UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly
period ended | |
| or | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________to _______________.
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
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.
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).
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 ☐ |
| Smaller reporting
company | |
| Emerging growth
company |
If
an emerging growth company, indicate by check-mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares of the registrant’s common stock outstanding as of August 12, 2024 is .
CHROMOCELL THERAPEUTICS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For
the quarter ended
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
CHROMOCELL THERAPEUTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June
30, (Unaudited) |
December
31, 2023 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Due from Chromocell Corporation | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued compensation | ||||||||
| Bridge loan, net of debt discount | ||||||||
| Loan payable, net of debt discount | ||||||||
| Loan payable - related party, net of debt discount | ||||||||
| Due to Chromocell Corporation | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock Series A, $ par value, shares authorized, and shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Preferred stock Series C, $ par value, shares authorized, and shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid in capital | |
|||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Note: Share and per share amounts have been retroactively adjusted to reflect the impact of a 9-for-1 reverse stock split effected in February 2024, as discussed in Note 6.
1
CHROMOCELL THERAPEUTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total operating expenses | |
|||||||||||||||
| NET LOSS FROM OPERATIONS | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income | ||||||||||||||||
| Total other (expense) income | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss before provision for income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes | ||||||||||||||||
| NET LOSS | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per common share - basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of common shares outstanding during the year - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Note: Share and per share amounts have been retroactively adjusted to reflect the impact of a 9-for-1 reverse stock split effected in February 2024, as discussed in Note 6.
2
CHROMOCELL THERAPEUTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
| Preferred
A Shares |
Preferred A Shares Par |
Preferred C Shares |
Preferred C Shares Par |
Common
Shares |
Par | Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||
| Stock option compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Issuance cost from shares issued on extension of bridge loan | — | — | ||||||||||||||||||||||||||||||||||
| Shares forfeited | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | |||||||||||||||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||
3
CHROMOCELL THERAPEUTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
| Preferred
A Shares |
Preferred A Shares Par |
Preferred C Shares |
Preferred C Shares Par |
Common
Shares |
Par | Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Issuance cost from common stock issued for extension of bridge loan | — | — | ||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | ( |
) | ( |
) | — | |||||||||||||||||||||||||||||||
| Common stock issued for cash | — | — | ||||||||||||||||||||||||||||||||||
| Standby agreement | — | — | ( |
) | ||||||||||||||||||||||||||||||||
| Recission of common stock | — | — | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Transfer of liabilities to Chromocell Corp. for preferred C shares | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of notes | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||||||
| Stock option compensation | — | — | — | |
||||||||||||||||||||||||||||||||
| RSU expense | — | — | — | |||||||||||||||||||||||||||||||||
| Shares issued for services | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Balance June 30, 2024 | $ | $ | $ | $ | $ | |
$ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Note: Share and per share amounts have been retroactively adjusted to reflect the impact of a 9-for-1 reverse stock split effected in February 2024, as discussed in Note 6.
4
CHROMOCELL THERAPEUTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Amortization of debt discount | ||||||||
| Issuance cost from shares issued on extension of bridge loan | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued compensation | ( | ) | ||||||
| Due from Chromocell Corporation | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from loan payable, net of debt discount | ||||||||
| Proceeds from loan payable - related party, net of debt discount | ||||||||
| Payment of bridge loan, net of debt discount | ( | ) | ||||||
| Common stock issued for cash | ||||||||
| Recission of common stock | ( | ) | ||||||
| Net Cash Provided By Financing Activities | ||||||||
| NET INCREASE IN CASH | ||||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest expense | $ | $ | ||||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Debt discount from common stock issued for extension of bridge loan | $ | $ | ||||||
| Conversion of notes | $ | $ | ||||||
| Transfer of liabilities to Chromocell Corp for Preferred Stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Note: Share and per share amounts have been retroactively adjusted to reflect the impact of a 9-for-1 reverse stock split effected in February 2024, as discussed in Note 6.
5
CHROMOCELL THERAPEUTICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Company Background
Chromocell Therapeutics Corporation (“Chromocell” or the “Company”) was incorporated in the State of Delaware on March 19, 2021. On August 10, 2022, the Company entered into that certain Contribution Agreement (the “Contribution Agreement”) with Chromocell Corporation, a Delaware corporation (“Chromocell Holdings”), pursuant to which, effective July 12, 2022 (the “Contribution Date”), Chromocell Holdings contributed all assets and liabilities related to Chromocell Holdings’ historical therapeutic business, including all patents, pre-clinical and Phase I study results and data, and trade secrets related to the CC8464 compound to the Company. (See Note 4)
The Company a clinical-stage biotech company focused on developing and commercializing new therapeutics to alleviate pain. The Company’s clinical focus is to selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in a way to prevent the transmission of pain perception to the central nervous system (“CNS”). The Company’s goal is to develop a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system.
The Company has formally launched two programs developing pain treatment therapeutics, both based on the same proprietary molecule, as follows:
Neuropathic Pain: CC8464 is being developed to address certain types of neuropathic pain. The chemical characteristics of CC8464 restrict its entry into the CNS and limit its effect to the NaV1.7 receptors in the peripheral nervous system, which consists of the nerves outside the brain and spinal cord. Activation of other receptors in the CNS can result in side effects, including addiction and other centrally mediated adverse effects. Since CC8464 is designed to not penetrate the CNS it is highly unlikely to produce CNS mediated side effects including euphoria or addiction. Based on its characteristics, preclinical studies (described below) and the Phase 1 studies the Company has completed to date, the Company believes that CC8464, if approved, could become an attractive option for both patients and physicians as a treatment for moderate-to-severe pain in EM and iSFN.
Eye Pain: Based on the same proprietary molecule as CC8464, the Company’s newly launched program, titled CT2000, is for the potential treatment of both acute and chronic eye pain. NaV1.7 receptor is present on the cornea, making it a viable biological target for treating eye pain. Eye pain may occur with various conditions, including severe dry eye disease, trauma and surgery. Existing therapies for eye pain (such as steroids, topical non-steroidal anti-inflammatory agents, lubricants, local anesthetics) are limited in their effectiveness and/or limited in the duration that they may be prescribed because of safety issues. The Company intends to explore the viability of developing CT2000 as a topical agent for the relief of eye pain. A potential advantage of this approach is that topical administration of CT2000 is unlikely to lead to any hypersensitivity or skin reactions, like what was noted with systemic administration of CC8464, because the systemic absorption from a topical administration would be extremely limited. The Company has commenced development of a topical ophthalmic formulation of CT2000 that would initially be evaluated for ophthalmic toxicology and then followed by a POC trial in patients. The Company expects the trials for this ophthalmic formulation of CT2000 to start in 2025.
The Company may further expand its pipeline with other internal or external compounds in the future, but all other internally discovered compounds are pre-clinical and no commercial discussions about in-licensing have been initiated to date, other than as disclosed in this quarterly report with respect to the licensing of the certain spray formulations from Benuvia Operations LLC (“Benuvia”), entered into on December 23, 2023.
The Company has a limited operating history and has not generated revenue from its intended operations. The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include changes in the biotechnology regulatory environment, technological advances that render the Company’s technologies obsolete, availability of resources for clinical trials, acceptance of technologies into the medical community, and competition from larger, more well-funded companies.
6
On
February 21, 2024, the Company completed the initial public offering of its Common Stock (the “IPO”) and issued
shares of its Common Stock at a price of $
per share. The aggregate net proceeds from the IPO were approximately $
NOTE 2 – GOING CONCERN ANALYSIS
During
the three months ended June 30, 2024, the Company had a net loss of approximately $ million, cash of approximately $
million and a working capital deficit of $
The financial statements included in this report 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 matters discussed herein. While the Company believes in the viability of the Company’s strategy to generate sufficient revenue, control costs, and raise additional funds, when necessary, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the ability to implement the business plan, generate sufficient revenues, raise capital, and to control operating expenses.
Liquidity and Capital Resources
At
June 30, 2024, the Company had approximately $
Based
on the Company’s current projections, management believes there is substantial doubt about its ability to continue to operate
as a going concern and fund its operations through at least the next twelve months following the issuance of these financial statements.
While the Company will continue to invest in its business and the development of CC8464 and CT2000, and potentially other molecules,
it is unlikely that the Company will generate product or licensing revenue during the next twelve months. During the period, the
Company completed its initial public offering, raising $
If adequate funds are not available and expenditures exceed the Company’s current expectations, the Company may be required to curtail its operations or other business activities or obtain funds through arrangements with strategic partners or others that may require the Company to relinquish rights to certain technologies or potential markets.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended June 30, 2024 and 2023. Although management believes that the disclosures in these unaudited condensed consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in condensed consolidated financial statements that have been prepared in accordance U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
7
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 16, 2024. The interim results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future interim periods.
