warrant are equity-classified, it wasn’t necessary to allocate the proceeds or the issuance
costs to the respective securities. Total issuance costs were $1,184,482
including $440,620
of placement fees, $455,332
of legal fees, $259,774
of accounting and professional service costs related to the offering, and $28,756
of other costs.
On
July 26, 2023, the Company completed a public offering of 3,256,060
shares of common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase 9,471,213
shares of common stock and common warrants (the “July 2023 Warrants”) to purchase 12,727,273
shares of common stock at a combined public offering price of $0.165
per share which resulted in gross proceeds of $2.1
million (the “July 2023 Offering”). The Pre-Funded Warrants are exercisable immediately, may be exercised at any time
until all Pre-Funded Warrants are exercised in full, and have an exercise price of $0.0001
per share. The July 2023 Warrants are exercisable immediately for a term of five
years and have an exercise price of $0.165
per share. The Company determined that both warrants should be equity-classified, primarily because they are indexed to the
Company’s own stock and they met the requirements for equity classification. Accordingly, because the common stock and both
warrants are equity-classified, it wasn’t necessary to allocate the proceeds or the issuance costs to the respective
securities. Total issuance costs were $523,115
including $125,943
of placement fees, $236,091
of legal fees, $87,037
of accounting and professional service costs related to the offering, $26,744
of other costs, and $47,300
incremental fair value of the modified warrants as compared to the original warrants (see Stock Warrants below).
Redemptions
of Series A Preferred Stock
On
or about April 28, 2023, cash proceeds from the Registered Offering in the amount of $10.5 million were used to redeem 8,400 shares of
Series A Preferred Stock. The loss on the extinguishment of preferred stock is accounted for in a manner similar to the treatment of
dividends paid on preferred stock. The loss on extinguishment is calculated as the difference between (a) the fair value of the negotiated
$10.5 million of cash transferred to the holders of the Series A Preferred Stock (which also settled the Company’s obligation to
make premium and Effectiveness Failure payments), and (b) the $3.8 million net carrying amount of the Series A Preferred Stock. Accordingly,
the redemption resulted in the recognition of a $6.7 million deemed dividend for the purposes of calculating the Company’s loss
per common share. Because the Company has an accumulated deficit, both the debit and the credit associated with the dividend are to additional
paid-in-capital, so there is no balance sheet effect.
On
August 3, 2023, the Company entered into a redemption agreement and release with an investor which resulted in the Company, on August
4, 2023, redeeming 150 of the 200 remaining shares of Series A Convertible Preferred Stock and warrants to purchase 86,250 shares of
common stock at an exercise price of $2.00 per share for a cash payment of $230,000. The Company recognized an $84,315 deemed dividend
during the three months ended September 30, 2023, as a result of the extinguishment accounting associated with the redemption.
Triggering
of Down Round Provisions
As
a result of the Registered Offering, (a) the exercise price of the Series A Warrants to purchase 863,500 shares of common stock at an
exercise price of $11.50 per share that were issued to participants in the original PIPE financing had the exercise price reset to its
floor price of $2.00 per share, while becoming exercisable for 4,965,125 shares of common stock (which resulted in the recognition of
a $1.4 million deemed dividend); (b) the remaining 235 shares of Series A Preferred Stock had their $10.00 original conversion price
reset to the floor conversion price of $2.00 per share of common stock (which resulted in the recognition of a $37,000 deemed dividend);
and (c) the $10.00 original conversion price of the 5,062 shares of Series B Preferred Stock issued in connection with the Business Combination
reset to its floor price of $7.00 per share of common stock (which resulted in the recognition of a $0.1 million deemed dividend).
Conversion
of Series A Preferred Stock
Following
the triggering of the down round provision, the holders of 35 shares of Series A Preferred Stock converted into 17,500 shares of common
stock at the new conversion price of $2.00 per share.
Temporary
Equity
See
Note 8 – “Commitments and Contingencies” for discussion of the movement of temporary equity to permanent equity on
March 29, 2023.
Stock-Based
Compensation
For
the three months ended September 30, 2023, the Successor recorded stock-based compensation expense of $243,045 (of which, ($38,224) was
included in research and development and $281,269 was included in general and administrative expense) related to options issued to employees
and consultants. For the three months ended September 30, 2022, the Predecessor recorded stock-based compensation expense of $494,022
(of which $67,608 was included in research and development and $426,414 was included in general and administrative expense) related to
options issued to employees and consultants.
For
the nine months ended September 30, 2023, the Successor recorded stock-based compensation expense of $896,249 (of which, $117,320 was
included in research and development and $778,929 was included in general and administrative expense) related to options issued to employees
and consultants. For the nine months ended September 30, 2022, the Predecessor recorded stock-based compensation expense of $3,131,708
(of which $619,363 was included in research and development and $2,512,345 was included in general and administrative expense) related
to options issued to employees and consultants. As of September 30, 2023, there was $1,324,176 of unrecognized stock-based compensation
expense, which the Company expects to recognize over a weighted average period of 1.7 years.
Stock
Options
On
January 27, 2023, the Company granted ten-year stock options to purchase 100,000 shares of Successor common stock, with an aggregate
grant date value of $184,426 to its newly appointed Chief Medical Officer and Senior Vice President of Medical Affairs as inducement
for entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4) under the 2022 Omnibus Equity Incentive
Plan (the “2022 Plan”). The stock options vest annually over three years and have an exercise price of $2.11 per share.
On
March 10, 2023, the Company granted ten-year stock options to purchase 13,000 shares of Successor common stock to employees of the Company
under the 2022 Plan. The stock options have an aggregate grant date value of $23,770, vest annually over three years and have an exercise
price of $2.26 per share. Of the 13,000 shares, 5,000 shares were issued to the son of an executive officer of the Company.
