7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 |
(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 |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
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☒ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 12, 2024, the registrant had
1
Table of Contents
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Page |
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
3 |
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3 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
4 |
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5 |
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6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 |
Item 3. |
43 |
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Item 4. |
43 |
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PART II. |
OTHER INFORMATION |
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Item 1. |
44 |
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Item 1A. |
45 |
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Item 2. |
45 |
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Item 3. |
45 |
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Item 4. |
45 |
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Item 5. |
45 |
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Item 6. |
45 |
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47 |
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2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
PEAK BIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30 |
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December 31 |
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2024 |
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2023 |
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(Unaudited) |
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Assets |
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Current assets |
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Cash |
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$ |
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$ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Restricted cash |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities and deficit |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Operating lease liability |
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Insurance financing note |
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Derivative liability |
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Promissory note |
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Convertible notes |
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Convertible notes, related party |
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Related party loans |
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Total current liabilities |
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Promissory note |
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Other noncurrent liabilities |
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Total liabilities |
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Stockholders' Deficit |
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Preferred stock, $ |
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Common stock, par value of $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
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Accumulated other comprehensive income |
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Total stockholders' deficit |
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( |
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( |
) |
Total liabilities and stockholders' deficit |
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$ |
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$ |
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See accompanying notes to the unaudited condensed consolidated financial statements.
3
PEAK BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
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For the Three Months Ended, |
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For the Nine Months Ended, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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Grant revenue |
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$ |
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$ |
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$ |
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$ |
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Total revenue |
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Operating expenses |
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Research and development |
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General and administrative |
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Impairment loss on operating right-of-use asset |
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Total operating expenses |
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Operating loss |
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( |
) |
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( |
) |
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( |
) |
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( |
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Other income (expense) |
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Interest income |
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Interest expense |
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( |
) |
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( |
) |
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( |
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( |
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Change in fair value of warrant liability |
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Change in fair value of derivative liability |
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( |
) |
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Other income |
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Cancellation of trade liability |
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Gain on extinguishment of termination of lease |
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Loss on extinguishment of related party debt |
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( |
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Total other income (expense), net |
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( |
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Net income (loss) |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Other comprehensive income (loss): |
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Foreign currency translation |
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Total comprehensive loss |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Basic weighted average shares outstanding |
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Basic net income (loss) per share |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Basic and diluted weighted average shares outstanding |
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Basic and diluted net income (loss) per share |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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See accompanying notes to the unaudited condensed consolidated financial statements.
4
PEAK BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
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Common Stock |
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Shares |
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Amount |
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Additional Paid-In Capital |
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Accumulated |
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Accumulated Deficit |
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Total Stockholders' |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Issuance of common stock under White Lion Purchase Agreement as a financing fee |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance, March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Issuance of common stock upon exercise of April 2023 Convertible Note Warrants |
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— |
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— |
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Capital Contribution from the Extinguishment of Ignyte Sponsor Promissory Note |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance, June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Issuance of common stock under White Lion Purchase Agreement |
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— |
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— |
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Issuance of common stock upon exercise of April 2023 Convertible Note Warrants |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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Balance, September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Balance, December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance, March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance, June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Foreign currency translation |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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Balance, September 30, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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See accompanying notes to the unaudited condensed consolidated financial statements.
5
PEAK BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Nine Months Ended |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
) |
Adjustment to reconcile net loss to net cash used in operating activities |
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Share-based compensation |
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Depreciation |
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Accretion of discount on convertible notes payable |
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Change in fair value of warrant liability |
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( |
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Change in fair value of derivative liability |
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( |
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Gain on extinguishment of termination of lease |
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( |
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Loss on extinguishment of related party debt |
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Cancellation of trade liability |
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( |
) |
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Issuance of shares for financing fee |
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Impairment loss on operating right-of-use-asset |
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Loss on disposal of equipment |
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Amortization of right-of-use lease asset |
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Changes in operating assets and liabilities |
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Prepaid expenses and other current assets |
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Other noncurrent asset |
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( |
) |
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( |
) |
Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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Operating lease liability |
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Other noncurrent liabilities |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
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( |
) |
Cash flows from investing activities |
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Sale of property and equipment |
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Net cash provided by investing activities |
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Cash flows from financing activities |
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Proceeds from issuance of common shares |
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Proceeds from exercise of warrants |
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Proceeds from issuance of April 2023 Convertible Notes, net of issuance costs |
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Proceeds from issuance of December 2023 Convertible Notes, net of issuance costs |
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Proceeds from issuance of May 2024 Convertible Notes, net of debt issuance costs |
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Repayment of Insurance Financing Note |
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( |
) |
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( |
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Proceeds from Founder Loans |
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Proceeds from Secured Founder Loan |
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Net cash provided by financing activities |
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Net decrease in cash |
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( |
) |
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Effect of exchange rate changes on cash |
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( |
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Cash and restricted cash, beginning of year |
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Cash and restricted cash, end of year |
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$ |
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$ |
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Components of cash, cash equivalents and restricted cash |
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Cash |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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Supplemental disclosures of non-cash financing activities: |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for taxes |
|
$ |
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$ |
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Non-cash investing and financing activities: |
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||
Exchange of April 2023 Convertible Note for December 2023 Convertible Note |
|
$ |
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$ |
|
||
Issuance of Promissory Note for Palo Alto Lease |
|
$ |
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|
$ |
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||
Exchange of related party loans for convertible notes, related party |
|
$ |
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$ |
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Fair value of warrants issued with convertible notes, related party |
|
$ |
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$ |
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Fair value of warrants issued with convertible notes |
|
$ |
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|
$ |
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||
Fair value of derivative issued with convertible notes |
|
$ |
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$ |
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||
Fair value of warrants exercised and reclassified to additional paid in capital |
|
$ |
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$ |
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||
See accompanying notes to the unaudited condensed consolidated financial statements.
6
PEAK BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Peak Bio, Inc., together with its fully-owned subsidiaries, Peak Bio Co. Ltd (“Peak Bio Ltd”) and Peak Bio CA, Inc. (the “Company” or “Peak Bio”), is a clinical-stage biotechnology company focused on discovering, developing and delivering innovative therapies for multiple therapeutic areas. The Company has established a portfolio of potential therapies focused on cancer and immunological diseases. The Company’s pipeline includes the PH-1 ADC Platform for oncology, PHP-303 program for genetic disease, liver disease and inflammation, specifically for Alpha-1 antitrypsin deficiency (AATD) and acute respiratory distress syndrome (ARDS) including COVID-19.
Akari Merger Agreement
On March 4, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Akari Therapeutics, Plc, a public company limited by shares incorporated in England and Wales (“Akari”), and Pegasus Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Akari (“Merger Sub”), pursuant to which, Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Akari.
Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of the Company’s Common Stock will be converted into the right to receive Akari American Depositary Shares (“Akari ADSs”) representing a number of Akari ordinary shares, par value $
At the Effective Time, each warrant and option to purchase capital stock of the Company outstanding immediately prior to the Effective Time will be exchanged for a warrant or option to purchase a number of Akari ordinary shares or Akari ADSs, as determined by Akari, based on the Exchange Ratio.
Either the Company or Akari may terminate the Merger Agreement under certain circumstances, including if (i) the Merger is not completed by December 2, 2024, (ii) the other party's board of directors withdraws, modifies or qualifies its recommendation in favor of the transactions contemplated by the Merger Agreement or approves or recommends an alternative transaction or (iii) Akari’s or the Company’s board of directors, as applicable, resolves to enter into a definitive agreement with respect to a superior proposal prior to obtaining approval of the Akari ADS issuance or Merger, as applicable, from Akari’s shareholders or Company’s stockholders, as applicable. The Merger Agreement also provides that under certain specified circumstances of termination described in the Merger Agreement, Akari or the Company, as applicable, will be required to pay a termination fee equal to $
Voting Agreements
Concurrently with the Merger Agreement, the Company and Akari entered into voting and support agreements (the “Voting Agreements”) with certain stockholders of the Company (the “Peak Stockholders”) and certain shareholders of Akari (the “Akari Shareholders” and, together with the Peak Stockholders, the “Supporting Holders”). The Supporting Holders have agreed to, among other things, vote their shares in favor of the Merger Agreement and the Merger or the issuance of Akari Ordinary Shares in connection therewith, as applicable, in accordance with the recommendation of the respective boards of directors of Peak Bio and Akari.
Risks and Uncertainties
The Company is subject to a number of risks similar to other companies in its industry, including competition from larger pharmaceutical and biotechnology companies, delays in research and development activities due to lack
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of financial resources and dependence on key personnel.
Results of operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond the Company’s control. The Company’s business could be impacted by, among other things, downturns in the financial markets or in economic conditions, inflation, increases in interest rates, and geopolitical instability, such as the military conflicts in Ukraine and the Israel-Hamas war. While the Company has not been impacted by the abovementioned risks and uncertainties to date, the Company cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact the Company’s business.
Going Concern
The Company has incurred net losses since inception, and has an accumulated deficit of $ million as of September 30, 2024. The Company incurred net losses of $
The Company will need additional financing to fund its ongoing activities and to close the Merger with Akari. The Company may raise this additional funding through the sale of equity, debt financing or other capital sources, including potential collaborations with other companies or other strategic transactions and funding under government contracts.
The Company may be unable to raise additional funds or enter into other arrangements when needed on favorable terms, or at all. There can be no assurances that other sources of financing will be available. Due to these uncertainties, there is substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or classification of liabilities that might result from the outcome of the uncertainties discussed above.
On January 6, 2023, the Company received a determination letter (the “Determination Letter”) from the Panel to delist the Company’s common stock and warrants from Nasdaq. Nasdaq suspended trading in Company’s common stock and warrants effective at the open of business on January 10, 2023. Following the suspension from Nasdaq, the Company’s securities are trading on the OTC Markets’ “OTC Pink Market” tier, which in turn impacted the Company's ability to raise capital.
For the nine months ended September 30, 2024, there have been no changes to the significant accounting policies as disclosed in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Consolidated Financial Statements”).
Unaudited Financial Information
The Company’s unaudited condensed consolidated financial statements included herein have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All intercompany balances and transactions have been eliminated in consolidation.
In the Company’s opinion, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the financial position and results of operations for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.
The unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on August 5, 2024 (the “2023 Form 10-K”).
