ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDIITION AND RESULTS OF OPERATIONS
The following discussion and analysis
should be read in conjunction with our audited consolidated financial statements for the fiscal year ended December 31, 2024, and
the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United
States. This discussion and analysis contains forward-looking statements and forward-looking information that involve risks,
uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements
and information as a result of many factors. See section heading “Special Note Regarding Forward-Looking
Statements.”
Overview
The Company is a biopharmaceutical company dedicated
to developing treatments for patients suffering from neurodegenerative diseases, such as Alzheimer’s disease (“Alzheimer’s
disease” or “AD”), for which there are limited or no treatment options. The Company will focuses on the development
of commercial manufacturing and commercial sales of ZUNVEYL oral tablet formulation. The Company’s commercial development program
for ZUNVEYL is primarily focused on building a long-term care commercial team that can focus on providing key points of differentiation,
exploiting key issues with existing AChEI treatments, and franchising potential additional indications and new products.
For additional details regarding our business,
see the discussion under “Business” in Item 1 of Part I of this Annual Report on Form 10-K.
The Company will target the largest volume nursing
homes specializing in Alzheimer’s Disease, leveraging an account-based sales team with demonstrated success in LTC, positioning
ZUNVEYL with Medicare payors, and developing strategic and clinical partnerships with consultant pharmacists and long-term care pharmacies.
The company’s anticipated launch is in Q1 2025. Alpha Cognition has set the Wholesale Acquisition Cost (WAC) for its latest therapeutic
product at $749 per month. This pricing reflects the company’s commitment to balancing patient access with the value of innovative
healthcare solutions. By establishing a competitive WAC price, Alpha Cognition aims to enhance affordability and ensure patients can benefit
from our advanced treatment options. Patients’ out-of-pocket cost for treatment with ZUNVEYL will depend on their length of treatment
and their insurance. The Company has three additional pre-clinical development programs: ZUNVEYL in combination with memantine for
the treatment of moderate-to-severe Alzheimer’s disease, ALPHA-1062 sublingual formulation, ALPHA-1062 intranasal
(“ALPHA-1062IN”) formulation for the treatment of cognitive impairment with mild traumatic brain injury (mTBI; otherwise known
as concussion) and ALPHA-0602, ALPHA-0702 & ALPHA-0802, also referred to as ‘Progranulin’ and ‘Progranulin
GEM’s’, for the treatment of neurodegenerative diseases including amyotrophic lateral sclerosis, otherwise known as ALS or
Lou Gehrig’s disease and spinal muscular atrophy (SMA).
ZUNVEYL, is a patented new innovative product
being developed as a next generation acetylcholinesterase inhibitor for the treatment of Alzheimer’s disease, with expected minimal
gastrointestinal side effects. ZUNVEYL’s active metabolite is differentiated from donepezil and rivastigmine in that it binds neuronal
nicotinic receptors, most notably the alpha-7 subtype, which is known to have a positive effect on cognition. ZUNVEYL is in pre-clinical development
in combination with memantine to treat moderate to severe Alzheimer’s disease, in pre-clinical development with sublingual
formulation for patients suffering from dysphagia, and ALPHA-1062IN is intended to be out-licensed for pre-clinical development
to study an intranasal formulation for cognitive impairment with mTBI.
Our other pre-clinical stage assets include
ALPHA-0602, ALPHA-0702 & ALPHA-0802 (Progranulin and Progranulin GEM’s), which are expressed in several cell types
in the central nervous system and in peripheral tissues, promotes cell survival, regulates certain inflammatory processes, and play a
significant role in regulating lysosomal function and microglial responses to disease. Its intended use for the treatment of neurodegenerative
diseases has been patented by the Company and ALPHA-0602 has been granted an Orphan Drug Designation for the treatment of ALS by
the FDA. Orphan Drug Designation was provided for ALPHA-0602 by the Office of Orphan Drug Products, FDA on February 2020
based on the Federal Food Drug, and Cosmetic Act, whereby the ALPHA-0602 met the criteria designated in Section 526 of such
Act. For a further description see the section entitled “Business — Government Regulation — Orphan
Drug Designation”. The Orphan Drug Designation allows for exclusivity provisions provided the drug is approved first for indication:
treatment of amyotrophic lateral sclerosis ALPHA-0702 and ALPHA-0802 are Granulin Epithelin Motifs, (“GEMs”), derived
from full length progranulin which have therapeutic potential across multiple neurodegenerative diseases. GEMs have been shown to be important
in regulating cell growth, survival, repair, and inflammation. ALPHA-0702 and ALPHA-0802 are designed to deliver this with potentially
lower toxicity, and greater therapeutic effect. As the assets are pre-clinical assets and do not add material value to the Company,
the Company will not develop these assets further and instead will seek to out-license the assets to interested third parties. Given
the early stage of discussion with third parties, the Company cannot assess value to a license agreement.