Principles of consolidation
The consolidated financial statements include the accounts of Chromocell Therapeutics Corporation and its wholly owned subsidiary, Chromocell Therapeutics Australia Pty. Ltd. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, estimating the valuation of deferred income taxes.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of June 30, 2024 and December 31, 2023, the Company did not have any cash equivalents.
As of June 30, 2024, the Company had deposits in excess of federally insured limits.
Research and Development
The Company incurs research and development (“R&D”) costs during the process of researching and developing technologies and future offerings. The Company expenses these costs as incurred unless such costs qualify for capitalization under applicable guidance. The Company reviews acquired R&D and licenses to determine if they should be capitalized or expensed under U.S. GAAP standards.
Below is a disaggregation of R&D expenses:
| For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | For the Six Months Ended | |||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Consultant | $ | $ | $ | $ | ||||||||||||
| Lab Materials | ||||||||||||||||
| Lab Cell Storage | ||||||||||||||||
| Chemistry Manufacturing and Controls (“CMC”) | ( | ) | ||||||||||||||
| IP Services | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
8
Fair Value Measurements and Fair Value of Financial Instruments
The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
| ● | Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
| ● | Level 2 Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
| ● | Level 3 Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820.
Due to the short-term nature of all financial assets and liabilities, their carrying value approximates their fair value as of the balance sheet dates.
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services. Pursuant to ASC 718, the Company can elect to either recognize the expenses on a straight-line or graded basis and has elected to do so under the straight-line basis.
Basic loss per common share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding for each period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of June 30, 2024, stock options, warrants, and unvested restricted stock units (“RSUs”) were excluded from dilutive earnings per share as their effects were anti-dilutive. As of June 30, 2023, stock options were excluded from dilutive earnings per share as their effects were anti-dilutive.
Income Taxes
The Company accounts for income taxes pursuant to the provision of ASC 740 “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of the ASC 740 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is most likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
9
Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions will more likely than not be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service and state taxing authorities, generally for three years after they were filed. The Company is in the process of filing the tax returns for the 2023 year. After review of the prior year financial statements and the results of operations through December 31, 2023, the Company has recorded a full valuation allowance on its deferred tax asset.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual periods beginning after December 15, 2024. The Company is currently evaluating the timing and impacts of adoption of this ASU.
Subsequent Events
The Company has evaluated all transactions through the date the financial statements were issued for subsequent event disclosure consideration.
NOTE 4 – RELATED PARTY TRANSACTIONS
Employment Agreement
On
February 14, 2024,
Camden Consulting LLC
The Company entered into a Consultant Agreement with Camden Capital LLC (“Camden”), dated January 10, 2023 (the “Consultant Agreement”). This Consultant Agreement replaced an agreement with Mr. Francis Knuettel II dated June 2, 2022 and pursuant to which, Camden agreed to provide the services of Mr. Knuettel, who was to serve as the Company’s Chief Financial and Strategy Officer, Treasurer and Secretary.
10
Under
the Consultant Agreement,
The Consultant Agreement contemplates an additional consulting fee, as determined by the Board. The potential additional consulting fee is 50% of the annualized consulting fee and will be based on achievement of performance goals and objectives established by the Board in concert with Mr. Knuettel in January of each year. The Board may increase the potential additional consulting fee in recognition of performance in excess of the performance objectives. Any amount shall only be paid if Camden continues to provide consulting services to the Company as of the date of payment, which will be no later than March 15 of the year following the year to which the additional consulting fee relates. Any additional consulting fee for 2022 is payable solely in the Board’s discretion.
Pursuant to the Consultant Agreement, in the event the relationship with Camden is involuntarily terminated by the Company other than for “Cause” or if Camden terminates the relationship for “Good Reason,” Camden is entitled to receive (i) six months of consulting fees at the same rate existing immediately prior to termination, (ii) a potential additional consulting fee, if performance goals and objectives have been established for the year and prorated for the period of service, and (iii) six months of additional vesting credit with respect to any outstanding time-based equity awards. “Cause” and “Good Reason” are each defined in the Consultant Agreement.
Finally, Camden and Mr. Knuettel agree to certain non-solicitation and non-competition provisions for a period of 12 months following termination of the relationship and to certain confidentiality obligations. Additional terms and conditions are set forth in the Consultant Agreement.
On
June 23, 2023,
Effective July 19, 2023, the Board appointed Francis Knuettel II as Interim Chief Executive Officer and as of March 13, 2024, the Board appointed Francis Knuettel II as Chief Executive Officer of the Company. Mr. Knuettel will serve as the Company’s Chief Executive Officer until a successor is duly elected and qualified, unless sooner removed. In addition to his role as Chief Executive Officer of the Company, Mr. Knuettel will continue to serve in his capacity as Chief Financial Officer, Treasurer and Secretary of the Company.
Director Note
On
December 6, 2022,
11
April and September Bridge Financings
On April 17, 2023 and September 1, 2023, the Company entered into bridge notes, the investors in which were almost entirely existing investors. Related party investors in the April Bridge Financing include Chromocell Holdings, Boswell Prayer Ltd., Motif Pharmaceuticals Ltd, Aperture Healthcare Ventures Ltd., MDB Merchants Park LLC, Balmoral Financial Group LLC and AME EQUITIES LLC (each a related party based on share ownership in excess of 5% or resulting from a principal at one of the entities being on the Board). All of these investors, except Chromocell Holdings, also participated in the September Bridge Financing. On February 21, 2024, the principal and accrued interest on these notes converted into 130,494 shares of the Company’s Common Stock.
Due from/to Chromocell Holdings
As
of June 30, 2024, the Company had a $
As of December 31, 2023, the Company had a $ liability due to Chromocell Holdings. This amount is comprised of expenses paid by Chromocell Holdings to be reimbursed by the Company. No interest is incurred on these amounts.
Side Letter to the Contribution Agreement and Issuance of Series C Convertible Redeemable Preferred Stock
On
August 2, 2023,
The Series C Preferred Stock has a liquidation preference of $1,000 per share. Holders of the Series C Preferred Stock are not entitled to dividends, have no voting rights other than as required by law, and the shares of Series C Preferred Stock are convertible into shares of Common Stock at a price of $7.50 per share of Common Stock. Following the IPO, at the Company’s option, the shares of Series C Preferred Stock are convertible into shares of Common Stock automatically if, the trading price of the Common Stock exceeds certain thresholds and are redeemable by the Company for cash.
Related Party Note
On
May 10, 2024,
NOTE 5 – NOTES PAYABLE
Investor Note
On
February 4, 2022, the Company entered into a note payable for $
12
On
February 27, 2023,
On
June 23, 2023, the Company entered into a side letter with the holder of the Investor Note pursuant to which the Company (i) amended
and restated the Investor Note to extend the maturity date to August 15, 2023 and
On
August 17, 2023, the Company entered into a second side letter with the holder of the Investor Note (the “August Investor
Note Side Letter” and, together with the June Investor Note Side Letter, the “Investor Note Side Letters”) pursuant
to which the Company (i) amended and restated the Investor Note to extend the maturity date to September 30, 2023 and (ii) in
consideration therefor, issued to such holder shares of Common Stock. On September 24, 2023, the Company entered into an
amendment to the Investor Note, which further extended the maturity date to October 10, 2023. The Investor Note provides for the
accrual of interest equal to 2% of the face amount of $
Effective October 10, 2023, the Company entered into a side letter with the Holder of the Investor Note, which extended the maturity date of the Investor Note to November 14, 2023 and the Company issued to the Holder of the Investor Note shares of Common Stock.
Effective November 13, 2023, the Company entered into another side letter with the holder of the Investor Note pursuant to which the Company (i) amended and restated the Investor Note to extend the maturity date to January 31, 2024, and (ii) in consideration therefor, agreed to issue to such Holder of the Investor Note shares of Common Stock on each of November 29, 2023, December 29, 2023 and January 29, 2024, provided the Investor Note remained outstanding as of such date.
Effective January 30, 2024, the Company entered into another side letter with the holder of the Investor Note (the “January Investor Note Side Letter”) pursuant to which the Company (i) amended and restated the Investor Note to extend the maturity date to February 29, 2024, and (ii) in consideration therefor, agreed to issue to such Holder of the Investor Note shares of Common Stock on the earlier to occur of the IPO or February 29, 2024.