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The accompanying consolidated balance sheet as of December 31, 2023 has been derived from the audited balance sheet as of December 31, 2023 contained in the Company’s 2023 Form 10-K. Results of operations for interim periods are not necessarily indicative of the result of operations for a full year.
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 unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include but are not limited to fair value of the Company’s stock, stock-based compensation expense, warrant liability, derivative liability, and discount rates used to establish operating lease liability. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Actual results could differ from those estimates.
Restricted Cash
Restricted cash as of September 30, 2024 and December 31, 2023 consists of $
Impairment of Long-lived Assets
Long-lived assets consist primarily of property and equipment, and operating right-of-use assets. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset is not recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value would be assessed using discounted cash flows or other appropriate measures of fair value.
Net Income (Loss) Per Share
The Company computes basic net income (loss) per share attributable to common stockholders by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities.
The Company computes diluted net income (loss) per share after giving consideration to all potentially dilutive common shares resulting from the exercise of options and warrants and the conversion of convertible notes, outstanding during the period determined using the treasury-stock and if-converted methods, as applicable, except where the effect of including such securities would be antidilutive.
The December 2023 Convertible Notes and the May 2024 Convertible Notes (see Note 9) are contingently convertible notes and are not included for purposes of calculating the number of diluted shares outstanding as the number of dilutive shares is based on a non-market based conversion contingency that had not been met in the reporting periods presented herein.
For the three months ended September 30, 2024, certain convertible notes were included in the calculation of diluted earnings per share.
For the three months ended September 30, 2023, certain convertible notes, and warrants to purchase common stock at an exercise price of $
For the nine months ended September 30, 2024 and 2023, options and warrants were excluded when calculating diluted (loss) income per share because such inclusion would be anti-dilutive for the periods presented. As a result, diluted (loss) income per share is the same as basic (loss) income per share for the periods presented.
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September 30, |
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December 31, |
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2024 |
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2023 |
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Common stock options |
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Common stock warrants |
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April 2023 Convertible Notes convertible into common stock |
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Recently Adopted Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This ASU modified the disclosure and presentation requirements primarily through enhanced disclosures of significant segment expenses and clarified that single reportable segment entities must apply Topic 280 in its entirety. This guidance is effective for the Company for the year beginning January 1, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statement. The Company adopted ASU 2023-07 on January 1, 2024 and the adoption did not have a material effect on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for convertible instruments by removing major separation models required under current U.S. GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for such exception and simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 on January 1, 2024 and the adoption did not have a material effect on the Company’s consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for all public entities for fiscal years beginning after December 15, 2024. Early adoption is permitted and should be applied either prospectively or retrospectively. The Company plans to adopt ASU 2023-09 and related updates on January 1, 2025. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.
There were no other recently issued but not yet effective accounting pronouncements that will have a material effect on the accompanying unaudited condensed consolidated financial statements.
Prepaid and other current assets consist of the following:
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September 30, |
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December 31, |
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2024 |
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2023 |
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Prepaid directors and officers insurance current policies |
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$ |
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$ |
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Prepaid directors and officers insurance run-off policies |
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Other prepaid expenses |
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Other receivables |
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Prepaid and other current assets |
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$ |
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Accrued expenses consist of the following:
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September 30, |
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December 31, |
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2024 |
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2023 |
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Professional Fees |
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$ |
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$ |
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Accrued compensation |
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Other |
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Total accrued expenses |
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$ |
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$ |
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As of September 30, 2024, $
Other noncurrent liabilities of $
The Company’s Long Term Incentive Plan (the “Plan”) became effective on November 1, 2022. Pursuant to the Plan, the stock options shall be granted at an exercise price per share equal to at least the fair market value of the shares of common stock on the date of grant of stock options and would generally have a term of
The following table summarizes the stock option activity:
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Weighted-average exercise price per share |
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Outstanding at December 31, 2023 |
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$ |
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Granted |
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$ |
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Cancelled/Forfeited |
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Exercised |
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Outstanding at September 30, 2024 |
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$ |
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Exercisable at September 30, 2024 |
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$ |
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$ |
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On September 24, 2024, the Company granted options to purchase
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Nine Months Ended September 30, |
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As there has been no public market for the Common Stock since it commenced trading on the OTC Pink Market tier on January 10, 2023, the estimated fair value of Common Stock for purposes of granting equity awards was determined by the Company. The Company determined the estimated fair value of the Common Stock at the time of
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the grant was $
For the August Valuation, the Company used a probability-weighted expected return method, which is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. The Company believed this model was most appropriate given the terms and conditions of the most recent financing.
The August Valuation included material estimates and assumptions. The Company estimated the probability of
The Company accounted for the option grant under ASC 718 as equity-based compensation based on a performance condition. As the performance condition related to the filing of the Form S-8 was deemed not probable both at grant date and September 30, 2024, no expense was recorded for the three and nine months ended September 30, 2024 related to this equity based compensation. As of September 30, 2024, there was an unrecognized compensation cost of $
In February 2023, the Company extended the term of
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2023 |
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For the three months ended September 30, 2024 and 2023, the share-based compensation expense was $
The following table summarizes information related to share-based compensation expense recognized in the unaudited condensed consolidated statements of operations and comprehensive loss related to the equity awards:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Research and development |
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$ |
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$ |
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$ |
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General and administrative |
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Total equity-based compensation |
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$ |
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$ |
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$ |
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On March 1, 2022, the Company and pH Pharma Co., Ltd entered into an administrative services and facilities agreement whereby pH Pharma Co., Ltd would perform services, functions and responsibilities for the Company. Under the agreement, the Company paid pH Pharma Co., Ltd $
On April 1, 2024, the Company and pH Pharma Co., Ltd entered into an administrative services agreement whereby pH Pharma Co., Ltd will perform investor relations services, functions and responsibilities on behalf of the Company in the Republic of Korea. Under the agreement, the Company is obligated to pay pH Pharma Co., Ltd. a one-time fee of $
On August 27, 2024, the Company and the former Interim CEO entered into a Separation and General Release Agreement (the “Separation Agreement”) pursuant to which, in exchange for the consideration set forth in the Separation Agreement and the former Interim CEO’s agreement to serve as a consultant to the Company and forgive all unpaid accrued wages, the
In October 2021, the Company entered into a lease for laboratory and office facilities in Palo Alto, California (the “Palo Alto Lease”). The Palo Alto Lease expires in
In March 2023, the Company vacated, and returned possession of, the premises to the lessor. As a result, the Company recognized a loss of $
On September 17, 2024, the Company entered into a settlement agreement with the landlord pursuant to which the Company agreed to pay $
Rent expense for the three months ended September 30, 2024 and 2023 was $
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respectively. Rent expense for the nine months ended September 30, 2024 and 2023 was $
Interest expense for the three months ended September 30, 2024 and 2023 was $
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of September 30, 2024, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s results of operations. At each reporting period, the Company evaluates known claims to determine whether a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal fees are expensed as incurred.
On August 14, 2024, the Company received from the California Labor Commissioner’s Office notice of a claim submitted by a former employee seeking recovery of unpaid wages, statutory liquidated damages and waiting time penalties in the total amount of approximately $
Bayer Acquisition Agreement
In March 2017, the Company entered into an assignment, license, development and commercialization agreement (the “Bayer Acquisition Agreement”) with Bayer, to acquire from Bayer all right, title and interest in and to PHP-303, including each and every invention and any priority rights relating to its patents.
Under the Bayer Acquisition Agreement, the Company is committed to pay certain development and regulatory milestones up to an aggregate amount of $
Either party may terminate the Bayer Acquisition Agreement upon prior written notice for the other party’s material breach that remains uncured for a specified period of time or insolvency. Bayer agreed not to assert any Bayer intellectual property rights that were included in the scope of the Bayer Acquisition Agreement against the Company.
The Company incurred
Related Party Loans
Founder Loans
In May 2021, the Company received proceeds from a loan in the amount of approximately $
In August 2021, the Company received proceeds from the additional loan in the amount of approximately $
The Company made a $
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As of September 30, 2024 and December 31, 2023, the outstanding balance was $
Secured Founder Loan
In January 2024, the Company received proceeds from a Senior Secured Promissory Note (the “Secured Founder Loan”) in the amount of $
The interest expense on the Secured Founder Loan totaled $
Promissory Note
On November 1, 2022, the Company issued $
On November 1, 2023, the Company entered into an amendment to the November 2022 Convertible Notes whereby the principal amount of the notes was reduced from $
As of September 30, 2024 and December 31, 2023, the outstanding balance on the Promissory Note was $
The interest expense on November 2022 Convertible Note totaled $
On September 17, 2024, the Company issued a secured promissory note for $
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balance on the Promissory Note was $
April 2023 Convertible Notes
On April 28, 2023, the Company entered into separate subscription agreements (the “2023 Convertible Note and Warrant Subscription Agreements”) under which the Company issued the convertible promissory notes in the principal amount of $
In connection with the issuance of the Convertible Notes and the Convertible Note Warrants, in consideration for its services in respect of the financing described above, the Company also issued to Paulson Investment Company, LLC (the “Placement Agent”) a warrant to purchase
The April 2023 Convertible Note Warrants and the Placement Agent Warrants were accounted as a liability under ASC 815, as the April 2023 Convertible Note Warrants and Placement Agent Warrants do not meet the criteria for equity classification due to the lack of available authorized shares. The aggregate fair value of the April 2023 Convertible Note Warrants and the Placement Agent Warrants was $
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The Company determined that the April 2023 Conversion Feature is subject to bifurcation under the guidance in ASC 815 due to the lack of available authorized shares and registration requirements and recognized a derivative liability of $
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At the issuance date, the proceeds from the April 2023 Convertible Notes were allocated to the April 2023 Convertible Note Warrants and the April 2023 Conversion Feature Liability based on their fair values of $
In December 2023, certain holders of April 2023 Convertible Notes agreed to exchange the aggregate amount of $
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In January 2024, additional holders of April 2023 Convertible Notes agreed to exchange the aggregate amount of $
The Company recorded interest expense of $
April 2023 Convertible Notes, related party
On April 28, 2023, the Company entered into a subscription agreement with its founder and director to exchange $
At the issuance date, the carrying value of the April 2023 Convertible Notes was reduced by the fair value of the related April 2023 Convertible Note Warrants and the April 2023 Conversion Feature Liability of $
The Company recorded interest expense of approximately $
December 2023 Convertible Notes
In December, 2023, the Company issued convertible promissory notes in the aggregate principal amount of $
In January and February 2024, the Company completed additional closes of the December 2023 Convertible Notes pursuant to which the Company issued the notes with the principal amount of $
The December 2023 Convertible Notes bear an interest rate of
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public exchange immediately prior to conversion, resulting in 43% discount on the issuance price in the a business combination (the Automatic Discount”). If a business combination does not occur prior to the maturity date of the December 2023 Convertible Notes and if the Company’s Common Stock is listed on a public exchange as of such date, then the holders have the right, at their option, to convert the outstanding principal amount of the December 2023 Convertible Notes (and all accrued and unpaid interest thereof) into the shares of common stock of the Company at a price equal to the 30-day volume weighted average price of the Company’s common stock on the public exchange on which it is traded multiplied by
In consideration for its services in respect of the financing described above, the Company paid Paulson Investment Company, LLC (the “December 2023 Placement Agent”) the commission of $
The Company determined that both the Automatic Conversion Feature and the Optional Conversion Feature are subject to bifurcation under the guidance in ASC 815 as variable-share redemption features at a discount. The Company recognized the total derivative liability of $
At the issuance date, the proceeds from the December 2023 Convertible Notes were allocated to the December 2023 Conversion Feature Liability based on its fair value with the remaining proceeds allocated to the convertible notes. The resulting discount on the December 2023 Convertible Notes was accreted into the interest expense over the term of the convertible notes using the effective interest method. The cash commission to the December 2023 Placement Agent was capitalized and amortized into the interest expense over the term of the convertible notes using the effective interest method.