On
May 24, 2023, the Company granted ten-year stock options to purchase 1,453,107 shares of Successor common stock to employees and directors
of the Company under the 2022 Plan. The stock options have an aggregate grant date value of $555,004, of which $499,660 vest annually
over three years and $55,344 vest immediately, and have an exercise price of $0.44 per share.
The
grant date fair value of stock options granted during the three and nine months ended September 30, 2023 and 2022 was determined using
the Black Scholes method, with the following assumptions used:
Schedule of Stock
Options Granted
| |
Successor | | |
Predecessor | | |
Successor | | |
Predecessor | |
| |
Successor | | |
Predecessor | | |
Successor | | |
Predecessor | |
| |
For the Three | | |
For the Three | | |
For the Nine | | |
For the Nine | |
| |
Months Ended | | |
Months Ended | | |
Months Ended | | |
Months Ended | |
| |
September 30, | | |
September 30, | | |
September 30, | | |
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Fair value of common stock on date of grant | |
| n/a | | |
| n/a | | |
$ | 0.44
- $2.23 | | |
$ | 2.27
- $3.00 | |
Risk free interest rate | |
| n/a | | |
| n/a | | |
| 3.53% - 4.27 | % | |
| 1.68%
- 3.01 | % |
Expected term (years) | |
| n/a | | |
| n/a | | |
| 6.00 | | |
| 3.53 - 6.00 | |
Expected volatility | |
| n/a | | |
| n/a | | |
| 120% - 123 | % | |
| 111%
- 119 | % |
Expected dividends | |
| n/a | | |
| n/a | | |
| 0.00 | % | |
| 0.00 | % |
A
summary of the option activity for the nine months ended September 30, 2023 is presented below:
Schedule
of Stock Option Activity
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Life | | |
Intrinsic | |
| |
Options | | |
Price | | |
In Years | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding, January 1, 2023 | |
| 1,993,235 | | |
$ | 10.81 | | |
| | |
| | |
Granted | |
| 1,566,107 | | |
| 0.56 | | |
| | |
| | |
Exercised | |
| - | | |
| - | | |
| | |
| | |
Forfeited | |
| - | | |
| - | | |
| | |
| | |
Outstanding, September 30, 2023 | |
| 3,559,342 | | |
$ | 6.30 | | |
6.6 | | |
$ | - | |
| |
| | | |
| | | |
| | |
| | |
Exercisable, September 30, 2023 | |
| 1,968,166 | | |
$ | 9.53 | | |
5.2 | | |
$ | - | |
The
following table presents information related to stock options as of September 30, 2023:
Schedule
of Information Related to Stock Options
| Options Outstanding | |
| Options Exercisable | |
| | | |
| | | |
| Weighted | | |
| | |
| | | |
| Outstanding | | |
| Average | | |
| Exercisable | |
| Exercise | | |
| Number of | | |
| Remaining Life | | |
| Number of | |
| Price | | |
| Options | | |
| In Years | | |
| Options | |
$ | 0.44 | | |
| 1,453,107 | | |
| 10 | | |
| 150,000 | |
$ | 2.11 | | |
| 100,000 | | |
| - | | |
| - | |
$ | 2.26 | | |
| 13,000 | | |
| - | | |
| - | |
$ | 5.03 | | |
| 662,887 | | |
| 2.3 | | |
| 662,887 | |
$ | 11.33 | | |
| 12,186 | | |
| 8.8 | | |
| 12,186 | |
$ | 11.58 | | |
| 728,430 | | |
| 5.5 | | |
| 728,430 | |
$ | 16.36 | | |
| 589,732 | | |
| 7.7 | | |
| 414,663 | |
| | | |
| 3,559,342 | | |
| 5.2 | | |
| 1,968,166 | |
Stock
Warrants
On
July 26, 2023, in connection with the July 2023 Offering (see Equity Offerings above), the Company amended the exercise price of certain
warrants to purchase 1,377,996 shares of common stock for three investors from $1.00 to $0.165 per share and the expiration date was
modified from April 28, 2028 to July 28, 2028. The $47,300 incremental fair value of the modified warrants as compared to the original
warrants was recognized as an additional issuance cost of the July 2023 Offering.
On
August 2, August 8 and September 8, 2023, a July 2023 Offering investor exercised pre-funded warrants to purchase 9,471,213 shares of
common stock at an exercise price of $0.0001 per share for total proceeds of $947.
Between
September 13 and September 18, 2023, the Company initiated a limited time program, which at the election of the warrant holder, would
permit them to immediately exercise their July 2023 Warrants at a reduced exercise price of $0.1357 per share and they would also be
granted new 5.5 year warrants to purchase an equal number of shares of common stock at an exercise price of $0.1357 per share. The new
warrants are not exercisable for the first six months. Under the program, warrants to purchase an aggregate of 7,121,213 shares of common
stock were exercised on September 14, 2023 for gross proceeds of $966,400 less total issuance costs of $208,702. Issuance costs include
placement agent fees of $57,980, legal costs of $16,131, and warrant modification costs of $134,591. Because the modification represented
a short-term inducement, modification accounting was only performed on the warrants that were actually exercised under the program. The
Company recognized the $134,591 modification date incremental value of the modified warrants and additional warrants issued as compared
to the original warrants, as an issuance cost of the warrant exercise.