As
of June 30, 2024, the Investor Note and the accrued interest on the note has been fully paid off. As of December 31, 2023, there
was $
Director Note
On
December 6, 2022, the Company and Mr. Todd Davis, one of the Company’s directors, entered into a note payable agreement
(the “Director Note”) for $
13
On December 28, 2023, the Company entered into an amendment to the Director Note, which extended the maturity date to February 29, 2024. The Director Note was exchanged for 29,167 shares of Common Stock at the time of the Company’s IPO.
April Bridge Financing
On
April 17, 2023,
On October 12, 2023, the Company entered into a first amendment to the senior secured convertible notes in the April Bridge Financing, which extended the maturity of the notes to November 1, 2023. On October 24, 2023, the Company entered into a second amendment to the senior secured convertible notes in the April Bridge Financing, which extended the maturity of the notes to November 14, 2023. On November 13, 2023, the Company entered into a third amendment to the senior secured convertible notes in the April Bridge Financing, which further extended the maturity of the notes to February 29, 2024. These notes were exchanged for shares of Common Stock at the time of the Company’s IPO.
September Bridge Financing
On
September 1, 2023, the Company entered into a bridge loan for working capital purposes, with various accredited investors, certain
of which are pre-existing stockholders, in the aggregate principal amount of $
October Promissory Notes
On
October 12, 2023, the Company and four existing investors entered into promissory notes (the “October Promissory Notes”)
with an aggregate face amount of $
14
Bridge Financing Note Amendments and Recission Agreement
On February 8, 2024, the Company and certain affiliates of A.G.P./Alliance Global Partners (“A.G.P.”) entered into amendments to the senior secured convertible notes issued to such affiliates of the A.G.P. in the April Bridge Financing and September Bridge Financing to remove the automatic conversion features from such notes (the “Bridge Financing Note Amendments”). Under the Bridge Financing Note Amendments, both notes issued in the April Bridge Financing and the September Bridge Financing have a maturity date of March 1, 2024, and the full principal amount of both notes and any accrued interest thereon shall be payable solely in cash upon the consummation of the IPO. Both notes have an annual interest rate of 8%, which accrues daily, and is calculated on the basis of a 360-day year (consisting of twelve 30 calendar day periods), giving an effective interest rate of 8.3%.
On
February 10, 2024, the Company entered into a Stock Rescission Agreement with certain affiliates of A.G.P. (the “Stock Rescission
Agreement” and, together with the Bridge Financing Note Amendments, the “Representative Affiliate Transactions”),
May Promissory Note
On
May 10, 2024, the Company entered into a promissory note with a professional advisor in the amount of $
NOTE 6 – STOCKHOLDERS’ EQUITY
Initial Public Offering
On
February 21, 2024, the Company completed its IPO and issued shares of Common Stock at a price of $ per share. The
aggregate net proceeds from the IPO were approximately $
Stock Split
On
February 15, 2024,
Share Forfeiture
Pursuant to the terms of the April Bridge Financing, Chromocell Holdings forfeited of the shares of Common Stock of the Company on April 17, 2023. All shareholders with ownership stakes greater than 5% of the Company agreed that the failure to invest its pro rata allocation in the April Bridge Financing would result in the forfeiture of a pro rata percentage of their shares. Chromocell Holdings did not invest its full pro rata allocation, leading to the forfeiture of a portion of their shares of Common Stock of the Company.
Standby Investor Side letter
On
October 11, 2023, the Company entered into a securities purchase agreement with an institutional investor (the “Standby
Investor”), pursuant to which (i) the Standby Investor agreed to purchase, upon close of the IPO and at the Company’s
election, an aggregate of up to shares of Series B Convertible Preferred Stock, par value of $ per share (the “Series
B Preferred Stock”) for a purchase price of $ per share, and
15
Effective November 13, 2023, the Company entered into a side letter with the Standby Investor (the “Standby Investor Side Letter”), pursuant to which it (i) waived in full the Standby Investor’s obligation to fund the aggregate amount to be paid for the Series B Preferred Stock to be purchased under the Series B Securities Purchase Agreement and (ii) agreed to continue to have the obligation to issue the full amount of the Standby Shares upon the closing of the IPO. The Company and the Standby Investor also agreed to terminate each of their obligations solely with respect to the Series B Preferred Stock under the Series B Securities Purchase Agreement and a certain Registration Rights Agreement between the Company and the Standby Investor, which was required to be delivered pursuant to the Series B Securities Purchase Agreement.
Rights Offering
On
November 22, 2023,
Recission Agreement
On
February 10, 2024, the Company entered into a Stock Rescission Agreement with certain affiliates of A.G.P. pursuant to which the
Company rescinded shares of Common Stock held by such affiliates of A.G.P. and agreed to refund an aggregate of $
Equity Issuances
On June 1, 2024, the Company agreed to issue up to shares of Common Stock to a vendor in considerations for the services provided by the vendor to the Company.
On June 12, 2024, the Company entered into a twelve-month agreement with such vendor to issue up to share of Common Stock per month for services performed by such vendor. As of June 30, 2024, the Company has issued shares of Common Stock pursuant to this agreement.
Options
During the six months ended June 30, 2024, the Company granted a total of options. These options had a life of years and an exercise price of $. During the six months ended June 30, 2023, the Company granted a total of options. These options had a life of years and an exercise price of $.
16
During the six months ended June 30, 2024 and 2023, the fair value of each stock option granted was estimated using the Black-Scholes Option Pricing Model using the following inputs:
| Exercise price | $ | - | ||
| Expected dividend yield | % | |||
| Risk free interest rate | - | % | ||
| Expected life in years | ||||
| Expected volatility | - | % |
The risk-free interest rate assumption for options granted is based upon observed interest rates on the United States Government Bond Equivalent Yield appropriate for the expected term of the options.
With
certain adjustments outlined below, the Company based its determination of the underlying fair value of the Company’s Common
Stock on the findings of an independent third party engaged by the Company to determine the fair value of the Company’s
intellectual property. The Company had the analysis conducted in conjunction with the Contribution Agreement, which was executed
on August 10, 2022. The analysis determined that the fair value of the Company’s intellectual property was $
| Value of intellectual property | $ | |||
| Common shares outstanding (as converted) | ||||
| Value per common share | $ | |||
| Illiquidity discount | % | |||
| Minority discount | % | |||
| Fair value of the common stock | $ |
After the completion of the Company’s IPO, the trading price of the Company’s Common Stock is used as the fair value of the Company’s Common Stock.
The Company determined the expected volatility assumption for options granted using the historical volatility of comparable public companies’ common stock. The Company will continue to monitor peer companies and other relevant factors used to measure expected volatility for future option grants, until such time that the Company’s Common Stock has enough market history to use historical volatility.
The dividend yield assumption for options granted is based on the Company’s history and expectation of dividend payouts. The Company has never declared nor paid any cash dividends on its Common Stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
The Company recognizes option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeiture rates.
| Weighted Average |
Weighted Average |
|||||||||||
| Number of Shares |
Exercise Price |
Remaining Life |
||||||||||
| Stock Options | ||||||||||||
| Outstanding December 31, 2023 | $ | |||||||||||
| Granted | $ | |||||||||||
| Expired | ( |
) | $ | ( |
) | — | ||||||
| Exercised | $ | — | ||||||||||
| Outstanding June 30, 2024 | $ | |||||||||||
| Exercisable June 30, 2024 | $ | |||||||||||
| Weighted Average |
Weighted Average |
|||||||||||
| Number of Shares |
Exercise Price |
Remaining Life |
||||||||||
| Stock Options | ||||||||||||
| Outstanding December 31, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Expired | ( |
) | $ | — | ||||||||
| Exercised | $ | — | ||||||||||
| Outstanding June 30, 2023 | $ | |||||||||||
| Exercisable June 30, 2023 | $ | |||||||||||
17
| Non-vested Options | Options | Weighted- Average Exercise Price |
||||||
| Non-vested at December 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( |
) | $ | |||||
| Forfeited | $ | |||||||
| Non-vested at June 30, 2024 | $ | |||||||
| Non-vested Options | Options | Weighted- Average Exercise Price |
||||||
| Non-vested at December 31, 2022 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( |
) | $ | |||||
| Forfeited | $ | |||||||
| Non-vested at June 30, 2023 | $ | |||||||
The total number of options granted during the six months ended June 30, 2024 and 2023 was and , respectively. The exercise price for these options was $ or $ per share. There was an intrinsic value of $ and $0 as of June 30, 2024 and 2023, respectively.