The Company recorded interest expense of $
December 2023 Convertible Notes, related party
On December 18, 2023, the Company issued a $
At the issuance date, the proceeds from the December 2023 Convertible Notes, related party, were allocated to the December 2023 Conversion Feature Liability based on its fair value of $
The Company recorded interest expense of $
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$
May 2024 Convertible Notes
On May 28, 2024, the Company issued secured convertible promissory notes in the aggregate principal amount of $
On July 12 2024, the Company completed an additional close of the May 2024 Convertible Notes pursuant to which the Company issued the notes with the principal amount of $
The May 2024 Convertible Notes bear an interest rate of
In consideration for its services in respect of the financing described above, the Company paid Paulson Investment Company, LLC (the “May 2024 Placement Agent”) the commission of $
The Company determined that the Automatic Conversion Feature is subject to bifurcation under the guidance in ASC 815 as variable-share redemption features at a discount. The Company recognized the total derivative liability of $
At the issuance date, the proceeds from the May 2024 Convertible Notes were allocated to the May 2024 Conversion Feature Liability based on its fair value with the remaining proceeds allocated to the convertible notes. The resulting discount on the May 2024 Convertible Notes was accreted into the interest expense over the term of the convertible notes using the effective interest method.
The Company recorded interest expense of $
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convertible notes. At September 30, 2024, the outstanding principal balance of the May 2024 Convertible Notes was $
May 2024 Convertible Notes, related party
On May 28, 2024, the Company issued a $
The Company recognized the total derivative liability of $
The Company recorded interest expense of $
Insurance Financing Note
On November 1, 2022, the Company financed its 2022 annual Director & Officer liability insurance policy premium of $
On November 1, 2023, the Company financed its 2023 annual Director & Officer liability insurance policy premium of $
The agreement assigns the Lender a first priority lien on and security interest in the financed policies and any additional premium required in the financed policies including (a) all returned or unearned premiums, (b) all additional cash contributions or collateral amounts assessed by the insurance companies in relation to the financed policies and financed by Lender, (c) any credits generated by the financed policies, (d) dividend payments, and (e) loss payments which reduce unearned premiums. If any circumstances exist in which premiums related to any Financed Policy could become fully earned in the event of loss, Lender shall be named a loss-payee with respect to such policy.
The Company recognized $
Key Company Stockholder Agreements
On April 5, 2023, the Company received notice from its founder and director informing the Company that he would not consummate the purchase of the Key Company Stockholder Forward Purchase Agreement as a result of the Company’s failure to satisfy the condition to be listed on Nasdaq as required by the agreement. As a result, the Company cancelled and retired the
On April 5, 2023, the Company and its Key Company Stockholder entered into a letter agreement to provide for the conversion of up to $
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Stockholder's pro-rata portion of the equity ownership in the Company’s outstanding common stock and would not exceed in the aggregate the amount of the outstanding debt with Key Company Stockholder. On April 28, 2023, the Company entered into a subscription agreement with its founder and director to exchange $
White Lion Common Stock Purchase and Registration Rights Agreements
On November 3, 2022, the Company entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement") and Registration Rights (the “White Lion RRA”) with White Lion Capital, LLC, a Delaware limited liability company (“White Lion”). Pursuant to the White Lion Purchase Agreement, the Company has the right, but not the obligation, to require White Lion to purchase, from time to time, up to $
The Company is obligated under the White Lion Purchase Agreement and the White Lion RRA to file a registration statement with the SEC to register the Common Stock under the Securities Act, for the resale by White Lion of shares of Common Stock that the Company may issue to White Lion under the White Lion Purchase Agreement.
Subject to the satisfaction of certain customary conditions including, without limitation, the effectiveness of a registration statement registering the shares issuable pursuant to the White Lion Purchase Agreement, the Company's right to sell shares to White Lion will commence on the effective date of the registration statement and extend until November 1, 2025. During such term, subject to the terms and conditions of the White Lion Purchase Agreement, the Company may notify White Lion when it exercises its right to sell shares (the effective date of such notice, a “Notice Date”).
The number of shares sold pursuant to any such notice may not exceed (i) the lower of (a) the Purchase Notice Fixed Limit (described below) and (b) the product of (1) the Average Daily Trading Volume (as defined in the White Lion Purchase Agreement), and (2) the applicable Percentage Limit (as defined in the White Lion Purchase Agreement). The Purchase Notice Fixed Limit is $
The applicable Percentage Limit is
The Company will have the right to terminate the White Lion Purchase Agreement at any time after commencement, at no cost or penalty, upon three (3) Trading Days’ prior written notice. Additionally, White Lion will have the right to terminate the White Lion Purchase Agreement upon three (3) days’ prior written notice to the Company if (i) there is a Fundamental Transaction (as defined in the White Lion Purchase Agreement), (ii) the Company is in breach or default in any material respect of the White Lion RRA, (iii) there is a lapse of the effectiveness, or unavailability of, the registration statement for a period of 45 consecutive Trading Days or for more than an aggregate of 90 Trading Days in any 365-day period, (iv) the suspension of trading of the Common Stock for a period of five (5) consecutive Trading Days, (v) the material breach of the White Lion Purchase Agreement by the Company, which breach is not cured within the applicable cure period or (vi) a Material Adverse Effect (as defined
21
in the White Lion Purchase Agreement) has occurred and is continuing. No termination of the White Lion Purchase Agreement will affect the registration rights provisions contained in the White Lion RRA.
In consideration for the commitments of White Lion, as described above, the Company has agreed that it will issue to White Lion shares of Common Stock having a value of $
Concurrently with the execution of the White Lion Purchase Agreement, the Company entered into the White Lion RRA with White Lion in which the Company agreed to register the shares of Common Stock purchased by White Lion with the SEC for resale within 30 days of the consummation of a business combination. The White Lion RRA also contains usual and customary damages provisions for failure to file and failure to have the registration statement declared effective by the SEC within the time periods specified.
The White Lion Purchase Agreement and the White Lion RRA contain customary representations, warranties, conditions and indemnification obligations of the parties. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
The White Lion Purchase Agreement was accounted for as a standby equity purchase agreement under ASC 815 as it includes an embedded put option and an embedded forward option. The put option is recognized on inception and the forward option is recognized upon issuance of notice for the sale of the Company's Common Stock. The fair value of the derivative liability related to the embedded put option (“White Lion Derivative Liability) was estimated at $
In March 2023, the Company entered into an amendment to the White Lion Purchase Agreement to give the Company the right, but not the obligation to require White Lion to purchase shares of the Company's common stock while trading on the OTC Market. Under the terms of the amendment, at an applicable Percentage Limit of
In August 2023, the Company and White Lion entered into a second amendment to the common stock Purchase Agreement (the “Second Amendment”). The Second Amendment includes, among other things, the right of the Company to issue a Purchase Notice (defined in the Second Amendment as an “Accelerated Purchase Notice”) requesting White Lion to purchase newly issued shares of common stock from the Company, subject to acceptance by White Lion, with pricing of the shares to be sold by the Company to White Lion under such Accelerated Purchase Notice determined on the date of issuance by the Company of the Accelerate Purchase Notice and acceptance by White Lion (the date of such notice defined as the “Accelerated Valuation Period”). Such accelerated purchases pursuant to an Accelerated Purchase Notice will be sold to White Lion at a price, defined as an “Accelerated Purchase Price,” equal to the lower of (i) the opening price of common stock during the Accelerated Valuation Period, (ii) the closing price of the common stock during Accelerated Valuation Period, or (iii) the volume weighted average price of the common stock during Accelerated Valuation Period; provided, however, that if at the time the Company delivers an Accelerated Purchase Notice to Investor the price of the common stock is lower than the opening price of the common stock during the Accelerated Valuation Period, the Accelerated Purchase Price will be discounted by
22
In addition, in the event the Company does not issue Purchase Notices (as defined in the White Lion Purchase Agreement) to White Lion providing for the purchase of at least $
During the three months ended September 30, 2023, the Company issued an aggregate of
As at September 30, 2024 and December 31, 2023, the Company had no outstanding purchase notices issued to White Lion.
Public Warrants
In November 2022, upon consummation of the Business Combination, the Company assumed
The Company may call the warrants for redemption:
If the Company calls the warrants for redemption as described above, the Company’s management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the
23
warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” for this purpose shall mean the average reported last sale price of the shares of common stock for the 5 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
There were no exercises or forfeitures of the Public Warrants during the three and nine months ended September 30, 2024.
Private Placement Warrants
In November 2022, upon consummation of the Business Combination, the Company assumed
The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants were non-redeemable and may be exercised on a cashless basis, in each case so long as they continue to be held by the initial purchasers or their permitted transferees.