The
issuance date fair value of stock warrants issued during the three and nine months ended September 30, 2023 and 2022 was determined using
the Black Scholes method, with the following assumptions used:
Schedule
of Fair Value of Stock Warrants Granted
| |
| Successor | | |
| Predecessor | | |
| Successor | | |
| Predecessor | |
Financial Designation, Predecessor and Successor [Fixed List] | |
Successor | | |
Predecessor | | |
Successor | | |
Predecessor | |
| |
| | | |
| | | |
| | | |
| | |
| |
| Successor | | |
| Predecessor | | |
| Successor | | |
| Predecessor | |
| |
| For the Three | | |
| For the Three | | |
| For the Nine | | |
| For the Nine | |
| |
| Months Ended | | |
| Months Ended | | |
| Months Ended | | |
| Months Ended | |
| |
| September 30, 2023 | | |
| September 30, 2022 | | |
| September 30, 2023 | | |
| September 30, 2022 | |
Fair value of common stock on date of grant | |
$ | 0.14
- $0.17 | | |
| n/a | | |
| $0.14 - $1.00 | | |
| n/a | |
Risk free interest rate | |
| 4.09%
- 4.42 | % | |
| n/a | | |
| 3.51%
- 4.42 | % | |
| n/a | |
Expected term (years) | |
| 4.9 - 5.5 years | | |
| n/a | | |
| 5 years | | |
| n/a | |
Expected volatility | |
| 121 % - 123 | % | |
| n/a | | |
| 121%
- 123 | % | |
| n/a | |
Expected dividends | |
| n/a | | |
| n/a | | |
| n/a | | |
| n/a | |
A
summary of the warrant activity for the nine months ended September 30, 2023 is presented below:
Summary
of Warrant Activity
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Life | | |
Intrinsic | |
| |
Warrants | | |
Price | | |
In Years | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding, January 1, 2023 | |
| 8,628,706 | | |
$ | 10.75 | | |
| | | |
| | |
Issued | |
| 40,335,199 | | |
| 0.39 | | |
| | | |
| | |
Exercised | |
| (16,592,426 | ) | |
| 0.15 | | |
| | | |
| | |
Forfeited | |
| (97,785 | ) | |
| 2.00 | | |
| | | |
| | |
Repriced - Old [1] | |
| (863,500 | ) | |
| 11.50 | | |
| | | |
| | |
Repriced - New [1] | |
| 4,965,125 | | |
| 2.00 | | |
| | | |
| | |
Repriced - Old [2] | |
| (1,377,996 | ) | |
| 1.00 | | |
| | | |
| | |
Repriced - New [2] | |
| 1,377,996 | | |
| 0.17 | | |
| | | |
| | |
Repriced - Old [3] | |
| (7,121,213 | ) | |
| 0.17 | | |
| | | |
| | |
Repriced - New [3] | |
| 7,121,213 | | |
| 0.14 | | |
| | | |
| | |
Outstanding, September 30, 2023 | |
| 36,375,319 | | |
$ | 2.87 | | |
| 4.6 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, September 30, 2023 | |
| 29,184,304 | | |
$ | 3.52 | | |
| 4.4 | | |
$ | - | |
[1] |
Warrants
represent the reset of the exercise price of the PIPE Warrants to purchase 863,500 shares of common stock to their floor price of
$2.00 per share. |
|
|
[2] |
Warrants
represent the reset of the exercise price of certain April 28, 2023 offering warrants to purchase 1,377,996 shares of common stock
to a price of $0.165 per share. |
|
|
[3] |
Warrants
represent the reset of the exercise price of certain July 26, 2023 offering warrants to purchase 7,121,213 shares of common stock
to a price of $0.1357 per share. |
The
following table presents information related to stock warrants as of September 30, 2023:
Schedule
of Information Related to Stock Warrants
| Warrants Outstanding | | |
| Warrants Exercisable | |
| | | |
| Outstanding | | |
| Weighted Average | | |
| Exercisable | |
| Exercise | | |
| Number of | | |
| Remaining Life | | |
| Number of | |
| Price | | |
| Warrants | | |
| In Years | | |
| Warrants | |
$ | 0.14 | | |
| 7,121,213 | | |
| n/a | | |
| - | |
$ | 0.17 | | |
| 6,984,056 | | |
| 4.8 | | |
| 6,984,056 | |
$ | 1.00 | | |
| 9,637,504 | | |
| 4.6 | | |
| 9,637,504 | |
$ | 2.00 | | |
| 4,878,875 | | |
| 4.2 | | |
| 4,878,875 | |
$ | 5.03 | | |
| 104,704 | | |
| 1.3 | | |
| 34,901 | |
$ | 6.90 | | |
| 1,271,904 | | |
| 4.2 | | |
| 1,271,904 | |
$ | 11.50 | | |
| 6,065,562 | | |
| 4.2 | | |
| 6,065,562 | |
$ | 11.58 | | |
| 311,502 | | |
| 0.2 | | |
| 311,502 | |
| | | |
| 36,375,319 | | |
| 4.4 | | |
| 29,184,304 | |
Effectiveness
Failure
In
connection with the Business Combination, the Company issued 8,635
shares of Series A Convertible Preferred Stock
(the “PIPE Shares”), and common stock purchase warrants (each, a “PIPE Warrant”) to purchase 863,500
shares of common stock, at a purchase price of
$1,000
per share and warrant, for an aggregate purchase
price of $8,635,000
(the “PIPE Investment”) pursuant
to subscription agreements dated July 20, 2022 (collectively, the “PIPE Subscription Agreements”). On or about February 20,
2023, the Company failed to have the SEC declare a registration statement effective (the “Effectiveness Failure”) which covered
the Private Investment in Public Equity (“PIPE”) registrable securities within the time period prescribed by the PIPE Securities
Purchase Agreement (the “SPA”). The SPA entitles the PIPE investors to receive registration delay payments (“Registration
Delay Payments”) equal to 1.5%
of each investor’s purchase price on the date of the Effectiveness Failure and every thirty days thereafter that the Effectiveness
Failure persists. Failure to make the Registration Delay Payments on a timely basis result in the accrual of interest at the rate of
2.0%
per month. On April 28, 2023, the proceeds from the Registered Offering were used to redeem substantially all of the PIPE Shares. (See
Redemption of Series A Preferred Stock above.) As of the filing date of this document, the Company expects to have to make additional
Registration Delay Payments of approximately $6,819
in the aggregate subsequent to September 30,
2023 and prior to curing the Effectiveness Failure
Note
10 – Subsequent Events
On September 8, 2023, the Company’s Board of Directors approved the Company’s Amended and Restated 2022
Omnibus Equity Incentive Plan (“the “A&R Plan”), which the stockholders approved on October 31, 2023. The restated
plan increases the number of shares of the Company’s common stock reserved for issuance by 4,000,000 shares to 5,453,107.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unless
the context otherwise requires, all references in this section to “we,” “us” or “our” refer to the
combined business of ZyVersa Therapeutics, Inc., a Florida corporation, prior to the Business Combination and ZyVersa Therapeutics, Inc.,
a Delaware corporation, and its consolidated subsidiaries after giving effect to the Business Combination.