The
Company recognized stock-based compensation expense related to option vesting amortization of $
As
of June 30, 2024, the unamortized stock option expense was $
Warrants
| Weighted Average |
Weighted Average |
|||||||||||
| Number of Shares |
Exercise Price |
Remaining Life |
||||||||||
| Stock Warrants | ||||||||||||
| Outstanding December 31, 2023 | $ | — | ||||||||||
| Granted | $ | |||||||||||
| Expired | $ | — | ||||||||||
| Exercised | $ | — | ||||||||||
| Outstanding June 30, 2024 | $ | |||||||||||
| Exercisable June 30, 2024 | $ | |||||||||||
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A summary of the status of the Company’s nonvested warrants as of June 30, 2024, and changes during the six months ended June 30, 2024, is presented below:
| Non-vested Warrants | Warrants | Weighted- Average Exercise Price |
||||||
| Non-vested at December 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( |
) | $ | |||||
| Forfeited | $ | |||||||
| Non-vested at June 30, 2024 | $ | |||||||
The total number of warrants granted during the six months ended June 30, 2024 and 2023 was and , respectively. The exercise price for these warrants was $ per share and there was an intrinsic value of $.
The Company recognized stock-based compensation expense related to warrant vesting amortization of $0 and $0 for the three and six months ended June 30, 2024 and 2023, respectively.
On
February 21, 2024,
RSUs
A summary of the status of the Company’s nonvested RSUs as of June 30, 2024, and changes during the six months ended June 30, 2024, is presented below:
| Non-vested RSUs | RSUs | Weighted- Average Exercise Price |
||||||
| Non-vested at December 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | $ | |||||||
| Forfeited | $ | |||||||
| Non-vested at June 30, 2024 | $ | |||||||
The total number of RSUs granted during the six months ended June 30, 2024 and 2023 was and , respectively. The exercise price for these RSUs was $ per share.
The
Company recognized stock-based compensation expense related to RSU vesting amortization of $
NOTE 7 – LEGAL
Demand Letter from Mr. Kopfli’s Attorney
On
February 14, 2024, the Board received a demand letter from an attorney representing Chromocell Holdings and the Company’s former Chief Executive
Officer and former Chief Strategy Officer, Mr. Christian Kopfli, who was released for “cause” as disclosed elsewhere
in this Report. Mr. Kopfli alleges an improper termination for “cause” and seeks monetary damages in the amount of
$
19
Complaint Filed by New Jersey Economic Development Authority
On
April 9, 2024, we received correspondence notifying us of an Entry of Default Notice, filed on April 8, 2024, against “Chromocell
Corporation d/b/a Chromocell Therapeutics” in the matter New Jersey Economic Development Authority v. Chromocell Corporation,
et al. (Docket No. MER-L-001748-23). The complaint filed by the New Jersey Economic Development Authority (the “EDA”)
on September 12, 2023 in the Superior Court of New Jersey Law Division, Mercer County, alleges Chromocell Holdings’ (not
the Company’s) breach of a Settlement Agreement between the EDA and Chromocell Holdings, dated December 31, 2022 (the “Settlement
Agreement”), pursuant to which EDA and Chromocell Holdings agreed that Chromocell Holdings would (i) vacate the premises
located at 671 US Highway One South, North Brunswick, New Jersey, on or before December 31, 2023, (ii)
Parexel Claim
On July 31, 2024,
NOTE 8 – SUBSEQUENT EVENTS
Convertible Note
On
July 24, 2024, the Company entered into a securities purchase agreement with an accredited investor (the “July Note Holder”),
pursuant to which the Company issued to the July Note Holder a senior unsecured convertible note (the “July Note”)
in the aggregate principal amount of $
The July Note is redeemable by the Company in whole or in part at any time after issuance and prior to the July Note Maturity Date in cash at a price equal to 110% of the greater of (i) the July Note Note’s outstanding principal amount, plus all accrued but unpaid interest and late charges due under the July Note (the “July Note Conversion Amount”) being redeemed as of the date on which such redemption will occur (the “Company Optional Redemption Date”) and (ii) the product of (1) the number of July Note Conversion Shares then issuable under the July Note multiplied by (2) the highest closing sale price of the Common Stock on any trading day during the period commencing on the date immediately preceding the date of the Company Optional Redemption Notice (as defined below) and ending on the trading day immediately prior to the date the Company makes the entire payment. The Company may deliver only one notice to exercise its right to require redemption (the “Company Optional Redemption Notice”) in any given 20 trading day period and each Company Optional Redemption Notice is irrevocable. At any time prior to the date on which such optional redemption payment is paid in full, the July Note may be converted by the July Note Holder into shares of Common Stock in accordance with the conversion terms thereof.
20
Committed Equity Financing
On July 26, 2024, the Company entered into a Common Stock Purchase Agreement, dated as of July 26, 2024 (the “CEF Purchase Agreement”), with Tikkun Capital LLC (“Tikkun”), providing for a committed equity financing facility, pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the CEF Purchase Agreement, Tikkun has committed to purchase, at the Company’s direction in its sole discretion, up to an aggregate of $ (the “Total Commitment”) of the shares of Common Stock (the “Purchase Shares”), subject to certain limitations set forth in the CEF Purchase Agreement, from time to time during the term of the CEF Purchase Agreement. Concurrently with the execution of the CEF Purchase Agreement, the Company and Tikkun also entered into a Registration Rights Agreement, dated as of July 26, 2024, pursuant to which the Company agreed to file with the SEC one or more registration statements, to register under the Securities Act, the offer and resale by Tikkun of all of the Purchase Shares that may be issued and sold by the Company to Tikkun from time to time under the CEF Purchase Agreement.
Stock Repurchase Plan
On August 5, 2024, the board of directors
of the Company authorized a stock repurchase plan (the “Repurchase Plan”) pursuant to which up to $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Notice Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of Chromocell Therapeutics Corporation’s (“Chromocell”, the “Company”, “our”, “us” or “we”) operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts.
From time to time, forward-looking statements also are included in our other periodic reports on Form 10-K, 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, including risks related to market, economic and other conditions; our current liquidity position, the need to obtain additional financing to support ongoing operations, Chromocell’s ability to continue as a going concern; Chromocell’s ability to maintain the listing of its Common Stock on the NYSE American LLC, Chromocell’s ability to manage costs and execute on its operational and budget plans; and, Chromocell’s ability to achieve its financial goals. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
21
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
Overview
We are a clinical-stage biotech company focused on developing and commercializing new therapeutics to alleviate pain. Our clinical focus is to selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in a way to prevent the transmission of pain perception to the central nervous system (“CNS”). Our goal is to develop a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system.
We have formally launched two programs developing pain treatment therapeutics, both based on the same proprietary molecule, as follows:
Neuropathic Pain: CC8464 is being developed to address certain types of neuropathic pain. The chemical characteristics of CC8464 restrict its entry into the CNS and limit its effect to the NaV1.7 receptors in the peripheral nervous system, which consists of the nerves outside the brain and spinal cord. Activation of other receptors in the CNS can result in side effects, including addiction and other centrally mediated adverse effects. Since CC8464 is designed to not penetrate the CNS it is highly unlikely to produce CNS mediated side effects including euphoria or addiction. Based on its characteristics, preclinical studies (described below) and the Phase 1 studies we have completed to date, we believe that CC8464, if approved, could become an attractive option for both patients and physicians as a treatment for moderate-to-severe pain in Erythromelalgia (“EM”) and idiopathic small fiber neuropathy (“iSFN”).
We conducted four Phase 1 trials with 207 patients. The results showed that CC8464 has a good overall tolerability and demonstrated no liver or renal toxicity, no central nervous system changes and no cardiovascular findings but may cause rashes in certain patients. The occurrence of rashes is not uncommon in the class of molecules to which CC8464 belongs and the rashes were resolved in all cases with topical steroids and/or topical antihistamines (with the exception of one patient requiring systemic steroids).
As a result of the potential for rashes, following discussions with the U.S. Food and Drug Administration (“FDA”), we decided to launch a slow dose escalation study to further evaluate the incidence of rashes. By titrating the dose over nine weeks, we anticipate that we will reduce or eliminate this side effect. We expect that the slow dose escalation study will also help determine the need for dose escalation in the final treatment regime. Even though the FDA has in the past approved drugs that listed rashes as a potential side effect, we do not know if CC8464 will be approved by the FDA (or any foreign authority).
We anticipate that the dose escalation will enroll the first patient dosing in the third quarter of 2024. The dose escalation trial will enroll approximately 20 healthy volunteers who will receive CC8464 over a period of approximately nine weeks, with the dose escalation study expected to take approximately nine months in total. We anticipate that the slower dose escalation will decrease the likelihood of drug-related skin reactions. The primary endpoint of the dose escalation trail will be safety and tolerability of the slower dose titration; however, we will also be measuring blood concentrations of CC8464, which will allow us to better understand the pharmacokinetics of CC8464. Even if it is ultimately determined that we will need an escalation period for chronic pain treatment therapy, which patients could well take for the remainder of their lives, we do not believe the dose escalation approach is consequential.