The Private Placement Warrants were accounted for under ASC 815, pursuant to which the Private Placement Warrants do not meet the criteria for equity classification and must be recorded as liabilities. The Private Placement Warrants were valued using the Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement, as there was no observable market for the Private Placement Warrants and was determined based on significant inputs not observable in the market.
The following weighted average assumptions were used in determining the fair value of the Private Placement Warrants at September 30, 2024:
|
September 30, |
|
||
|
|
2024 |
|
|
Expected volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Expected term (in years) |
|
|
|
|
Expected dividend yield |
|
|
% |
|
There were no exercises or forfeitures of the Private Placement Warrants three and nine months ended September 30, 2024.
April 2023 Convertible Note Warrants
On April 28, 2023, in connection with the April 2023 Convertible Notes and April 2023 Convertible Notes, related party, the Company issued
On June 22, 2023, the founder and director exercised
On July 20, 2023, the founder and director exercised
On August 14, 2023, Company's founder and director exercised
24
exercise dates was $
On November 1, 2023, the remaining
The summary of the Company's outstanding common stock warrants at September 30, 2024 is as follows:
Description |
|
Number of Warrants |
|
|
Exercise price per share |
|
|
Expiration Date |
||
Private Placement Warrants |
|
|
|
|
$ |
|
|
|||
Public Warrants |
|
|
|
|
$ |
|
|
|||
April 2023 Convertible note warrants |
|
|
|
|
$ |
|
|
|||
April 2023 Convertible note warrants, related party |
|
|
|
|
$ |
|
|
|||
Total |
|
|
|
|
|
|
|
|
||
The Company believes the carrying amounts of its cash, accounts payable and accrued expenses, and debt balances approximate their fair values due to their near-term maturities. There were no transfers among Level 1, Level 2 or Level 3 categories.
The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy
|
|
Fair Value Measurement at September 30, 2024 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|||
Derivative liability |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
Less than $ |
|
|
|
|
|
|
|
|
Less than $ |
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Fair Value Measurement at December 31, 2023 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|||
Derivative liability |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
Less than $ |
|
|
|
|
|
|
|
|
Less than $ |
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The table below presents the changes in Level 3 liabilities (assets) measured at fair value on a recurring basis during the three months ended September 30, 2024 and 2023:
25
|
White Lion Derivative Liability |
|
Key Company Stockholder Forward Liability (Asset) |
|
Private Placement Warrants Liability |
|
November 2022 Convertible Note Liability |
|
April 2023 Conversion Feature Liability |
|
April 2023 Convertible Notes Warrants Liability |
|
December 2023 Conversion Feature Liability |
|
May 2024 Conversion Feature Liability |
|
||||||||
Balance at January 1, 2023 |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
Change in fair value |
|
( |
) |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
||||||
Balance at March 31, 2023 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Inception Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Capital Contribution to Equity on Exercise of Warrants |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||||||
Change in fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at June 30, 2023 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Capital Contribution to Equity on Exercise of Warrants |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||||||
Change in fair value |
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
|
|
|
||||||
Balance at September 30, 2023 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at January 1, 2024 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Issuance of December 2023 Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Change in fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at March 31, 2024 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Issuance of May 2024 Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Change in fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at June 30, 2024 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Issuance of May 2024 Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Change in fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
||||||
Balance at September 30, 2024 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
White Lion Derivative Liability
The White Lion Derivative Liability is valued using Monte Carlo simulation model and a such is considered to be a Level 3 fair value measurement, as the fair value was determined based on significant inputs not observable in the market. The significant unobservable inputs used to determine the fair value were the projected volume weighed average share price at each trading date and the use of the maximum draw down potential. The fair value of the White Lion Derivative Liability at September 30, 2023 of $
The following weighted average assumptions were used in determining the fair value of the White Lion Purchase Agreement at September 30, 2024 and 2023:
|
|
September 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Stock Price |
|
$ |
|
|
$ |
|
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Discount related to the probability of timely filing all SEC documents and meeting the NASDAQ listing requirements |
|
|
% |
|
|
% |
||
Expected dividend yield |
|
|
% |
|
|
% |
||
26
April 2023 Convertible Note Warrants and Placement Agent Warrants
The April 2023 Convertible Note Warrants and Placement Agent Warrants were accounted as a liability at the issuance date and were fair valued using a Black Scholes Option Pricing Model, and is considered to be a Level 3 fair value measurement, as the fair value of the instruments was determined based on significant inputs not observable in the market. On November 1, 2023, all outstanding April 2023 Convertible Note Warrants were reclassified from liability into equity (see Note 10).
The fair value of the April 2023 Convertible Note Warrants at the reclassification date was based on the following assumptions:
|
|
|
||
|
|
|
|
|
Stock price |
|
|
$ |
|
Expected volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Expected term (in years) |
|
|
|
|
Expected dividend yield |
|
|
% |
|
Private Placement Warrants
The fair value of the Private Placement Warrants was estimated using a Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement, as the fair value was determined based on significant inputs not observable in the market. The fair value of the Private Placement Warrants at both September 30, 2024 and September 30, 2023 was $
The fair value of the Private Placement Warrants was based on the following assumptions:
|
|
September 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Stock Price |
|
$ |
|
|
$ |
|
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Expected term (in years) |
|
|
|
|
|
|
||
Expected dividend yield |
|
|
% |
|
|
% |
||
April 2023 Conversion Feature Liability
On January 1, 2024, on adoption of ASU 2020-06, the April 2023 Conversion Feature Liability met the derivative accounting scope exception and the conversion feature no longer required bifurcation form the April 2023 Convertible Notes and 2023 April 2023 Convertible Notes, related party. On January 1, 2024, the fair value of the fair value of the April 2023 Conversion Feature Liability was $
December 2023 Conversion Feature Liability
The fair value of the December 2023 Conversion Feature Liability was estimated based on the probability weighted settlement scenarios, which is considered to be a Level 3 fair value measurement, as the fair value was determined based on significant inputs not observable in the market.
At September 30, 2024, the fair value of the derivative liability related to the Optional Conversion Feature was deemed immaterial as the probability that the Company is listed on a public exchange in absence of a business combination prior to the maturity of the December 2023 Convertible Notes was deemed minimal.
27
May 2024 Conversion Feature Liability
Government grants
The Company has one active government grant with the Department of Defense, US Army Medical Research Acquisition Activity. This grant is for work on a COVID-19 therapeutic with a potential of $
For the nine months ended September 30, 2024 and 2023, grant revenue of $
The Company did
On November 1, 2024, the Company entered into a Multi-Party Repayment and General Release Agreement with a former non-executive employee who after his resignation served as the Company’s consultant. Under the terms of the agreement, the parties agreed on a repayment plan of $
On November 1, 2024, the Company entered into a Repayment and General Release agreement with a former non-executive employee under which the parties agreed on a repayment plan of $
On November 1, 2024, the Company entered into a Repayment agreement with a executive employee under which the parties agreed on a repayment plan of $
28
29
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of Peak Bio’s financial condition and results of operations together with Peak Bio’s unaudited interim condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2023. Certain of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to plans and strategy for Peak Bio’s business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors” of this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2023, Peak Bio’s actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from Peak Bio’s forward-looking statements. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Unless otherwise indicated or the context otherwise requires, references in this Peak Bio’s Management’s Discussion and Analysis of Financial Condition and Results of Operations section to “Peak Bio,” “we,” “us,” “our” and other similar terms refer to Peak Bio Co., Ltd prior to the Ignyte Business Combination and to Peak Bio, Inc. and its consolidated subsidiaries after giving effect to the Business Combination.
Overview
Peak Bio is a clinical-stage biopharmaceutical company focused on developing therapeutics addressing significant unmet need in the areas of oncology, inflammation and rare diseases. Our management team has a combined 50 years of industry experience in the areas of small molecules, antibodies, and antibody-drug-conjugates (ADC).
With our current strategic focus, we have leveraged two decades of industry learning in the antibody-drug-conjugate (ADC) field to develop a platform of proprietary technologies that enable us to design ADCs to have improved efficacy, safety, and tolerability relative to existing antibody or ADC therapies. Our most advanced platform, PH-1 or Thailanstatin is being used to generate a pipeline of proprietary ADC product candidates to address patient populations with improved efficacy relative to traditional ADC-based therapies. Our second product candidate is an ADC targeting Trop2, an antigen broadly expressed in solid tumors. We expect our Trop2 ADC to enter clinical development by late 2024. Our Trop2 ADC and other undisclosed discovery-stage product candidates are based on our proprietary PH-1 platform of toxin payloads targeting RNA splicing.
Despite commercial success of the ADCs currently on the market, there continues to be a need for ADCs that not only deliver antibody-directed payloads selectively to their tumors, but to also release them safely via improved linker technology and avoid off- target toxicities. Secondly, we believe that adding an immunomodulatory effect to our toxin(s) that engages our immune systems to assist in the cancer killing would contribute to improved tumor killing.
Our lead product candidate for which we are seeking a strategic partner for, PHP-303 is a small molecule, 5th generation Phase 2 clinical-ready neutrophil elastase (NE) inhibitor (NEI). We are planning a Phase 2 clinical study in Alpha-1 anti-trypsin deficiency (AATD) patients. We have completed two Phase 1 trials of PHP-303 in healthy volunteers testing higher doses of PHP-303 by single-ascending dose (SAD) and multiple-ascending dose (MAD). PHP-303 demonstrated dose- dependent pharmacokinetics and the recommended Phase 2 dose was achieved in these trials. A maximum tolerated dose for PHP-303 was not achieved in these Phase 1 trials.
We do not have any products available for commercial sale, and we have not generated any product revenue from our portfolio of product candidates. Our ability to generate revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of our potential therapies, which we expect, if it ever occurs, will take a number of years. The research and development efforts require significant amounts of additional capital and adequate personnel infrastructure. There can be no assurance that our research and development activities will be successfully completed, or that our potential therapies will be commercially viable.
We have incurred significant losses since the commencement of our operations. Our net loss was $2.8 million for the nine months ended September 30, 2024 and $12.8 million and $13.1 million for the years ended December 31, 2023 and 2022, respectively. We expect to incur significant expenses and operating losses for the foreseeable future as we continue our efforts to identify product candidates and seek regulatory approvals within our portfolio.