The
following discussion and analysis of the results of operations and financial condition of ZyVersa Therapeutics, Inc. (the “Company”)
as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 should be read in conjunction with our unaudited
condensed consolidated financial statements and the notes to those financial statements that are included elsewhere in this Quarterly
Report on Form 10-Q. This discussion and analysis should also be read in conjunction with the Company’s audited financial statements
and related disclosures as of December 31, 2022 and for the year then ended, which are included in the Form 10-K (the “Annual Report”)
filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023. This Management’s Discussion and Analysis
of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current
expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the
use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,”
“could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ
materially because of the factors discussed in “Risk Factors” in our Annual Report, and other factors that we may not know.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly
qualified by the statements above, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
Business
Overview
We
are a clinical stage specialty biopharmaceutical company leveraging advanced proprietary technologies to develop first-in-class drugs
for patients with renal or inflammatory diseases with high unmet medical needs.
Our
lead renal drug candidate, which we refer to as Cholesterol Efflux MediatorTM VAR 200 (2-hydroxypropyl-beta-cyclodextrin or
“2HPβCD”) has potential to treat multiple renal diseases. Our lead anti-inflammatory drug candidate, which we refer
to as Inflammasome ASC Inhibitor IC 100, is a humanized monoclonal IgG4 antibody inflammasome ASC inhibitor targeting ASC with potential
to treat multiple inflammatory diseases.
Business
Combination
On
December 12, 2022 (the “Closing Date”), we consummated the previously announced Business Combination pursuant to the terms
of that certain Business Combination Agreement (the “Business Combination Agreement”), by and among ZyVersa Therapeutics,
Inc., a Florida corporation (“Old ZyVersa”), the representative of Old ZyVersa’s shareholders named therein (the “Securityholder
Representative”), Larkspur Health Acquisition Corp., a Delaware corporation (“Larkspur”) and Larkspur Merger Sub, Inc.,
a Delaware corporation and wholly owned subsidiary of Larkspur (“Merger Sub”). Pursuant to the terms of the Business Combination
Agreement (and upon all other conditions of the Business Combination Agreement being satisfied or waived), on the Closing Date of the
Business Combination and transactions contemplated thereby (the “Business Combination”), (i) Larkspur changed its name to
“ZyVersa Therapeutics, Inc.”, a Delaware corporation (the “Company”) and (ii) Merger Sub merged with and into
Old ZyVersa (the “Merger”), with Old ZyVersa as the surviving company in the Merger and, after giving effect to such Merger,
Old ZyVersa became a wholly-owned subsidiary of the Company (collectively the “Successor”).
Prior
to the completion of the Business Combination, Larkspur was incorporated in Delaware on March 17, 2021 and ZyVersa Therapeutics, Inc.
(“Predecessor”) was incorporated in the State of Florida on March 11, 2014 as Variant Pharmaceuticals, Inc. Merger Sub was
incorporated in the state of Delaware on July 13, 2022. References to the “Company” or ZyVersa” refer to the Successor
for the three and nine months ended September 30, 2023, and to the Predecessor for the three and nine months ended September 30, 2022.
Financial
Operations Overview
We
have not generated any revenue to date and have incurred significant operating losses. Our net losses were $85.0 million for the period
from January 1, 2023 through September 30, 2023 (the “Successor Period”) and $9.4 million for the period from January 1,
2022 through September 30, 2022 (the “Predecessor Period”). As of September 30, 2023, we had an accumulated deficit of approximately
$89.9 million and cash of $1.6 million. We expect to continue to incur significant expenses for the foreseeable future and to incur operating
losses. We expect our expenses will increase in connection with our ongoing activities as we:
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progress
development of VAR 200 and IC 100; |
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prepare
and file regulatory submissions; |
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manufacture
our product candidates for clinical trials; |
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hire
additional research and development, finance, and general and administrative personnel; |
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protect
and defend our intellectual property; and |
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meet
the requirements of being a public company. |
We
need additional financing to support our continuing operations. We are seeking to fund our operations through public or private
equity or debt financings or other sources, which may include government grants and collaborations with third parties. Adequate
additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed
would have a negative impact on our financial condition, ability to pursue our business strategy and ability to continue as a going
concern. We will need to raise substantial capital to continue our research and development goals and generate revenues
to achieve profitability, and we may never do so.
Components
of Operating Results
Revenue
Since
inception, we have not generated any revenue and do not expect to generate any revenue from the sale of products in the near future.
If our development efforts for our product candidates are successful and result in regulatory approval, or if we enter into collaboration
or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from
collaboration or license agreements.