We plan to conduct the escalation trial in Australia to avail ourselves of a 43.5% tax credit for clinical expenses incurred in Australia and, on January 9, 2023, established an Australian subsidiary through which the work will be conducted. The location of the proof-of-concept (“POC”) has not been determined at this time, with availability of facilities and patient population, costs, tax credits, centers of excellence in the respective fields (EM or iSFN) are all factors in the ultimate determination of the location.
We are currently working on the development of the Phase 2a POC plan and expect to launch the Phase 2a POC study in 2025 to assess the potential efficacy of CC8464 in EM and iSFN patients. Both are orphan indications for which we plan to apply for orphan drug designations. The orphan indication may decrease the scope of the ultimate development program that is necessary for approval and is associated with a marketing exclusivity period from the FDA along with some tax advantages.
22
Though the Phase 2a POC study design has not yet been completed, the study will take approximately twelve months after it is initiated. The primary endpoint will be the amount of pain experienced from EM or iSFN with secondary endpoints including other measurements like pain relief and neuropathy scores. The final design may change based on feedback from regulatory authorities or information learned during the dose escalation trial.
The potential population for EM in the United States is estimated to be between 5,000 and 50,000 patients and the potential population for ISFN in the United States is estimated to be between 20,000 and 80,000 patients. In both instances, we expect patients would potentially take our drug for the remainder of their lives, and given the lack of good therapeutic alternatives, we expect to have a robust, ongoing, and durable market.
The Phase 2a results will have significance beyond EM and iSFN and provide important insights about NaV1.7 as a potential target to find novel pain medications as an alternative to opioids, the continuing primary standard of care in analgesics. We believe that positive results from the Phase 2a study could not only act as support for CC8464’s potential in EM and iSFN but may also provide guidance of its potential for other indications of peripheral neuropathic pain.
Eye Pain: Based on the same proprietary molecule as CC8464, our newly launched program, titled CT2000, is for the potential treatment of both acute and chronic eye pain. NaV1.7 receptor is present on the cornea, making it a viable biological target for treating eye pain. Eye pain may occur with various conditions, including severe dry eye disease, trauma and surgery. Existing therapies for eye pain (such as steroids, topical non-steroidal anti-inflammatory agents, lubricants, local anesthetics) are limited in their effectiveness and/or limited in the duration that they may be prescribed because of safety issues. We intend to explore the viability of developing CT2000 as a topical agent for the relief of eye pain. A potential advantage of this approach is that topical administration of CT2000 is unlikely to lead to any hypersensitivity or skin reactions, like what was noted with systemic administration of CC8464, because the systemic absorption from a topical administration would be extremely limited. We have commenced development of a topical ophthalmic formulation of CT2000 that would initially be evaluated for ophthalmic toxicology and then followed by a POC trial in patients. We expect the trials for this ophthalmic formulation of CT2000 to start in 2025.
Current options for the treatment of ocular pain center on the use of corticosteroids and non-steroidal anti-inflammatory drug (“NSAID”) based therapeutics. These options suffer from sight-threatening complications such as Glaucoma and corneal melting, thus there is a large unmet need for other approaches. As an example of the potential patient population, we estimate that there are approximately 5 million cases of corneal abrasions per year in the United States. In addition, other potential indications associated with eye pain include:
| ● | severe dry eye, | |
| ● | side effects from photorefractive keratectomy (PRK) and pterygium surgery, | |
| ● | second eye cataract surgery, | |
| ● | neuropathic corneal pain, and | |
| ● | severe uveitis and severe iritis/scleritis. |
As the NaV1.7 receptor is present on the cornea and is a viable biological target for treating eye pain, we believe that we have a sound scientific basis for our ability to treat a multitude of eye pain indications. We are in the process of formulating CT2000 eye drops and expect to move into animal toxicity studies in the second half of 2024. From there, we intend to move into proof-of-concept studies in humans.
We may further expand our pipeline with other internal or external compounds in the future, but all other internally discovered compounds are pre-clinical and no commercial discussions about in-licensing have been initiated to date, other than as disclosed in this Report with respect to the licensing of the “Spray Formulations.”
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Background
We were incorporated in Delaware on March 19, 2021. On August 10, 2022, we entered into the Contribution Agreement with Chromocell Corporation, a Delaware corporation (“Chromocell Holdings”). Pursuant to the Contribution Agreement, as of the Contribution Date, we acquired from Chromocell Holdings all assets, liabilities and results of operations related to Chromocell Holdings’ therapeutic business, including all patents, pre-clinical and Phase I study results and data, and trade secrets related to the CC8464 compound, in exchange for the issuance by us of 1,111,112 shares of our common stock, par value $0.0001 per share (“Common Stock”) and (ii) 600,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”).
On August 2, 2023, we entered into a Side Letter to the Contribution Agreement with Chromocell Holdings (the “Holdings Side Letter”). Pursuant to the Holdings Side Letter, upon closing of our initial public offering (“IPO”): (a) Chromocell Holdings re-assumed all $1.6 million in direct liabilities previously assumed by the Company in accordance with the Contribution Agreement, (b) Chromocell Holdings waived the Company’s obligations to make a cash payment in the amount of $0.6 million to Chromocell Holdings, and (c) in consideration thereof, we issued to Chromocell Holdings 2,600 shares of Series C Convertible Redeemable Preferred Stock of the Company, par value of $0.0001 per share (“Series C Preferred Stock”).
On February 21, 2024, we completed the IPO and issued and sold 1,100,000 shares of Common Stock at a price to the public of $6.00 per share. The aggregate net proceeds from the IPO were approximately $5.7 million after deducting underwriting discounts and commissions of approximately $0.5 million and offering expenses of approximately $0.4 million.
In connection with the completion of the IPO: (A) we effected the 9-for-1 reverse stock split effective February 15, 2024 (the “Reverse Stock Split”) of our shares of Common Stock, (B) all 600,000 issued and outstanding shares of our Series A Preferred Stock automatically converted into 499,429 shares of Common Stock, (C) $389,757 and accrued interest of approximately $28,336 as of February 21, 2024 outstanding under our senior secured convertible notes issued in a bridge financing in April 2023 for an aggregate principal amount of $393,808 (the “April Bridge Financing”) after giving effect to the Representative Affiliate Transactions (as defined below), automatically converted into approximately 87,109 shares of Common Stock, (D) $197,421 and accrued interest of $8,169 as of February 21, 2024 outstanding under our senior secured convertible notes issued in a bridge financing in September 2023 for an aggregate principal amount of $198,128 (the “September Bridge Financing”) after giving effect to the Representative Affiliate Transactions, automatically converted into approximately 43,385 shares of Common Stock, which includes an additional 549 shares of Common Stock issuable as consideration for the September Bridge Financing (the “Bonus Shares”), (E) we issued 37,500 shares of Common Stock to an investor as consideration for its previous agreement to provide funding that is no longer necessary in connection with the IPO, (F) we effected the Representative Affiliate Transactions, (G) we effected the transactions contemplated by the Holdings Side Letter, and issued an aggregate of 2,600 shares of Series C Preferred Stock to Chromocell Holdings pursuant thereto, and (H) we issued (i) 93,823 shares to a lender holding a note payable for $450,000 (the “Investor Note”) and (ii) 29,167 shares to one of our directors holding the promissory note in the aggregate principal amount of $175,000 (the “Director Note”) in full satisfaction of our obligations thereunder (in the case of (A) through (D) and (H) above, based on the IPO price of $6.00 per share of Common Stock). We refer to these actions as the “IPO Transactions.”
In addition, certain stockholders of the Company (“Selling Stockholders”), as identified in the Registration Statement, have agreed to offer for resale of up to an aggregate of 2,969,823 shares of Common Stock (the “Selling Stockholder Shares”) to the public. After conversion of the convertible notes or shares of preferred stock, as applicable, the Selling Stockholders, or their respective transferees, pledgees, donees or other successors-in-interest, may sell the Selling Stockholders Shares through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of the Selling Stockholder Shares by the Selling Stockholders.