30
We will need additional financing to fund our ongoing activities and to close the Merger with Akari (defined below). We may raise this additional funding through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions and funding under government contracts.
We may be unable to raise additional funds or enter into other arrangements when needed on favorable terms, or at all. There can be no assurances that other sources of financing will be available. Due to these uncertainties, there is substantial doubt about our ability to continue as a going concern.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or classification of liabilities that might result from the outcome of the uncertainties discussed above.
Recent Developments
Akari Merger
On March 4, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Akari Therapeutics, Plc, a public company limited by shares incorporated in England and Wales (“Akari”), and Pegasus Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Akari (“Merger Sub”), pursuant to which, upon the terms and subject to the conditions thereof, Merger Sub will be merged with and into Peak Bio (the “Merger”), with Peak Bio surviving the Merger as a wholly-owned subsidiary of Akari.
Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of Common Stock (other than (x) shares of Common Stock held by us as treasury stock, or shares of Common Stock owned by Akari, Merger Sub or any direct or indirect wholly-owned subsidiaries of Akari and (y) Dissenting Shares (as defined in the Merger Agreement)), will be converted into the right to receive Akari American Depositary Shares (“Akari ADSs”) representing a number of Akari ordinary shares, par value $0.0001 per share (the “Akari Ordinary Shares”), equal to an exchange ratio calculated in accordance with the Merger Agreement (the “Exchange Ratio”), each such share duly and validly issued against the deposit of the requisite number of Akari Ordinary Shares in accordance with the Deposit Agreement (as defined in the Merger Agreement). The Exchange Ratio will be calculated such that the total number of shares of Akari ADSs to be issued as merger consideration for the Peak Common Stock will be expected to be, upon issuance, approximately 50% of the outstanding shares of Akari ADSs (provided, certain adjustments to this ratio will be made in respect of the net cash, as determined in accordance with the Merger Agreement, of each of Peak Bio and Akari at the close of business one business day prior to the anticipated consummation of the Merger). The Merger Agreement provides that, under certain circumstances, additional Akari ADSs may be issued to the holders of shares of Peak Common Stock following the consummation of the Merger equal to an exchange ratio calculated in accordance with the Merger Agreement (the “Additional Exchange Ratio”).
At the Effective Time, each warrant to purchase capital stock of Peak Bio (“Peak Warrant”) outstanding immediately prior to the Effective Time will be converted into and exchangeable for warrants to purchase a number of Akari Ordinary Shares or Akari ADSs, as determined by Akari (each, an “Adjusted Warrant”), on substantially similar terms and subject to substantially similar conditions as were applicable to such Peak Warrant immediately prior to the Effective Time, except (i) for terms rendered inoperative by reason of the transactions contemplated by the Merger Agreement, (ii) as provided in the following sentence and (iii) such amendments to the terms of the Adjusted Warrants as are necessary to comply with applicable Law (as defined in the Merger Agreement). The number of Akari Ordinary Shares (or the number of Akari Ordinary Shares underlying Akari ADSs, as applicable) subject to each Adjusted Warrant will be equal to the number of shares of Peak Common Stock issuable upon exercise of such Peak Warrant immediately prior to the Effective Time multiplied by the Exchange Ratio, with any fractional Akari Ordinary Shares or Akari ADSs rounded down to the nearest whole Akari Ordinary Share or Akari ADS, as applicable, and the exercise price with respect to each Akari Ordinary Share (or each Akari Ordinary Share underlying Akari ADSs, as applicable) underlying such Adjusted Warrant will be equal to the exercise price of such Peak Warrant immediately prior to the Effective Time divided by the Exchange Ratio. The grant of the Adjusted Warrants will be effected as of the Effective Time, or as soon thereafter as is reasonably practicable, taking into account Parent’s administrative procedures. The Adjusted Warrants will be further adjusted, if applicable, to give effect to the impact of the Additional Exchange Ratio.
31
Each option to acquire shares of Peak Common Stock (“Peak Option”) that is outstanding and unexercised immediately prior to the Effective Time, whether or not vested, will be assumed and converted into an option to purchase a number of Akari ordinary shares or Akari ADSs, as determined by Akari (each, an “Adjusted Option”). The number of Akari Ordinary Shares (or the number of Akari Ordinary Shares underlying Akari ADSs, as applicable) subject to the Adjusted Option will be equal to the product of (i) the total number of shares of Peak Common Stock subject to such Peak Option immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio, with any fractional Akari Ordinary Shares or Akari ADSs rounded down to the nearest whole Akari Ordinary Share or Akari ADS, as applicable, and the exercise price per share of each Adjusted Option will be equal to the exercise price of such Peak Option immediately prior to the Effective Time divided by the Exchange Ratio. The Adjusted Options will be further adjusted, if applicable, to give effect to the impact of the Additional Exchange Ratio.
Either the Company or Akari may terminate the Merger Agreement under certain circumstances, including if (i) the Merger is not completed by December 2, 2024, (ii) the other party's board of directors withdraws, modifies or qualifies its recommendation in favor of the transactions contemplated by the Merger Agreement or approves or recommends an alternative transaction or (iii) Akari’s or the Company’s board of directors, as applicable, resolves to enter into a definitive agreement with respect to a superior proposal prior to obtaining approval of the Akari ADS issuance or Merger, as applicable, from Akari’s shareholders or Company’s stockholders, as applicable. The Merger Agreement also provides that under certain specified circumstances of termination described in the Merger Agreement, Akari or the Company, as applicable, will be required to pay a termination fee equal to $300,000 and reimburse the other party for expenses related to the transaction up to $1.5 million.
Voting Agreements
Concurrently with the Merger Agreement, we and Akari entered into voting and support agreements (the “Voting Agreements”) with certain stockholders of Peak Bio (the “Peak Stockholders”) and certain shareholders of Akari (the “Akari Shareholders” and, together with the Peak Stockholders, the “Supporting Holders”). The Supporting Holders have agreed to, among other things, vote their shares in favor of the Merger Agreement and the Merger or the issuance of Akari Ordinary Shares in connection therewith, as applicable, in accordance with the recommendation of the respective boards of directors of Peak Bio and Akari.
Bylaws Amendment
In connection with the execution of the Merger Agreement, on March 3, 2024, our Board approved an amendment to our Amended and Restated Bylaws (the “Bylaws Amendment”), which became effective immediately. The Bylaws Amendment requires that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder (including a beneficial owner) of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against any director, officer, employee or stockholder (including a beneficial owner) of the Company arising under any provision of the Delaware General Corporation Law (“DGCL”) or the bylaws or the certificate of incorporation of the Company, or (iv) any action asserting a claim governed by the internal affairs doctrine shall, to the fullest extent permitted by law, be the Court of Chancery of the State of Delaware (or if the Court of Chancery for the State of Delaware does not have jurisdiction, a state court located within the State of Delaware or, if no state court located within the State of Delaware has subject matter jurisdiction, the federal district court for the District of Delaware). In addition, the Bylaws Amendment provides that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any claim or cause of action arising under the Securities Act of 1933, as amended.
Financing
Secured Promissory Note
In January 2024, we received proceeds from a Senior Secured Promissory Note (the “Secured Founder Loan”) in the amount of $750,000 from our founder and director, Dr. Huh. In accordance with the terms of the Secured Founder Loan, we, also entered into a Security Agreement with Dr. Hue (the “Security Agreement”). The Secured Note has a maturity date on January 23, 2025 and carries an interest rate of 15% per annum. As security for payment
32
of the Secured Note, the Security Agreement grants and assigns to the Founder the security interest in all of the assets of the Company and its subsidiaries.
December 2023 Convertible Note
In December, 2023, we raised proceeds from the issuance of convertible promissory notes in the aggregate principal amount of $1,000,000 (the “December 2023 Convertible Notes”). In addition, certain holders of April 2023 Convertible Notes agreed to exchange the aggregate amount of $187,950 of April 2023 Convertible Notes, including the accrued interest, into the same amount of December 2023 Convertible Notes.
In January and February 2024, we completed additional closes of the December 2023 Convertible Notes pursuant to which the Company issued the notes with the principal amount of $738,000. In addition, at those date, the holders of April 2023 Convertible Notes agreed to exchange the aggregate amount of $250,600 of April 2023 Convertible Notes, including the accrued interest, into the same amount of December 2023 Convertible Notes.
The December 2023 Convertible Notes bear an interest rate of 10% per annum and have a maturity date of December 18, 2024. The terms of the December 2023 Convertible Notes provide for automatic conversion of the outstanding principal amount of the December 2023 Convertible Notes and all accrued and unpaid interest upon a business combination (as defined in the agreement) into the Company common stock at the Conversion Price (the “Automatic Conversion Feature”). The Conversion Price is determined by reference to the purchase price payable in connection with such business combination, multiplied by 70%, where the price per share of the common stock is determined by reference to the 30-day volume weighted average price of the Company’s common stock on the public exchange immediately prior to conversion, resulting in 43% discount on the issuance price in the a business combination (the Automatic Discount”). If a business combination does not occur prior to the maturity date of the December 2023 Convertible Notes and if the Company’s Common Stock is listed on a public exchange as of such date, then the holders have the right, at their option, to convert the outstanding principal amount of the December 2023 Convertible Notes (and all accrued and unpaid interest thereof) into the shares of common stock of the Company at a price equal to the 30-day volume weighted average price of the Company’s common stock on the public exchange on which it is traded multiplied by 90% (the “Optional Conversion Feature”).
In consideration for its services in respect of the financing described above, we paid the Placement Agent a commission of $187,811. Further, upon conversion of the December 2023 Convertible Notes into Common Stock of the Company, the Placement Agent will receive shares of restricted Common Stock of the Company equal to (i) 4% of the total number of shares of Common Stock received upon conversion of the December 2023 Convertible Notes issued for the aggregate principal of $2,238,000 new capital and (ii) 1% of the total number of shares of Common Stock received upon conversion of the December 2023 Convertible Notes issued for the aggregate principal of $438,550 in exchange of the April 2023 Convertible Notes.
In December 2023, we issued a $500,000 related party December 2023 Convertible Note to the Key Company Stockholder. This note has the same terms as the December 2023 Convertible Notes outlined above.
May 2024 Convertible Notes
In May 2024, the Company entered into a secured convertible promissory note agreement pursuant to which the Company issued convertible notes in the aggregate principal amount of $1,324,500 (the “May 2024 Convertible Notes”).