Operating
Expenses
Research
and Development Expenses
Research
and development expenses consist of costs incurred in the discovery and development of our product candidates, and primarily include:
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expenses
incurred under third party agreements with contract research organizations (“CROs”), and investigative sites, that conducted
or will conduct our clinical trials and a portion of our pre-clinical activities; |
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costs
of raw materials, as well as manufacturing cost of our materials used in clinical trials and other development testing; |
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● |
expenses,
including salaries, stock-based compensation and benefits of employees engaged in research and development activities; |
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costs
of equipment, depreciation and other allocated expenses; and |
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fees
paid for contracted regulatory services as well as fees paid to regulatory authorities including the U.S. Food and Drug Administration
(the “FDA”) for review and approval of our product candidates. |
We
expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of
the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based
on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements
as prepaid expenses or accrued expenses.
Research
and development activities are central to our business model. We expect that our research and development expenses will increase for
the foreseeable future as we continue clinical development for our product candidates. As products enter later stages of clinical
development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due
to the increased size and duration of later-stage clinical trials. Historically, our research and development costs have primarily
related to the development of VAR 200 and IC 100. As we advance VAR 200 and IC 100, as well as identify any other potential product
candidates, we will continue to allocate our direct external research and development costs to the products. We expect to fund our
research and development expenses partially from our current cash and cash equivalents but primarily from any future equity or debt
financings, or other capital sources, including potential collaborations with other companies or other strategic
transactions.
The
successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature,
timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net
cash inflows may commence from our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with
the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:
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the
number of clinical sites included in the clinical trials; |
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the
length of time required to enroll suitable patients; |
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the
size of patient populations participating in the clinical trials; |
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the
number of doses a patient receives; |
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the
duration of patient follow-ups; |
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the
development state of the product candidates; and |
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the
efficacy and safety profile of the product candidates. |
Our
expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expense of filing,
prosecuting, defending, and enforcing any patent claims or other intellectual property rights. We may never succeed in achieving regulatory
approval for our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay, or
modify clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of
a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.
For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently
anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant
additional financial resources and time on the completion of clinical development. Product commercialization will take several years
and likely millions of dollars in development costs.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries, stock-based compensation and related costs for our employees in administrative,
executive and finance functions. General and administrative expenses also include professional fees for legal, accounting, audit, tax
and consulting services, insurance, human resource, information technology, office, and travel expenses.
We
expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount
to support our continued research and development and potential commercialization of our product candidates. We also expect to incur
increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance
services, director and officer insurance, and investor and public relations costs.
Other
(Income) Expense
Interest
expense includes interest on indebtedness and accretion of debt discount which are associated with the unsecured convertible promissory
notes which bear interest at a rate equal to 6% per annum.
Change
in fair value of derivative liability represents the periodic mark-to-market of our derivative liabilities. The Company recorded derivative
liabilities that were measured at fair value at issuance, related to the redemption features and put options of certain convertible notes
payable.
Results
of Operations
Comparison
of the three months ended September 30, 2023 (Successor Period) and the three months ended September 30, 2022 (Predecessor Period)
The
following table summarizes our results of operations for the Successor for the three months ended September 30, 2023 and for the Predecessor
for the three months ended September 30, 2022.
| |
Successor | | |
Predecessor | | |
| | |
| |
| |
For the Three | | |
For the Three | | |
| | |
| |
| |
Months Ended | | |
Months Ended | | |
| | |
| |
| |
September 30, | | |
September 30, | | |
Favorable (Unfavorable) | |
(in thousands) | |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
$ | 674 | | |
$ | 2,334 | | |
$ | 1,660 | | |
| 71.1 | % |
General and administrative | |
| 2,229 | | |
| 1,061 | | |
| (1,168 | ) | |
| (110.1 | )% |
Total Operating Expenses | |
| 2,903 | | |
| 3,395 | | |
| 492 | | |
| 14.5 | % |
| |
| | | |
| | | |
| | | |
| | |
Loss from Operations | |
| (2,903 | ) | |
| (3,395 | ) | |
| 492 | | |
| 14.5 | % |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense), Net | |
| - | | |
| (298 | ) | |
| 298 | | |
| 100.0 | % |
| |
| | | |
| | | |
| | | |
| | |
Pre-tax net loss | |
| (2,903 | ) | |
| (3,693 | ) | |
| 790 | | |
| (21.4 | )% |
Income tax benefit | |
| 1 | | |
| - | | |
| 1 | | |
| 100.0 | % |
Net loss | |
$ | (2,902 | ) | |
$ | (3,693 | ) | |
$ | 791 | | |
| 21.4 | % |
Research
and Development Expenses
Research
and development expenses were $0.7 million for the three months ended September 30, 2023, a decrease of $1.7 million or 71.1% from the
three months ended September 30, 2022. The decrease is primarily attributable to a decrease of $1.7 million in the costs of manufacturing
materials of IC 100 for the three months ended September 30, 2022.
General
and Administrative Expenses
General
and administrative expenses were $2.2 million for the three months ended September 30, 2023, an increase of $1.2 million or 110.1% from
the three months ended September 30, 2022. The increase is primarily attributable to an increase of $0.4 million in professional fees
associated with being a public company, a $0.3 million increase in director and officer insurance, a $0.2 million increase for bonus
accruals, and $0.1 million increase in marketing costs for investor and public relations.
Other
Income (Expense)
Total
other income (expense), net was zero for the three months ended September 30, 2023, a decrease of $0.3 million or 100.0% from
the three months ended September 30, 2022. The change was primarily a result of a decrease in interest and change in fair value of derivative
liabilities expense of approximately $0.3 million in the aggregate as a result of convertible debt conversions to equity.