Trends and Other Factors Affecting Our Business
On December 23, 2023, we entered into an exclusive licensing agreement (the “Benuvia License Agreement”) with Benuvia Operations LLC (“Benuvia”) for the Diclofenac Spray Formulation (as defined below), an intranasal spray formulation of Rizatriptan and an Ondansetron sublingual spray formulation (collectively, the “Spray Formulations”), diversifying our pipeline of non-opioid pain treatment therapies, while adding therapeutic options for related conditions. The sublingual formulation of a Diclofenac spray for the treatment of acute pain (the “Diclofenac Spray Formulation”) is patented and has started clinical development in human volunteers. Preliminary pharmacokinetics suggest that this formulation may have a faster onset of action than oral Diclofenac tablets. Diclofenac is an NSAID that is also marketed under additional brand names including Voltaren and Cataflam in its pill form. Rizatriptan, whose brand name is Maxalt, is used for the acute treatment of Migraines as a pill. By a number of clinical measures it is thought to be superior to Sumatriptan. A sublingual formulation of Rizatriptan may potentially have a faster onset of action than an oral form and may be easier to tolerate than swallowing a pill when patients are experiencing nausea as a result of the migraine headache. Ondansetron is an anti-emetic that is available in oral and intravenous form. An Ondansetron sublingual spray formulation may potentially have a faster onset of action than an oral form and may be easier to tolerate than swallowing a pill when patients are experiencing nausea. Under the terms of the Benuvia License Agreement, Benuvia will be responsible for the manufacturing and supply of the Spray Formulations, but we will have exclusive, worldwide rights to develop, commercialize and distribute the Spray Formulations.
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In connection with the Benuvia License Agreement, we agreed to pay Benuvia a six and one-half percent (6.5%) royalty on net sales of the Spray Formulations for a period of up to 15 years from the date of the first commercial sale of any of the Spray Formulations. In addition, on December 23, 2023, we entered into a stock issuance agreement with Benuvia pursuant to which we issued to Benuvia 384,226 shares of our Common Stock, which may be offered and sold pursuant to the resale prospectus which forms a part of the Registration Statement.
While we currently do not have strategy and development plans for the Spray Formulations licensed from Benuvia, beginning in the third quarter of 2024, we plan to develop clinical programs for each of the Spray Formulations, determine the labelling strategy that would be obtained from completion of these programs and discuss with the FDA the requirements for bringing each of the Spray Formulations to market. We anticipate bringing the Spray Formulations to market through the FDA 505(b)(2) regulatory pathway for new drug applications; however, the exact details will require further consultation with the FDA.
As a result, our results of operations and balance sheets may not be indicative of future operating results or of our future financial condition.
Going Concern
For the six months ended June 30, 2024 and 2023, we had a net loss of approximately $4.3 million and approximately $1.7 million, respectively, and will require additional capital in order to operate in the normal course of business and fund clinical studies. The IPO closed on February 21, 2024, from which, the Company received net proceeds from the IPO of approximately $5.7 million after deducting the underwriting discounts and commissions and offering expenses payable by the Company (excluding any exercise of the warrants issued to the A.G.P./Alliance Global Partners (the “Representative”) or its designees, in connection with the IPO).
Based on the Company’s current projections, management believes there is substantial doubt about its ability to continue to operate as a going concern and fund its operations through at least the next twelve months following the issuance of these financial statements. While the Company will continue to invest in its business and the development of CC8464 and CT2000, and potentially other molecules, it is unlikely that the Company will generate product or licensing revenue during the next twelve months. During the period, the Company completed its initial public offering, raising $5.7 million, after deducting the underwriting discounts and commissions and offering expenses, and the Company may need to raise additional funds through either strategic partnerships or the capital markets. However, there is no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all. If the Company raises additional funds by issuing securities, existing stockholders may be diluted.
Results of Operations
Comparison of the Three Months Ended June 30, 2024 and 2023
The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023:
| Three Months Ended June 30, 2024 and 2023 |
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | $ | 1,209,874 | $ | 537,876 | $ | 671,998 | 125 | % | ||||||||
| Research and development | 12,955 | 49,955 | (37,000 | ) | (74 | )% | ||||||||||
| Professional fees | 541,257 | 189,329 | 351,928 | 186 | % | |||||||||||
| Total operating expenses | 1,764,086 | 777,160 | 986,926 | 127 | % | |||||||||||
| Loss from operations | (1,764,086 | ) | (777,160 | ) | (986,926 | ) | (127 | )% | ||||||||
| Other expense | (7,533 | ) | (176,187 | ) | 168,654 | 96 | % | |||||||||
| Net loss before provision for income taxes | (1,771,619 | ) | (953,347 | ) | (818,272 | ) | (86 | )% | ||||||||
| Provision for income taxes | — | — | — | NA | ||||||||||||
| Net loss | $ | (1,771,619 | ) | $ | (953,347 | ) | $ | (818,272 | ) | (86 | )% | |||||
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Operating Expenses
Our operating expenses consist of general and administrative expenses, research and development expenses and professional fees.
General and Administrative Expenses
We incurred general and administrative expenses for the three months ended June 30, 2024 and 2023 of $1,209,874 and $537,876, respectively. For the three months ended June 30, 2024, compared to the same period in 2023, this represented an increase of $671,998, or 125%, primarily as a result of increases of $219,069 in compensation expenses, an increase of $32,400 in marketing expenses, an increase of $193,434 in D&O insurance, an increase of $54,353 in IPO fees, an increase of $40,000 in board related expenses, and an increase of $53,140 in stock-based compensation expense.
Research and Development Expenses
We incurred research and development expenses for the three months ended June 30, 2024 and 2023 of $12,955, and $49,955, respectively. For the three months ended June 30, 2024, compared to the same period in 2023, this represented a decrease of $37,000, or 74%, with the details set forth in the table below:
| Three Months Ended June 30, 2024 and 2023 |
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Consultant | $ | 107,357 | $ | 6,900 | $ | 100,457 | 1,456 | % | ||||||||
| Lab Gas | 1,452 | — | 1,452 | — | % | |||||||||||
| Lab Cell Storage | 27,272 | 7,653 | 19,619 | 256 | % | |||||||||||
| Chemistry Manufacturing and Controls (“CMC”) | (133,780 | ) | — | (133,780 | ) | — | % | |||||||||
| IP Services | 10,654 | 35,402 | (24,748 | ) | (70 | )% | ||||||||||
| Total | $ | 12,955 | $ | 49,955 | $ | (37,000 | ) | (74 | )% | |||||||
The Company incurred lower research and development expenses for the three months ended June 30, 2024, as compared to the corresponding period in 2023 primarily as a result of a decrease in CMC of $133,780 due to the cancelation of a research and development agreement that was previously accrued for in the first quarter and reversed in the second quarter of 2024.
Professional Fees
We incurred professional expenses for the three months ended June 30, 2024 and 2023 of $541,257 and $189,329, respectively. For the three months ended June 30, 2024, compared to the same period in 2023, this represented an increase of $351,928, or 186%, as a result of higher auditing and legal expenses associated with the Company operating as a public company since February 2024.
Other (Expense) Income
We incurred other expense for the three months ended June 30, 2024 of $7,533 as compared to other expense for the three months ended June 30, 2023 of $176,187. For the three months ended June 30, 2024, compared to the same period in 2023, this represented a decrease of $168,654 or 96%. The other expense for the three months ended June 30, 2024 and 2023 was primarily the result of interest expense. The decrease in the interest expense was due to the notes converting to equity in the first quarter of 2024.
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Comparison of the Six Months Ended June 30, 2024 and 2023
The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023:
| Six Months Ended June 30, 2024 and 2023 |
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | $ | 1,997,435 | $ | 1,015,506 | $ | 981,929 | 97 | % | ||||||||
| Research and development | 479,561 | 236,072 | 243,489 | 103 | % | |||||||||||
| Professional fees | 1,221,072 | 440,165 | 780,907 | 177 | % | |||||||||||
| Total operating expenses | 3,698,068 | 1,691,743 | 2,006,325 | 119 | % | |||||||||||
| Loss from operations | (3,698,068 | ) | (1,691,743 | ) | (2,006,325 | ) | (119 | )% | ||||||||
| Other expense | (635,881 | ) | (228,165 | ) | (407,716 | ) | 179 | % | ||||||||
| Net loss before provision for income taxes | (4,333,949 | ) | (1,919,908 | ) | (2,414,041 | ) | 126 | % | ||||||||
| Provision for income taxes | — | — | — | NA | ||||||||||||
| Net loss | $ | (4,333,949 | ) | $ | (1,919,908 | ) | $ | (2,414,041 | ) | 126 | % | |||||
Operating Expenses
Our operating expenses consist of general and administrative expenses, research and development expenses and professional fees.
General and Administrative Expenses
We incurred general and administrative expenses for the six months ended June 30, 2024 and 2023 of $1,997,435 and $1,015,506, respectively. For the six months ended June 30, 2024, compared to the same period in 2023, this represented an increase of $981,929, or 97%, primarily as a result of increases of $311,596 in compensation expenses, an increase of $139,905 marketing expenses, an increase of $208,648 in D&O insurance, an increase of $150,120 in IPO fees, and an increase of $151,971 in stock-based compensation expense.