In July 2024, the Company completed a final closing of the May 2024 Convertible Notes and entered into a secured convertible promissory note agreement pursuant to which the Company issued convertible notes in the aggregate principal amount of $2,175,000 (the “May 2024 Convertible Notes”).
The May 2024 Convertible Notes carry an interest rate of 10% per annum, have a maturity date of December 18, 2024. The terms of the May 2024 Convertible Notes provide for automatic conversion of the outstanding principal amount of the notes and all accrued and unpaid interest upon a business combination (as defined in the agreement) into the Company common stock at the Conversion Price. The Conversion Price is determined by reference to the purchase price payable in connection with such business combination, multiplied by 50%, where the price per share of the common stock is determined by reference to the 30-day volume weighted average price of our common stock on the public exchange immediately prior to conversion. In conjunction with the May 2024 Convertible Notes, we entered into the Security Agreement which grants and assigns the May 2024 convertible note holders a senior security interest in all of the assets of the Company and its subsidiaries.
33
In consideration for its services in respect of the financing described above, the Company paid Paulson Investment Company, LLC (the “May 2024 Placement Agent”) the commission of $200,000. Further, upon conversion of the May 2024 Convertible Notes into Common Stock of the Company, the May 2024 Placement Agent will receive shares of restricted common stock of the Company equal to 4% of the total number of shares of common stock received upon conversion of May 2024 Convertible Notes on certain notes with a principal value of $2,500,000.
April 2023 Convertible Notes
On November 1, 2024, the Company received Conditional Conversion Notices from the holders of the April 2023 Convertible Notes, pursuant to which the holders have elected to convert an aggregate of $2,205,801 in accrued principal and all accrued interest into common stock shares of the Company immediately before the closing of the Merger. The conversion is contingent upon the merger closing within 30 days of the notice.
White Lion Common Stock Purchase and Registration Rights Agreements
On November 3, 2022, we entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) and Registration Rights (the “White Lion RRA”) with White Lion Capital, LLC, a Delaware limited liability company (“White Lion”). Pursuant to the White Lion Purchase Agreement, we have the right, but not the obligation, to require White Lion to purchase, from time to time, up to $100,000,000 in aggregate gross purchase price of newly issued shares of our Common Stock, subject to certain limitations and conditions set forth in the White Lion Purchase Agreement. Capitalized terms used but not otherwise defined in this section shall have the meanings given to such terms by the White Lion Purchase Agreement and the White Lion RRA.
We are obligated under the White Lion Purchase Agreement and the White Lion RRA to file a registration statement with the SEC to register the Common Stock under the Securities Act, for the resale by White Lion of shares of Common Stock that we may issue to White Lion under the White Lion Purchase Agreement.
Subject to the satisfaction of certain customary conditions including, without limitation, the effectiveness of a registration statement registering the shares issuable pursuant to the White Lion Purchase Agreement, our right to sell shares to White Lion will commence on the effective date of the registration statement and extend until November 1, 2025. During such term, subject to the terms and conditions of the White Lion Purchase Agreement, we may notify White Lion when we exercise our right to sell shares (the effective date of such notice, a “Notice Date”).
The number of shares sold pursuant to any such notice may not exceed (i) the lower of (a) the Purchase Notice Fixed Limit (described below) and (b) the product of (1) the Average Daily Trading Volume (as defined in the White Lion Purchase Agreement), and (2) the applicable Percentage Limit (as defined in the White Lion Purchase Agreement). The Purchase Notice Fixed Limit is $500,000 upon payment of the Initial Commitment Shares (as defined in the White Lion Purchase Agreement) and can be increased in two tranches: (A) to $1,000,000 following an aggregate purchase of $5,000,000 shares and issuance by us to White Lion of an additional $250,000 in Commitment Shares, and (B) to $2,000,000 following an aggregate purchase of $10,000,000 shares and issuance by the for payment of an additional $250,000 in Commitment Shares (as defined in the White Lion Purchase Agreement).
The applicable Percentage Limit is 40% or 150% depending on the price we agree to sell shares to White Lion. At an applicable Percentage Limit of 40%, the Purchase Price to be paid by White Lion for any such shares will equal 97% of lowest daily volume-weighted average price of Common Stock during a period of two consecutive Trading Days following the applicable Purchase Notice Date (as defined in the White Lion Purchase Agreement) until an aggregate of $50,000,000 in Purchase Notice Shares (as defined in the White Lion Purchase Agreement) have been purchased under White Lion Purchase Agreement, at which point the Purchase Price (as defined in the White Lion Purchase Agreement) to be paid by White Lion will equal 98% of the lowest daily volume-weighted average price of Common Stock during a period of two consecutive Trading Days following the applicable Purchase Notice Date. At an applicable Percentage Limit of 150%, the Purchase Price to be paid by White Lion for any such shares will equal 94.5% of the lowest daily volume-weighted average price of Common Stock during a period of three consecutive Trading Days following the applicable Purchase Notice Date.
We will have the right to terminate the White Lion Purchase Agreement at any time after commencement, at no cost or penalty, upon three (3) Trading Days’ prior written notice. Additionally, White Lion will have the right to
34
terminate the White Lion Purchase Agreement upon three (3) days’ prior written notice to us if (i) there is a Fundamental Transaction (as defined in the White Lion Purchase Agreement), (ii) we are in breach or default in any material respect of the White Lion RRA, (iii) there is a lapse of the effectiveness, or unavailability of, the registration statement for a period of 45 consecutive Trading Days or for more than an aggregate of 90 Trading Days in any 365-day period, (iv) the suspension of trading of the Common Stock for a period of five (5) consecutive Trading Days, (v) the material breach of the White Lion Purchase Agreement by us, which breach is not cured within the applicable cure period or (vi) a Material Adverse Effect (as defined in the White Lion Purchase Agreement) has occurred and is continuing. No termination of the White Lion Purchase Agreement will affect the registration rights provisions contained in the White Lion RRA.
In consideration for the commitments of White Lion, as described above, we have agreed that it will issue to White Lion shares of Common Stock having a value of $250,000 based upon the Closing Sale Price (as defined in the White Lion Purchase Agreement) of Common Stock two Trading Days prior to the filing of the Initial Registration Statement as Initial Commitment Shares. We may increase the number of shares it may sell to White Lion by issuing additional Commitment Shares in two additional tranches of $250,000 each. We issued Initial Commitment Shares of 50,200 shares of Common Stock to White Lion, based upon the Closing Sale Price of our Common Stock of $4.98 per share on November 30, 2022.
Concurrently with the execution of the White Lion Purchase Agreement, we entered into the White Lion RRA with White Lion in which we have agreed to register the shares of Common Stock purchased by White Lion with the SEC for resale within 30 days of the consummation of a business combination. The White Lion RRA also contains usual and customary damages provisions for failure to file and failure to have the registration statement declared effective by the SEC within the time periods specified.
The White Lion Purchase Agreement and the White Lion RRA contain customary representations, warranties, conditions and indemnification obligations of the parties. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
In March 2023, we entered into an amendment to the White Lion Purchase Agreement to give us the right, but not the obligation to require White Lion to purchase shares of our common stock while trading on the OTC Market. Under the terms of the amendment, we will issue to White Lion within five (5) Trading Days following the effective date of the amendment fully paid, non-assessable shares of our Common Stock equal to the quotient obtained by dividing (i) $250,000 and (ii) the lowest traded sale price of the common stock of the 10 (ten) Trading Days prior to the effective date of the amendment, minus 50,200. In March 2023, as compensation for its commitment to enter into the amendment, we issued 412,763 shares of our common stock to White Lion.
In August 2023, we and White Lion entered into a second amendment to the Common Stock Purchase Agreement (the “Second Amendment”). The Second Amendment includes, among other things, the right of the Company to issue a Purchase Notice (defined in the Second Amendment as an “Accelerated Purchase Notice”) requesting White Lion to purchase newly issued shares of common stock from us, subject to acceptance by White Lion, with pricing of the shares to be sold by us to White Lion under such Accelerated Purchase Notice determined on the date of issuance by us of the Accelerate Purchase Notice and acceptance by White Lion (the date of such notice defined as the “Accelerated Valuation Period”). Such accelerated purchases pursuant to an Accelerated Purchase Notice will be sold to White Lion at a price, defined as an “Accelerated Purchase Price,” equal to the lower of (i) the opening price of common stock during the Accelerated Valuation Period, (ii) the closing price of the common stock during Accelerated Valuation Period, or (iii) the volume weighted average price of the common stock during Accelerated Valuation Period; provided, however, that if at the time we deliver an Accelerated Purchase Notice to Investor the price of the common stock is lower than the opening price of the common stock during the Accelerated Valuation Period, the Accelerated Purchase Price will be discounted by 20%. In addition, the Second Amendment provides for an “Accelerated Purchase Notice Limit” equal to 200%.
In addition, in the event we do not issue Purchase Notices (as defined in the White Lion Purchase Agreement) to White Lion providing for the purchase of at least $1,250,000 of Purchase Shares (as defined in the White Lion Purchase Agreement and Second Amendment) in the aggregate within 180 days following the effective date of the amendment, we will issue to White Lion an additional number of fully paid, non-assessable shares of common stock equal to the quotient obtained by dividing (i) $150,000 and (ii) the lowest Closing Sale Price (as defined in the White Lion Purchase Agreement and Second Amendment) of common stock of the 10 (ten) Trading Days prior to the 180th day following the effective date of the amendment.
35
In September 2023, we issued notices to purchase the total of 729,000 common shares to White Lion for the total proceeds of $105,317.
We issued no notices to purchase securities during the three and nine months ended September 30, 2024.
Repayment Agreements
On November 1, 2024, the Company entered into a Multi-Party Repayment and General Release Agreement with a former non-executive employee who after his resignation served as the Company’s consultant. Under the terms of the agreement, the parties agreed on a repayment plan of $65,600 in accrued wages earned during the employment and $76,800 in accrued consulting fees earned in consulting capacity. Under the terms of the repayment plan, the former employee will receive $5,000 at the execution of the agreement and the remainder in twenty four equal payments of $5,724 beginning March 1, 2025 with the final payment on February 1, 2027.