Comparison
of the nine months ended September 30, 2023 (Successor Period) and the nine months ended September 30, 2022 (Predecessor Period)
The
following table summarizes our results of operations for the Successor for the nine months ended September 30, 2023 and for the Predecessor
for the nine months ended September 30, 2022.
| |
Successor | | |
Predecessor | | |
| | |
| |
| |
For the Nine | | |
For the Nine | | |
| | |
| |
| |
Months Ended | | |
Months Ended | | |
| | |
| |
| |
September 30, | | |
September 30, | | |
Favorable (Unfavorable) | |
(in thousands) | |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
$ | 2,951 | | |
$ | 4,120 | | |
$ | 1,169 | | |
| 28.4 | % |
General and administrative | |
| 9,694 | | |
| 4,526 | | |
| (5,168 | ) | |
| (114.2 | )% |
Impairment of in-process research and development | |
| 69,280 | | |
| - | | |
| (69,280 | ) | |
| (100.0 | )% |
Impairment of goodwill | |
| 11,895 | | |
| - | | |
| (11,895 | ) | |
| (100.0 | )% |
Total Operating Expenses | |
| 93,820 | | |
| 8,646 | | |
| (85,174 | ) | |
| (985.1 | )% |
| |
| | | |
| | | |
| | | |
| | |
Loss from Operations | |
| (93,820 | ) | |
| (8,646 | ) | |
| (85,174 | ) | |
| (985.1 | )% |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense), Net | |
| 1 | | |
| (799 | ) | |
| 800 | | |
| 100.1 | % |
| |
| | | |
| | | |
| | | |
| | |
Pre-tax net loss | |
| (93,819 | ) | |
| (9,445 | ) | |
| (84,374 | ) | |
| 893.3 | % |
Income tax benefit | |
| 8,860 | | |
| - | | |
| 8,860 | | |
| 100.0 | % |
Net loss | |
$ | (84,959 | ) | |
$ | (9,445 | ) | |
$ | (75,514 | ) | |
| (799.5 | )% |
Research
and Development Expenses
Research
and development expenses were $3.0 million for the nine months ended September 30, 2023, a decrease of $1.2 million or 28.4% from the
nine months ended September 30, 2022. The decrease is primarily attributable to an approximately $2.0 million decrease in the costs of
manufacturing materials of IC 100. This was partially offset by an approximately $0.8 million increase in the costs of drug manufacturing,
formulation and pre-clinical operations.
General
and Administrative Expenses
General
and administrative expenses were $9.7 million for the nine months ended September 30, 2023, an increase of $5.2 million or 114.2% from
the nine months ended September 30, 2022. The increase is primarily attributable to an increase of $2.5 million in professional fees
associated with being a public company, a $1.1 million increase in marketing costs for investor and public relations, a $1.0 million
increase for director and officer insurance, and $0.4 million in 2023 payments for the Effectiveness Failure related to the PIPE Shares.
Impairment
of In-Process Research and Development and Goodwill
Impairment
of in-process research and development and impairment of goodwill were $69.3 million and $11.9 million, respectively, compared to none
for the nine months ended September 30, 2022. The impairment is a result of the decline in our stock price and the resulting market capitalization
of the Company at June 30, 2023.
Other
(Income) Expense
Total
other income (expense), net was $1,000 of income for the nine months ended September 30, 2023, a decrease of $0.8 million of expense or
100.1% from the nine months ended, September 30, 2022. The change was a result of a decrease in interest expense of approximately $0.4
million and a decrease in the loss from the change in the fair value of the derivative liability of $0.4 million, both as a result of
convertible debt conversions to equity.
Cash
Flows
The
following table summarizes our cash flows from operating and financing activities for the Successor for the nine months ended September
30, 2023 and for the Predecessor for the nine months ended September 30, 2022:
| |
For the Nine Months Ended September 30, | | |
| |
(in thousands) | |
2023 | | |
2022 | | |
Increase (decrease) | |
Net cash provided by (used in) | |
| | | |
| | | |
| | |
Operating activities | |
$ | (5,933 | ) | |
$ | (1,078 | ) | |
$ | (4,855 | ) |
Financing activities | |
| 1,610 | | |
| 1,352 | | |
| 258 | |
Net (Decrease) Increase in Cash | |
$ | (4,323 | ) | |
$ | 274 | | |
$ | (4,597 | ) |
Cash
Flows from Operating Activities
Net
cash used in operating activities was $5.9 million and $1.1 million for the nine months ended September 30, 2023 and 2022, respectively.
For the nine months ended September 30, 2023 and September 30, 2022, the net cash used in operating activities was primarily attributable
to the net loss of approximately $85.0 million and $9.4 million, respectively, offset by $75.0 million and $3.6 million, respectively,
of net non-cash expenses, and approximately $4.0 million and $4.8 million, respectively, of cash generated by the levels of operating
assets and liabilities.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities was $1.6 million and $1.4 million for the nine months ended September 30, 2023 and 2022, respectively.
Cash provided by financing activities during the nine months ended September 30, 2023 primarily represented $13.1 million in cash proceeds
from issuance of common stock in a public offering and $1.0 million in exercise proceeds from a warrant inducement offer. This was offset
by $1.8 million in registration and issuance costs associated with common stock issuances and $10.7 million in cash paid for the redemption
of Series A Preferred Stock. Cash provided by financing activities during the nine months ended September 30, 2022 represented proceeds
from the issuance of preferred stock in a private placement of $1.4 million.
Liquidity
and Capital Resources
The
following table summarizes our total current assets, current liabilities and working capital deficiency at September 30, 2023 and December
31, 2022, respectively:
(in thousands) | |
September 30, 2023 | | |
December 31, 2022 | |
Current Assets | |
$ | 2,005 | | |
$ | 6,363 | |
Current Liabilities | |
$ | 11,707 | | |
$ | 8,188 | |
Working Capital Deficiency | |
$ | (9,702 | ) | |
$ | (1,825 | ) |
Since
our inception in 2014 through September 30, 2023, we have not generated any revenue and have incurred significant operating losses
and negative cash flows from our operations. Based on our current operating plan, we have limited our research and development spending and we expect
our cash of $1.6 million as of September 30, 2023 will only be sufficient to fund our operating expenses and capital expenditure
requirements on a month-to-month basis. However, it is difficult to predict our spending for our product candidates prior to
obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently
anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.