Research and Development Expenses
We incurred research and development expenses for the six months ended June 30, 2024 and 2023 of $479,561, and $236,072, respectively. For the six months ended June 30, 2024, compared to the same period in 2023, this represented an increase of $243,489, or 103%, with the details set forth in the table below:
| Six Months Ended June 30, 2024 and 2023 |
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Consultant | $ | 137,390 | $ | 23,300 | $ | 114,090 | 490 | % | ||||||||
| Lab Gas | 1,452 | — | 1,452 | NA | ||||||||||||
| Lab Cell Storage | 51,398 | 17,753 | 33,645 | 190 | % | |||||||||||
| Chemistry Manufacturing and Controls (“CMC”) | 169,617 | — | 169,617 | NA | ||||||||||||
| IP Services | 119,704 | 195,019 | (73,315 | ) | (39 | )% | ||||||||||
| Total | $ | 479,561 | $ | 236,072 | $ | 243,489 | 103 | % | ||||||||
The Company incurred higher research and development expenses for the six months ended June 30, 2024, as compared to the corresponding period in 2023 primarily as a result of an increase in CMC services of $169,617.
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Professional Fees
We incurred professional expenses for the six months ended June 30, 2024 and 2023 of $1,221,072 and $440,165, respectively. For the six months ended June 30, 2024, compared to the same period in 2023, this represented an increase of $780,907, or 177%, as a result of higher auditing and legal expenses associated with the Company operating as a public company since February 2024.
Other (Expense) Income
We incurred other expense for the six months ended June 30, 2024 of $635,881 as compared to other expense for the six months ended June 30, 2023 of $228,165. For the six months ended June 30, 2024, compared to the same period in 2023, this represented an increase of $407,716 or 179%. The other expense for the six months ended June 30, 2024 and 2023 consisted of interest expense. The increase in the interest expense was due to the remaining amortization of the debt discount on the Company’s notes being accelerated upon the conversion of the notes to equity upon consummation of the IPO.
Liquidity
Sources of Liquidity and Capital
We are in our early stages of development and growth, without established records of sales or earnings. We will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or emerging growth companies. We have not yet commercialized any products, and we do not expect to generate revenue from product sales of any of our compounds for several years.
Cash totaled $2.4 million and $0.1 million as of June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024 and December 31, 2023, we had an accumulated deficit of approximately $17.9 million and $13.5 million, respectively, and had a working capital deficit of $0.1 million and a working capital deficit $6.4 million, respectively.
Historically, we have funded our operations from a series of cash advances from Chromocell Holdings, licensing arrangements, bridge and note issuances and grants from the National Institutes of Health.
On February 8, 2024, we and certain affiliates of the Representative entered into amendments to the senior secured convertible notes issued to such affiliates of the Representative in the April Bridge Financing and September Bridge Financing to remove the automatic conversion features from such notes (the “Bridge Financing Note Amendments”). Under the Bridge Financing Note Amendments, both notes issued in the April Bridge Financing and the September Bridge Financing had a maturity date of March 1, 2024, and the full principal amount of both notes and any accrued interest thereon was payable solely in cash upon the consummation of the IPO. Both notes had an annual interest rate of eight percent (8%), which accrued daily, and was calculated on the basis of a 360-day year (consisting of twelve 30 calendar day periods).
On February 10, 2024, we entered into a Stock Rescission Agreement with certain affiliates of the Representative (the “Stock Rescission Agreement” and, together with the Bridge Financing Note Amendments, the “Representative Affiliate Transactions”), pursuant to which we rescinded 111,129 shares of our Common Stock held by such affiliates of the Representative and agreed to refund an aggregate of $91,513 paid by such affiliates of the Representative in consideration therefor within 30 days of the effective date of the Stock Rescission Agreement. At June 30, 2024, all such amounts have been paid pursuant to the Representative Affiliate Transactions and there are no remaining obligations thereto.
On February 21, 2024, we completed the IPO and issued 1,100,000 shares of Common Stock at a price of $6.00 per share. The aggregate net proceeds from the IPO were approximately $5.7 million after deducting $0.9 million in underwriting discounts and commissions and offering expenses.
In connection with the completion of the IPO: (A) we effected the Reverse Stock Split, effective as of February 15, 2024 (B) all 600,000 issued and outstanding shares of our Series A Preferred Stock automatically converted into 499,429 shares of Common Stock, (C) principal in the amount of $389,757, along with accrued interest of approximately $28,336 as of February 21, 2024, outstanding under our senior secured convertible notes issued in the April Bridge Financing (after giving effect to the Representative Affiliate Transactions), automatically converted into approximately 87,109 shares of Common Stock, (D) principal in the amount of $197,421, along with accrued interest of $8,169 as of February 21, 2024, outstanding under our senior secured convertible notes issued in the September Bridge Financing (after giving effect to the Representative Affiliate Transactions), automatically converted into approximately 43,385 shares of Common Stock, which includes an additional 549 Bonus Shares issuable as consideration for the September Bridge Financing, (E) we issued 37,500 shares of Common Stock to an investor as consideration for its previous agreement to provide funding that is no longer necessary in connection with the IPO, (F) we effected the Representative Affiliate Transactions, (G) we effected the transactions contemplated by the Holdings Side Letter, and issued an aggregate of 2,600 shares of Series C Preferred Stock to Chromocell Holdings pursuant thereto, and (H) we issued (i) 93,823 shares to a lender holding the Investor Note and (ii) 29,167 shares to one of our directors holding the Director Note in full satisfaction of our obligations thereunder (in the case of (A) through (D) and (H) above, based on the IPO price of $6.00 per IPO Share).
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In addition, certain Selling Stockholders, as identified in the Registration Statement, have agreed to offer for resale of up to an aggregate of 2,969,823 Selling Stockholder Shares to the public. After conversion of the convertible notes or shares of preferred stock, as applicable, the Selling Stockholders, or their respective transferees, pledgees, donees or other successors-in-interest, may sell the Selling Stockholders Shares through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of the Stockholder Shares by the Selling Stockholders.
In July 2024, we entered into a Common Stock Purchase Agreement which provides for a committed equity financing facility of up to an aggregate of $30,000,000 of the shares of Common Stock, to be purchased by the investor at the Company’s direction in its sole discretion, subject to certain limitations set forth in such agreement.
Future Funding Requirements
Our primary use of cash is to fund clinical development, operating expenses and repay accrued liabilities associated with our IPO.
With respect to the Company’s future expected operations expenses, the primary expense drivers will be research and development and management overhead, including costs of being a public company. Of these, it is expected that research and development will be the largest expense and comprise approximately $3.0 million in the twelve months following the IPO, which will be utilized for the furtherance of the Company’s CC8464 and CT2000 programs. We have based the research and development costs on current clinical and pre-clinical trial parameters and expectations on certain existing tax credits, and there is no certainty that the clinical and pre-clinical trial parameters or tax credits available to the Company will remain as they are, which could lead to changes in our research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
We expect to continue to incur significant and increasing expenses and operating losses in connection with our ongoing research and development activities. In addition, with the closing of the IPO, we expect to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future.
Based on our current operating plan, we believe that the net proceeds from the IPO, together with our existing cash, will be sufficient to fund our operations and capital expenses through the end of 2024. However, we have based this estimate on assumptions that may prove to be incorrect, and we could exhaust our capital resources sooner than we expect.
We may also raise additional funding through strategic relationships, public or private equity or debt financings, credit facilities, grants or other arrangements. If such funding is not available or not available on terms acceptable to us, our current development plan and plans for expansion of our general and administrative infrastructure may be curtailed. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights.
The source, timing and availability of any future financing will depend principally upon market conditions. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us to, among other things, delay, scale back or eliminate expenses including some or all of our planned development. There is substantial doubt about our ability to continue as a going concern.
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Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023:
| Six Months Ended June 30, 2024 and 2023 |
| 2024 | 2023 | $ Change |
% Change |
|||||||||||||
| Net cash used in operating activities | $ | (4,944,308 | ) | $ | (366,989 | ) | $ | (4,577,319 | ) | (1,247 | )% | |||||
| Net cash provided by financing activities | 7,253,015 | 393,808 | 6,859,207 | 1,742 | % | |||||||||||
| Net increase (decrease) in cash | $ | 2,308,707 | $ | (26,819 | ) | $ | 2,281,888 | (8,508 | )% | |||||||
Net Cash Used in Operating Activities
For the six months ended June 30, 2024, we incurred a net loss of $4,333,949, and net cash flows used in operating activities was $4,944,308. The cash flow used in operating activities was primarily due to a net loss of $4,333,949, offset by stock-based compensation expense of $751,530, amortization of debt discount of $605,630, a change in account payable and accrued expense of $1,481,113, change in prepaid expenses of $158,102, a decrease of $45,786 in due from Chromocell Corporation, and an increase in accrued compensation in the amount of $282,518.