On November 1, 2024, the Company entered into a Repayment and General Release agreement with a former non-executive employee under which the parties agreed on a repayment plan of $53,247 in accrued wages. Per the terms of the agreement, the former employee will receive twenty four equal payments of $2,219 beginning March 1, 2025 with the final payment on February 1, 2027.
On November 1, 2024, the Company entered into a Repayment agreement with a executive employee under which the parties agreed on a repayment plan of $110,991 in accrued bonus. Per the terms of the agreement, the executive employee will receive twenty four equal payments of $4,625 beginning July 1, 2025 with the final payment on June 1, 2027.
Components of Results of Operations
Our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024 include the accounts of Peak Bio Co., Ltd. and its subsidiary, Peak Bio CA., Inc. All intercompany balances and transactions have been eliminated in consolidation.
Revenue
Our revenue has historically been generated through grants from government organizations. We currently have no commercially approved products. Grant revenue is recognized during the period that the research and development services occur, as qualifying expenses are incurred or conditions of the grants are met. Qualifying expenses are recognized when incurred as research and development expenses. Expenses for grants are tracked by using a project code specific to the grant, and the employees also track hours worked by using the project code.
Grant Revenue
Our grant revenues are derived from research programs with the Department of Defense, US Army Medical Research Acquisition Activity for work on a COVID-19 therapeutic.
Grants awarded to us for research and development by government entities are outside the scope of the contracts with customers and contributions guidance. This is because these granting entities are not considered to be customers and are not receiving reciprocal value for their grant support provided to us. These grants provide us with payments for certain types of expenditures in return for research and development activities over a contractually defined period.
We recognize grant revenue based on the reimbursable costs that are incurred during the period, up to pre-approved award limits. The expenses associated with these reimbursements are reflected as a component of research and development expense in our consolidated statements of operations and comprehensive loss.
Research and Development Expense
We expense research and development costs as incurred. Research and development expense consist primarily of costs related to personnel, including salaries and other personnel related expenses, contract manufacturing and supply, consulting fees, and the cost of facilities and support services used in drug development. Assets acquired that are used for research and development and have no future alternative use are expensed as in-process research and development.
36
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development, legal, human resources and support functions. Other general and administrative expenses include professional fees for auditing, tax, consulting and patent-related services, rent and utilities and insurance.
Results of Operations for the three months ended September 30, 2024 and 2023
The following table provides our selected financial information:
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|||
Revenues |
|
$ |
— |
|
|
$ |
278,831 |
|
|
$ |
(278,831 |
) |
Operating expenses |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
112,212 |
|
|
|
552,988 |
|
|
|
(440,776 |
) |
General and administrative |
|
|
1,380,072 |
|
|
|
1,756,801 |
|
|
|
(376,729 |
) |
Impairment Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
|
1,492,284 |
|
|
|
2,309,789 |
|
|
|
(817,505 |
) |
Loss from operations |
|
|
(1,492,284 |
) |
|
|
(2,030,958 |
) |
|
|
538,674 |
|
Other income (expense), net |
|
|
3,206,220 |
|
|
|
2,441,545 |
|
|
|
764,675 |
|
Loss before income tax expense |
|
$ |
1,713,936 |
|
|
$ |
410,587 |
|
|
$ |
1,303,349 |
|
Revenue
Our revenue has historically been generated through grants from government organizations. The total revenue for government grants was $0 and $278,831 for the three months ended September 30, 2024 and 2023. We performed no work under the government grant with the Department of Defense, US Army Medical Research Acquisition Activity during the three months ended September 30, 2024.
Research and Development Expense
The following table summarizes our research and development expenses:
|
|
Three Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Third-party direct project expenses |
|
|
|
|
|
|
||
PHP-303 |
|
$ |
6,342 |
|
|
$ |
297,979 |
|
PH-1 ADC Platform |
|
$ |
25,775 |
|
|
|
48,007 |
|
General program expenses and other pre-clinical programs |
|
|
— |
|
|
|
— |
|
Total third-party direct project expenses |
|
|
32,117 |
|
|
|
345,986 |
|
Other research and development costs |
|
|
|
|
|
|
||
Personnel costs |
|
|
55,933 |
|
|
|
200,872 |
|
Facilities and other costs |
|
|
24,162 |
|
|
|
6,130 |
|
Total other research and development costs |
|
|
80,095 |
|
|
|
207,002 |
|
Total research and development expenses |
|
$ |
112,212 |
|
|
$ |
552,988 |
|
Research and development expense decreased by $0.4 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to a reduction in the personnel costs of $0.1 million driven by a reduction of R&D headcount during 2023 and a reduction of third party project expenses of $0.3 million.
General and Administrative Expense
General and administrative expense decreased by $0.4 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to a decrease in personnel costs of $0.4 million driven by a reduction of general and administrative personnel during 2023.
37
Other Income, Net
Other income, net increased by $0.3 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to the gain on termination of Palo Alto Lease of $4.3 million offset by interest expense of $1.3 million, including the amortization of related discounts on the November 2022 Convertible Notes, April 2023 Convertible Notes, December 2023 Convertible Notes and May 2024 Convertible Notes, and a gain on the fair value adjustment to the derivative liability of $0.2 million.
During the three months ended September 30, 2023, we recognized the gain on the fair value adjustment to the warrant liability of $2.2 million, a gain on fair value adjustment to derivative liability of $1.4 million, partially offset by interest expense of $1.2 million.
Results of Operations for the nine months ended September 30, 2024 and 2023
The following table provides our selected financial information:
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|||
Revenues |
|
$ |
— |
|
|
$ |
292,685 |
|
|
$ |
(292,685 |
) |
Operating expenses |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
291,124 |
|
|
|
1,637,247 |
|
|
|
(1,346,123 |
) |
General and administrative |
|
|
4,796,616 |
|
|
|
7,060,681 |
|
|
|
(2,264,065 |
) |
Impairment Loss |
|
|
— |
|
|
|
3,513,999 |
|
|
|
(3,513,999 |
) |
Total operating expenses |
|
|
5,087,740 |
|
|
|
12,211,927 |
|
|
|
(7,124,187 |
) |
Loss from operations |
|
|
(5,087,740 |
) |
|
|
(11,919,242 |
) |
|
|
6,831,502 |
|
Other income (expense), net |
|
|
2,289,108 |
|
|
|
(381,231 |
) |
|
|
2,670,339 |
|
Loss before income tax expense |
|
$ |
(2,798,632 |
) |
|
$ |
(12,300,473 |
) |
|
$ |
9,501,841 |
|
Revenue
Our revenue has historically been generated through grants from government organizations. The total revenue for government grants was $0 and $292,685 for the nine months ended September 30, 2024 and 2023, respectively. We performed no work under the government grant with the Department of Defense, US Army Medical Research Acquisition Activity during the nine months ended September 30, 2024.
Research and Development Expense
The following table summarizes our research and development expenses:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Third-party direct project expenses |
|
|
|
|
|
|
||
PHP-303 |
|
$ |
20,042 |
|
|
$ |
333,974 |
|
PH-1 ADC Platform |
|
|
77,072 |
|
|
|
183,693 |
|
General program expenses and other pre-clinical programs |
|
|
— |
|
|
|
— |
|
Total third-party direct project expenses |
|
|
97,114 |
|
|
|
517,667 |
|
Other research and development costs |
|
|
|
|
|
|
||
Personnel costs |
|
|
151,732 |
|
|
|
877,762 |
|
Facilities and other costs |
|
|
42,278 |
|
|
|
241,818 |
|
Total other research and development costs |
|
|
194,010 |
|
|
|
1,119,580 |
|
Total research and development expenses |
|
$ |
291,124 |
|
|
$ |
1,637,247 |
|
Research and development expense decreased by $1.3 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to the decrease in personnel costs of $0.5 million driven by a reduction of R&D headcount during 2023, a decrease in stock based compensation of $0.2 million, a reduction of third party vendor research costs of $0.3 million, and a decrease in facility related and other costs, following the abandonment of our premises in Palo Alto, California of $0.2 million.
General and Administrative Expense
38
General and administrative expense decreased by $2.3 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to a decrease in personnel costs of $0.9 million driven by a reduction of general and administrative personnel during 2023, a decrease in stock based compensation of $0.1 million, decrease in facility related expense $0.2 million, decrease in insurance expense of $0.2 million, and a decrease in professional fees related to public filings of $0.7 million.
Impairment Loss on Operating Lease Right-of-Use Asset
We recognized an impairment loss on the operating lease right-of-use asset of $3.5 million due to the abandonment of the premises in Palo Alto, California for the nine months ended September 30, 2024.
Other Income, Net
Other income, net increased by $2.7 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the gain on termination of Palo Alto Lease of $4.3 million offset by interest expense of $2 million, including the amortization of related discounts on the November 2022 Convertible Notes, April 2023 Convertible Notes, December 2023 Convertible Notes and May 2024 Convertible Notes, and a loss on the fair value adjustment to the derivative liability of $0.1 million.
During the nine months ended September 30, 2023, we recognized the gain on the fair value adjustment to the warrant liability of $2 million, a gain on fair value adjustment to derivative liability of $0.8 million, partially offset by interest expense of $2.2 million and a loss on debt extinguishments of $1 million.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. Our net loss was $2.8 million for the nine months ended September 30, 2024 and $12.8 million and $13.1 million for the years ended December 31, 2023 and 2022, respectively. At September 30, 2024 we had cash of $0.9 million.
Since the beginning of 2024, we raised aggregate gross proceeds of approximately $0.7 million from the issuance of December 2023 Convertible Notes, $0.75 million from the issuance of Secured Founder Loan and $3.5 million from the issuance of May 2024 Convertible Notes.
Funding Requirements
We expect to incur losses from operations for the foreseeable future primarily due to research and development expenses, including expenses related to conducting research activities, pre-clinical expenses and clinical trials. Our future capital requirements will depend on a number of factors, including:
39
We expect to incur significant expenses and operating losses for the foreseeable future as we continue our efforts to identify product candidates and seek regulatory approvals within our gene therapy portfolio.
Additional financing will be needed to fund our ongoing activities. We may raise this additional funding through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions and funding under government contracts. We may be unable to raise additional funds or enter into such other arrangements or arrangement when needed on favorable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate certain of our research and development programs. There can be no assurances that other sources of financing would be available. Due to these uncertainties, there is substantial doubt about our ability to continue as a going concern.