Going
Concern
Since
inception we have been engaged in organizational activities, including raising capital and research and development activities. We
have not generated revenues and have not yet achieved profitable operations, nor have we ever generated positive cash flow from
operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. We are subject
to those risks associated with any pre-clinical stage pharmaceutical company that has substantial expenditures for research and
development. There can be no assurance that our research and development projects will be successful, that products developed will
obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, we operate in an
environment of rapid technological change and are largely dependent on the services of our employees and consultants. Further, our
future operations are dependent on the success of our efforts to raise additional capital. These uncertainties raise substantial
doubt about our ability to continue as a going concern for 12 months after the issuance date of our financial statements. The
accompanying financial statements have been prepared on a going concern basis. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of us to continue as a going concern, which contemplates
the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business. We incurred
a net loss of $85.0 million for the nine months ended September 30, 2023 and a net loss of $9.4 million for the nine months ended
September 30, 2022, and we had an accumulated deficit of $89.9 million at September 30, 2023. We anticipate incurring additional
losses until such time, if ever, that we can generate significant revenue from our product candidates currently in development. Our
primary source of capital has been the issuance of debt and equity securities. We believe that current cash is only sufficient to
fund operations and capital requirements on a month-to-month basis. We will need additional financing to fund
our operations, to complete development of and to commercially develop our product candidates and to continue as a going concern. There is no assurance that such
financing will be available when needed or on acceptable terms.
Contractual
Obligations
The
following summarizes our contractual obligations as of September 30, 2023 that will affect our future liquidity. Based on our current
operating plan, we plan to satisfy the obligations identified below from our current cash balance and future financing.
Cash
requirements for our current liabilities as of September 30, 2023 include approximately $11.7 million for accounts payable, accrued expenses,
and our operating lease liability.
Future Capital Requirements
We
intend to raise additional capital in the near term in order to meet our current obligations and fund our day-to-day operations and
current obligations.
We
expect to raise additional capital by issuing equity or equity-linked securities in subsequent offerings. If we are unable to raise additional
capital by issuing equity or equity-linked securities on terms favorable to us, we may not have sufficient liquidity to execute our business
strategy. We have various warrants outstanding that can be exercised for our common stock, many of which must be exercised in exchange
for cash paid to us by the holders of such warrants. If the market price of our common stock is less than the exercise price of a holder’s
warrants, it is unlikely that holders will exercise their warrants. As such, we do not expect to receive significant proceeds in the
near term from the exercise of most of our warrants based on the current market price of our common stock and the exercise prices of
such warrants.
Our
policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide
liquidity while producing a modest return on investment. Accordingly, our cash equivalents will be invested primarily in money market
funds which are currently providing only a minimal return given the current interest rate environment.
We
expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our
product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product
candidates. If we obtain marketing approval for our product candidates, we will incur significant sales, marketing and outsourced manufacturing
expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including
personnel to support our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate
governance, internal controls, and similar requirements applicable to us as a public company.
Our
future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:
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the
initiation, progress, timing, costs, and results of clinical trials for our product candidates; |
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the
clinical development plans we establish for each product candidate; |
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the
number and characteristics of product candidates that we develop or may in-license; |
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the
terms of any collaboration agreements we may choose to execute; |
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the
outcome, timing and cost of meeting regulatory requirements established by the FDA or other comparable foreign regulatory authorities; |
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the
cost of filing, prosecuting, defending, and enforcing our patent claims and other intellectual property rights; |
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the
cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us; |
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the
cost and timing of the implementation of commercial scale manufacturing activities; and |
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● |
the
cost of establishing, or outsourcing, sales, marketing, and distribution capabilities for any product candidates for which we may
receive regulatory approval in regions where we choose to commercialize our products on our own. |
To
continue to grow our business over the longer term, we plan to commit substantial resources to research and development, clinical trials
of our product candidates, and other operations and potential product acquisitions and in-licensing. We have evaluated and expect to
continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in-license and develop additional products
and product candidates to augment our internal development pipeline. Strategic transaction opportunities that we may pursue could materially
affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. In addition,
we may pursue development, acquisition, or in-licensing of approved or development products in new or existing therapeutic areas or continue
the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to
license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes.
Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or
could be structured as a collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at
the present time to enter into any acquisition, in-licensing or similar strategic business transaction. In addition, we continue to evaluate
commercial collaborations and strategic relationships with established pharmaceutical companies, which would provide us with more immediate
access to marketing, sales, market access and distribution infrastructure.
If
we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would
result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Any debt financing or
additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our existing
stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to
relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not
be favorable to us.
JOBS
Act Accounting Election
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. The JOBS
Act permits companies with emerging growth company status to take advantage of an extended transition period to comply with new or revised
accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We expect to use
this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for
public and private companies until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably
opts out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies
that comply with the new or revised accounting standards as of public company effective dates.
In
addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act.
Off-Balance
Sheet Arrangements
There
are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future
effect on financial conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to stockholders.
Critical
Accounting Policies and Estimates
Refer
to our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023 and Note 2 to the condensed
consolidated financial statements of this Quarterly Report on Form 10-Q, for a discussion of our critical accounting policies and use
of estimates.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES.
Disclosure
Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted 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 in company reports filed or submitted under the Exchange Act is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial Officer (who serve as our Principal Executive Officer and Principal
Financial and Accounting Officer, respectively), to allow timely decisions regarding required disclosure.