For the six months ended June 30, 2023, we incurred a net loss of $1,919,908, and net cash flows used in operating activities was $366,989. The cash flow used in operating activities was primarily due to a net loss of $1,919,908, offset by stock-based compensation expense of $599,559, amortization of debt discount of $49,122, $126,000 in issuance cost from shares issued on extension of bridge loan, a change in account payable and accrued expense of $548,297, and an increase in accrued compensation in the amount of $229,941.
Net Cash (Used in) Provided by Investing Activities
The Company neither received nor used cash in investing activities during the six months ended June 30, 2024 and 2023.
Net Cash Provided by Financing Activities
For the six months ended June 30, 2024, net cash flows provided by financing activities were $7,253,015 resulting from net proceeds from common stock issued for cash of $5,972,000, proceeds from loans of $1,587,284, partially offset by payment of recission on stock of $91,512 and payments on loans of $214,757.
For the six months ended June 30, 2023, net cash flows provided by financing activities were $393,808, consisting of cash received from net proceeds from the issuance of notes in the amount of $393,808.
Off-Balance Sheet Arrangements
During the three and six months ended June 30, 2024 and 2023, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.
Critical Accounting Estimates
The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
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See Note 3 – Summary of Significant Accounting Policies to the accompanying financial statements for a detailed description of our significant accounting policies.
Income Taxes
We are subject to income taxes in the U.S. Significant judgment is required in determining income tax expense, deferred taxes and uncertain tax positions. The underlying assumptions are also highly susceptible to change from period to period. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all the deferred tax assets will be realized. The ultimate realization of deferred taxes assets is dependent upon generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxable income in carryback years and tax-planning strategies when making this assessment. There is currently significant negative evidence which contributes to our recording a valuation allowance against our deferred tax assets due to cumulative losses since inception.
Although we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date. Adjustments to income tax expense, to the extent we establish a valuation allowance or adjust the allowance in a future period, could have a material impact on our financial condition and results of operations.
Recently Issued and Adopted Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in the Accounting Standards Codification (“ASC”). There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact on our financial statements.
Other accounting standards that have been issued or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. Other than below, management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual periods beginning after December 15, 2024. The Company is currently evaluating the timing and impacts of adoption of this ASU.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
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 controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Based on the evaluation of our disclosure controls and procedures as of June 30, 2024, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective.
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Management identified the following material weaknesses:
| 1. | We lack the necessary corporate accounting resources to maintain adequate segregation of duties. Such a lack of segregation of duties is typical in a company with limited resources. | |
| 2. | We lack the ability to provide multiple levels of review in connection with the financial reporting process, which means that we cannot ensure that we are meeting certain financial reporting and transaction processing controls standards. | |
| 3. | We lack the necessary internal IT infrastructure to ensure proper IT general controls. Additionally, we are reliant on third-party software for our financial systems and cannot ensure there are no vulnerabilities in these systems. |
Changes in Internal Controls
With the completion of the IPO, the Company has begun instituting controls and procedures that we expect will demonstrably improve the effectiveness of the Company’s disclosure controls and procedures in upcoming reporting periods.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of our management, would have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputation harm, and other factors.
On February 14, 2024, our board of directors received a demand letter from an attorney representing Chromocell Holdings and our former Chief Executive Officer and former Chief Strategy Officer, Mr. Christian Kopfli, who was released for “cause” as disclosed elsewhere in this Report. Mr. Kopfli alleges an improper termination for “cause” and seeks monetary damages in the amount of $479,169. Of the $479,169 asserted by Mr. Kopfli, as of June 30, 2024, the Company has accrued $363,091 in compensation expenses associated with Mr. Kopfli’s prior employment with the Company. To the extent Mr. Kopfli is successful in his assertions, we will pay any amounts owed thereunder from future working capital reserves. However, the Company believes the assertions made by Mr. Kopfli are without merit and commenced a lawsuit against Mr. Kopfli and Chromocell Holdings in the Supreme Court for the State of New York, County of New York on June 7, 2024 (Index No. 652917/2024, the “New York Action”) which asserts causes of action against Mr. Kopfli for breach of the Employment Agreement entered into on January 10, 2023 between the Company and Mr. Kopfli and breach of fiduciary duty by Mr. Kopfli. The Company seeks monetary damages against Mr. Kopfli in the New York Action, plus disgorgement of all compensation previously paid or accrued to Mr. Kopfli by the Company.
On April 9, 2024, we received correspondence notifying us of an Entry of Default Notice, filed on April 8, 2024, against “Chromocell Corporation d/b/a Chromocell Therapeutics” in the matter New Jersey Economic Development Authority v. Chromocell Corporation, et al. (Docket No. MER-L-001748-23). The complaint filed by the New Jersey Economic Development Authority (the “EDA”) on September 12, 2023 in the Superior Court of New Jersey Law Division, Mercer County, alleges Chromocell Holdings’ (not the Company’s) breach of a Settlement Agreement between the EDA and Chromocell Holdings, dated December 31, 2022 (the “Settlement Agreement”), pursuant to which EDA and Chromocell Holdings agreed that Chromocell Holdings would (i) vacate the premises located at 671 US Highway One South, North Brunswick, New Jersey, on or before December 31, 2023, (ii) pay an initial lump-sum payment of $10,000 toward outstanding rent and provide a copy of its IPO Registration Statement and (iii) make a final one-time lump sum payment to the EDA of $510,700.62 to satisfy Chromocell Holdings’ outstanding rent and additional rent obligations within 90 days of Chromocell Holdings’ executing the Settlement Agreement or within 15 days of Chromocell Holdings’ IPO, whichever was the first to occur. The complaint alleges Chromocell Holdings’ breach of each of these provisions of the Settlement Agreement and seeks a judgment for the entire amount allegedly due and owing as of September 12, 2023 ($510,700.62), compensatory damages, pre-judgment interest, attorney’s fees, costs of suit and such other and further relief as the court deems just and proper. Besides including “Chromocell Therapeutics” in the case caption, the complaint does not include allegations related to any action purportedly taken by the Company. While the complaint appears to concern a matter between Chromocell Holding and EDA, the Company steadfastly believes it was inappropriately named as a defendant and filed motions to vacate the Entry of Default and have “Chromocell Therapeutics” dismissed from the matter on April 24, 2024. The complaint filed by the EDA was dismissed on May 24, 2024.
On July 31, 2024, the Company received a demand letter from an attorney representing Parexel International (IRL) Limited (“Parexel”). The letter, which was addressed to both the Company and Chromocell Holdings, purports to be a notice of default of the Promissory Note between Chromocell Holdings and Parexel and seeks the payment of allegedly unpaid principal in the amount of $682,551.49 plus interest exceeding $177,000. The Company denies that it is liable for any of the amounts sought by Parexel; the Company is not a party to the Promissory Note and does not believe it is liable for any amounts allegedly due thereunder. The Company intends to defend itself vigorously in the matter.
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Item 1A. Risk Factors
As a smaller reporting company, the Company is not required to include the disclosure required under this Item 1A.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
The Board of the Company appointed Francis Knuettel II as a member of the Board, effective August 12, 2024, to fill an existing vacancy on the Board. Mr. Knuettel will serve on the Board until the next annual meeting of stockholders of the Company and until his successor is elected and qualified, or otherwise, until his earlier death, resignation or removal in accordance with the Company’s bylaws.
Mr. Knuettel, 58, will continue in his roles as the Company’s Chief Executive Officer and President, Chief Financial Officer, Treasurer and Secretary. Biographical information about Mr. Knuettel is contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 16, 2024 (the “Annual Report”).
There are no arrangements or understandings between Mr. Knuettel and any other persons pursuant to which he was appointed as a member of the Board. He also advised the Company that he has no family relationships with any director, executive officer or any person nominated or chosen by the Company to become a director or executive officer of the Company. Except as disclosed in the Annual Report, there are no related party transactions involving Mr. Knuettel or any member of his immediate family required to be disclosed pursuant to Item 404(a) of Regulation S-K.
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Item 6. Exhibits
* The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. Certain information contained in this Exhibit has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both not material and is the type of information that the Company treats as private or confidential.
In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Chromocell Therapeutics Corporation | ||
| Date: August 13, 2024 | By: | /s/ Francis Knuettel II |
| Name: Francis Knuettel II | ||
Title: Chief Executive Officer and President, Chief Financial Officer, Treasurer and Secretary (Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer) | ||
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