Our future operations are highly dependent on a combination of factors, including (i) the timely and successful completion of additional financing; (ii) the success of our research and development programs; (iii) the development of competitive therapies by other biotechnology and pharmaceutical companies, (iv) our ability to attract and retain key employees, (v) our ability to manage growth of the organization; (vi) our ability to protect our proprietary technology; and ultimately (vii) regulatory approval and market acceptance of our product candidates.
Cash Flows Discussion
The following table summarizes our cash flows for the periods indicated:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash used in operating activities |
|
$ |
(3,676,342 |
) |
|
$ |
(3,289,416 |
) |
Net cash used in investing activities |
|
|
66,500 |
|
|
|
— |
|
Net cash provided by financing activities |
|
|
4,092,167 |
|
|
|
2,527,972 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
$ |
482,325 |
|
|
$ |
(761,444 |
) |
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024 was approximately $0.3 million more than net cash used for the nine months ended September 30, 2023. Although the operating expenses decreased by $7.1 million in 2024 as compared to 2023, this decrease was offset by the increase in accounts payable and accruals due to the timing of the cash outlays. The decrease in the operating expenses is due to the reduction in facilities expenses, reduction in headcount of general and administrative employees, and decreases in direct project expenses related to the PHP-303 program, the PH-1 ADC Platform, and other general and pre-clinical programs as a result of delays in our ongoing and planned research activities.
Investing Activities
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During the nine months ended September 30, 2024, we sold research equipment for gross proceeds of $66,500. There was no net cash used in investing activities during the nine months ended September 30, 2023.
Financing Activities
During the nine months ended September 30, 2024 net cash provided by financing activities was driven by the net proceeds from additional closes of the December 2023 Convertible Notes in the amount of $0.7 million, proceeds from the close of the May 2024 Convertible Notes in the amount of $3.3 million and proceeds from a related party loan of $0.8 million, partially offset by repayment of the Insurance Financing Payable of $0.6 million.
During the nine months ended September 30, 2023 net cash provided by financing activities was driven by the net proceeds from issuance of April 2023 convertible notes payable of $2.1 million, proceeds from exercise of warrants of $1 million and proceeds from a related party loan of $0.3 million, and proceeds from the issuance of common shares under the White Lion Purchase Agreement, partially offset by repayment of the insurance financing of $0.9 million.
Contractual Obligations and Commitments
In October 2021, we entered into a lease for laboratory and office facilities in Palo Alto, California that expires in March 2027 with a five-year renewal option and opened a secured letter of credit with a third-party financial institution in lieu of a security deposit for $177,000. Base rent for this sublease is approximately $89,000 monthly with annual escalations of 3%. In March 2023, we vacated the premises and returned possession of the premises to the landlord in April 2023. The full amount of the security deposit has been applied to back rent and we are still responsible for the outstanding payments under the lease. In June 2024, the landlord was awarded a default judgment against the Company in the amount of $796,773, primarily representing past due rent which is included in the operating lease liability. On September 17, 2024, the Company entered into a settlement agreement with the landlord pursuant to which the Company agreed to pay $175,000 upon signing of the settlement agreement and enter into a secured promissory note for $325,000. The promissory note bears no interest and is payable over twenty equal monthly instalments starting on November 1, 2024 and expiring on June 1, 2026. Upon signing the Settlement Agreement, the lease was terminated.
On March 1, 2022, the Company and pH Pharma Co., Ltd entered into an administrative services and facilities agreement whereby pH Pharma Co., Ltd would perform services, functions and responsibilities for the Company. Under the agreement, the Company paid pH Pharma Co., Ltd $100,000 per month through August 30, 2022 and $15,000 per month from September 1, 2022 through February 28, 2023 based on the estimated value of the services to be performed. Additionally, the Company reimbursed pH Pharma Co., Ltd $3,000 per month in lease payments from March 1, 2022 through February 28, 2023. At December 31, 2023, the balance payable to pH Pharma Co., Ltd under this agreement was $309,534, which was included in accounts payable in the consolidated balance sheet. On January 31, 2024, the Company and pH Pharma Co., Ltd entered into a settlement agreement, settled the outstanding debt for a one-time payment of $85,000, resulting in $207,967 recognized during three months ended March 31, 2024 in cancellation of trade liability, and terminated the administrative services and facilities agreement. The Company recognized $0 expenses under the administrative services and facilities agreement for the three months ended September 30, 2024 and 2023. The Company recognized $0 and $36,357 expenses under the administrative services and facilities agreement for the nine months ended September 30, 2024 and 2023, respectively.
On April 1, 2024, the Company and pH Pharma Co., Ltd entered into an administrative services agreement whereby pH Pharma Co., Ltd will perform investor relations services, functions and responsibilities on behalf of the Company in the Republic of Korea. Under the agreement, the Company is obligated to pay pH Pharma Co., Ltd. a one-time fee of $230,000 for the services performed from January 1, 2024 through April 30, 2024 and a monthly fee of $10,000 per month for services rendered from May 1, 2024 through July 31, 2024. At September 30, 2024, the amounts accrued to pH Pharma Co., Ltd under this agreement totaled $25,489, included in accounts payable in the unaudited condensed consolidated balance sheets. The Company recognized $10,000 and $260,000 in expense under this administrative services agreement for the three and nine months ended September 30, 2024, respectively.
On August 27, 2024, the Company and the former Interim CEO entered into a Separation and General Release Agreement (the “Separation Agreement”) pursuant to which, in exchange for the consideration set forth in the Separation Agreement and the former Interim CEO’s agreement to serve as a consultant to the Company and forgive all unpaid accrued wages, the Company agreed to pay the former Interim CEO a fee of $524,300 payable in 24 equal monthly installments beginning September 1, 2024. The Agreement also provides for the payment of COBRA benefits for a maximum period of 18 months starting September 1, 2024. At September 30, 2024, the amounts accrued under
41
this agreement totaled $582,514, included in accrued expenses in the unaudited condensed consolidated balance sheets. The Company recognized $604,360 in expense under this Separation Agreement for the three and nine months ended September 30, 2024.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our unaudited interim condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Our significant accounting policies and estimates are described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on August 5, 2024, which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.
There have been no material changes to our critical accounting policies and estimates as from the date upon which we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 with the SEC.
Recently Adopted Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This ASU modified the disclosure and presentation requirements primarily through enhanced disclosures of significant segment expenses and clarified that single reportable segment entities must apply Topic 280 in its entirety. This guidance is effective for the Company for the year beginning January 1, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statement. The Company adopted ASU 2023-07 on January 1, 2024 and the adoption did not have a material effect on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for convertible instruments by removing major separation models required under current U.S. GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for such exception and simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2020-06 on January 1, 2024.
On January 1, 2024, on adoption of ASU 2020-06, the Company determined that the April 2023 Conversion Feature Liability met the derivative accounting scope exception and the conversion feature no longer required bifurcation form the April 2023 Convertible Notes and April 2023 Convertible Notes, related party (see Note 10). On January 1, 2024, the fair value of the fair value of the April 2023 Conversion Feature Liability was zero. Therefore, the adoption had no impact on the Company’s unaudited condensed consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for all public entities for fiscal years beginning after December 15, 2024. Early adoption is permitted and should be applied either prospectively or retrospectively. The Company plans to adopt ASU 2023-09 and related updates on January 1, 2025. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.
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There were no other recently issued but not yet effective accounting pronouncements that will have a material effect on the accompanying unaudited condensed consolidated financial statements.
JOBS Act Accounting Election
We qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements that are not otherwise applicable to public companies. These provisions include, but are not limited to:
We may use these provisions until the last day of our fiscal year in which the fifth anniversary of the completion of this offering occurs. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.235 billion, or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.
We have elected to take advantage of certain of the reduced disclosure obligations in this Form 10-Q and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholders may be different than the information you receive from other public companies in which you hold stock.
The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, until those standards apply to private companies. We have elected to take advantage of the benefits of this extended transition period and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an emerging growth company or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which we will adopt the recently issued accounting standard.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, mean controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our principal executive and principal
43
financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q due to material weaknesses in our internal control over financial reporting as describe below.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (United States) Auditing Standard No. 2201) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following material weaknesses:
Planned Remediation
Management continues to work to improve its controls related to our material weaknesses, specifically implementing improved processes and internal controls, and hiring outside consultants, to ensure the proper application of accounting practices and guidance. We also intend to increase our accounting staff as soon as economically feasible and sustainable to remediate these material weaknesses. These material weaknesses will not be considered to be remediated until the applicable remediated controls are operating for a sufficient period of time and management has concluded that these controls are operating effectively.
Changes in Internal Control
Except for the hiring of outside consultants as noted above, there has been no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
44
We are not currently a party to any material legal proceedings. At each reporting date, we evaluate whether a potential loss amount or a potential range of loss in respect of legal proceedings is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. We expense the costs related to our legal proceedings as incurred.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual report on Form 10-K for the fiscal year ended December 31, 2023, which could materially affect our business, financial condition, or results of operations. There have been no material changes in or additions to the risk factors referred to in the previous sentence.
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.
Item 6. Exhibits.
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
Exhibit Number |
|
Description |
2.1 |
|
|
2.2 |
|
|
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
4.1 |
|
|
4.2 |
|
|
4.3 |
|
|
10.1 |
|
|
10.2 |
|
45
10.3 |
|
|
10.4 |
|
|
10.5 |
|
|
10.6 |
|
|
10.7 |
|
|
10.8 |
|
|
10.9 |
|
|
10.11 |
|
|
10.12 |
|
|
10.13 |
|
|
10.14 |
|
|
10.15 |
|
|
10.16* |
|
|
10.17 |
|
|
10.18 |
|
|
10.19 |
|
|
31.1* |
|
|
31.2* |
|
|
32.1* |
|
|
32.2* |
|
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101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
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.
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|
PEAK BIO, INC. |
|
|
|
|
|
Date: November 12, 2024 |
|
By: |
/s/ Hoyoung Huh |
|
|
|
Hoyoung Huh |
|
|
|
Executive Chairman of the Board and Acting President |
|
|
|
(principal executive officer) |
Date: November 12, 2024 |
|
By: |
/s/ Divya Patel |
|
|
|
Divya Patel |
|
|
|
Acting Chief Financial Officer |
|
|
|
(principal financial and accounting officer) |
47