As
required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022. Based upon their
evaluation and due to the material weakness cited below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were ineffective.
During
the year ended December 31, 2022, our management determined that our internal controls over financial reporting were not effective as
of December 31, 2022. Specifically, management’s conclusion was based on the following material weakness which existed as of December
31, 2022:
|
● |
The
Company did not design and implement effective controls over the accounting for significant and complex non-routine transactions. |
Our
management plans to establish procedures to monitor and evaluate the effectiveness of our internal controls over financial reporting
on an ongoing basis and are committed to taking further action and implementing necessary enhancements or improvements, including
those necessary to address the material weakness cited above. Management expects to commence its assessment of the design and
operating effectiveness of its internal controls over financial reporting, including the development and implementation of its
remediation plan, as soon as resources permit. However, the material weakness will not be considered remediated until
the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls
are operating effectively.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Inherent
Limitations of the Effectiveness of Controls
Management
does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all
error and fraud. A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable,
not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements
due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
None.
ITEM
1A. RISK FACTORS.
You
should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2022, which we filed with the Securities and Exchange Commission on March 31, 2023, together with all other information
contained or incorporated by reference in this Quarterly Report on Form 10-Q, when evaluating our business and our prospects. There are
no material changes to the risk factors set forth in Part I, Item 1A, in our Annual Report on Form 10-K for the year ended December 31,
2022.
Our
failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of our common stock.
Our
common stock is currently listed for trading on The Nasdaq Global Market. We must satisfy the continued listing requirements of Nasdaq,
to maintain the listing of our common stock on The Nasdaq Global Market.
On
June 9, 2023, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market, LLC (“Nasdaq”)
indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the
Company is not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing
on the Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Notice”).
The
Notice has no immediate effect on the continued listing status of our common stock on the Nasdaq Global Market, and, therefore, our listing
remains fully effective.
We
are provided a compliance period of 180 calendar days from the date of the Notice, or until December 6, 2023, to regain compliance with
the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before December 6, 2023, the closing
bid price of our common stock closes at or above $1.00 per share for 10 consecutive business days, Nasdaq will provide written notification
that we have achieved compliance with the minimum bid price requirement, and the matter would be resolved. If we do not regain compliance
during the compliance period ending December 6, 2023, then Nasdaq may grant us a second 180 calendar day period to regain compliance,
provided we (i) meet the continued listing requirement for market value of publicly-held shares and all other initial listing standards
for the Nasdaq Global Market, other than the minimum closing bid price requirement and (ii) notify Nasdaq of our intent to cure the deficiency.
We
will continue to monitor the closing bid price of our common stock and seek to regain compliance with all applicable Nasdaq requirements
within the allotted compliance periods. If we do not regain compliance within the allotted compliance periods, including any extensions
that may be granted by Nasdaq, Nasdaq will provide notice that our common stock will be subject to delisting. We would then be entitled
to appeal that determination to a Nasdaq hearings panel. Although we intend to engage in efforts to regain compliance, and thus maintain
our listing, there can be no assurance that we will regain compliance with the minimum bid price requirement during the 180-day compliance
period, secure a second period of 180 days to regain compliance or maintain compliance with the other Nasdaq listing requirements.
If
we fail to continue to meet all applicable Nasdaq Global Market requirements in the future and Nasdaq determines to delist our common
stock, the delisting could substantially decrease trading of our common stock; adversely affect the market liquidity of our common stock
as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws; adversely
affect our ability to obtain financing on acceptable terms, if at all; and may result in the potential loss of confidence by investors,
suppliers, customers, and employees, and fewer business development opportunities. Additionally, the market price of our common stock
may decline further and shareholders may lose some or all of their investment.
Unless
our common stock continues to be listed on a national securities exchange it will become subject to the so-called “penny
stock” rules that impose restrictive sales practice requirements.
If
we are unable to maintain the listing of our common stock on Nasdaq or another national securities exchange, our common stock could become
subject to the so-called “penny stock” rules if the shares have a market value of less than $5.00 per share. The SEC has
adopted regulations that define a penny stock to include any stock that has a market price of less than $5.00 per share, subject to certain
exceptions, including an exception for stock traded on a national securities exchange. The SEC regulations impose restrictive sales practice
requirements on broker-dealers who sell penny stocks to persons other than established customers and “accredited investors”
as defined by relevant SEC rules. These additional requirements may discourage broker-dealers from effecting transactions in securities
that are classified as penny stocks, which could severely limit the market price and liquidity of such securities and the ability of
purchasers to sell such securities in the secondary market. This means that if we are unable to maintain the listing of our common stock
on a national securities exchange, the ability of stockholders to sell their common stock in the secondary market could be adversely
affected.
If
a transaction involving a penny stock is not exempt from the SEC’s rule, a broker-dealer must deliver a disclosure schedule relating
to the penny stock market to each investor prior to a transaction. The broker-dealer also must disclose the commissions payable to both
the broker-dealer and its registered representative, current quotations for the penny stock, and, if the broker-dealer is the sole market-maker,
the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the customer’s account and information on the limited
market in penny stocks.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
applicable.
ITEM
5. OTHER INFORMATION.
None.
ITEM
6. EXHIBITS.
*
Filed herewith.
**
Furnished, not filed, herewith.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated:
November 14, 2023 |
By: |
/s/
Stephen C, Glover |
|
|
Stephen
C. Glover |
|
|
Chief
Executive Officer |
|
|
(Principal
Executive Officer) |
Dated:
November 14, 2023 |
By: |
/s/
Peter Wolfe |
|
|
Peter
Wolfe |
|
|
Chief
Financial Officer |
|
|
(Principal
Financial and Accounting Officer) |
ZyVersa Therapeutics (NASDAQ:ZVSA)
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