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The Company is the parent company of Alpha Cognition
Canada Inc. (“Alpha Canada” or “ACI Canada”) which is the parent company of Alpha Cognition USA Inc. (“ACI
USA”). As of May 1, 2023, the Company’s common shares commenced trading on the CSE under the symbol “ACOG”,
previously the Company’s shares were traded on the TSX-V until April 28, 2023, when the Company had them delisted. As of November
12, 2024, the Company’s common shares commenced trading on The Nasdaq Capital Market under the symbol “ACOG”. The Company’s
shares were voluntarily delisted from the CSE and OTCQB on December 17, 2024.
Operations
The Company has not generated revenues from its operations to date
and as of December 31, 2024, and had a deficit of $76,285,038 (December 31, 2023 – $61,648,173) which has been primarily
financed by equity. The Company had $48,564,082 in cash and cash equivalents, including restricted cash, and $3,350,752 in current liabilities
(of which $97,515 is payable from the Company’s available restricted cash balance) as of December 31, 2024. The Company’s
continuing operations, as intended, are highly dependent upon its ability to obtain additional funding and eventually generate cash flows.
Management is of the opinion that it does have sufficient working capital to fully meet the Company’s liabilities and commitments
as outlined and planned in the following discussion. Management is of the opinion it will need to raise additional capital to cover upcoming
planned Research and Development (“R&D”), commercialization of ZUNVEYL and operating costs. Possible sources of such capital
may come from private placements and public offerings of the Company’s common shares and funds received from the exercise of warrants
and share options. Additionally, the Company will also consider funding that may arise through partnership activities, including royalties,
and debt. There is a risk that additional financing will not be available on a timely basis, on terms acceptable, or at all to the Company.
The Company is also contemplating raising capital
by pursuing both dilutive and non-dilutive strategic sources of capital to fully execute its commercialization and operating plans following
receipt of the NDA approval for ZUNVEYL from the FDA. Any additional capital is expected to further support our planned costs to begin
commercial activities including launching U.S. sales of ZUNVEYL in AD
Reverse Stock Split
On November5,
2024, we completed a reverse stock split of our common shares with a stock split ratio of 1-for-25 (“Reverse
Stock Split”).
Except as otherwise indicated, all references
to our common shares, share data, per share data and related information depict the effect of the Reverse Stock Split as if it had occurred
at the beginning of the earliest period presented. The Reverse Stock Split combined each twenty five shares of our outstanding common
shares into one common share, without any change in the par value per share which will remain no par value, and the Reverse Stock Split
correspondingly adjusted, among other things, the number of common shares issuable upon exercise of outstanding options and warrants and
the exercise price of such options and warrants and shares issuable upon conversion of preferred stock and other convertible securities.
No fractional shares will be issued in connection with the Reverse Stock Split, and any fractional shares resulting from the Reverse Stock
Split were rounded to the nearest whole share.
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Components of our Results of Operations
Research and development
Research and development expenses represent costs
incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development
costs as they are incurred unless there is an alternative future use in other research and development projects or otherwise.
Research and development expenses consists primarily of the following:
● other expenses including travel and consulting services.
General and administrative expenses
General and administrative expenses costs consist
of personnel costs, other outside professional services including legal, human resources, audit and accounting services, consulting and
pre-commercialization expenses, including selling and marketing costs as well attendance to various conferences. Personnel costs consist
of salaries, benefits, and share-based compensation. We expect to continue to incur expenses to support our continued operations as a
public company, including expenses related to existing and future compliance with rules and regulations of the stock exchanges on which
our securities are now traded, insurance expenses, investor relations, audit fees, professional services and general overhead and administrative
costs.
Foreign exchange gain (loss)
The foreign exchange gain (loss) amount consists
of changes in the value of the Canadian Dollar compared to the U.S. Dollar throughout the year.
Liability-Based Awards
Bonus right awards that include cash settlement
features are accounted for as liability-based awards in accordance with ASC 718, Compensation — Share Based Compensation.
The fair value of the bonus right awards is estimated using a Black-Scholes option-pricing model and is revalued on each reporting date,
based on the probability of the expected awards to vest, until settlement. Changes in the estimated fair value of the bonus right awards
are recognized within general and administrative expense in the consolidated statement of operations and comprehensive loss over the vesting
period. Key assumptions in the calculation of the fair value of the bonus right awards include expected volatility, risk-free interest
rate, expected life, and fair value per award.
Share Based Compensation
Share-based compensation cost is recorded for
all option grants and awards of non-vested stock based on the grant date fair value of the award using the Black-Scholes option-pricing
model and is recognized over the service period required for the award. We estimate the fair value of stock option grants using the Black-Scholes
option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates
and involve inherent uncertainties and the application of management’s judgment.
Expected Term — The expected term
of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method,
which is the half-life from vesting to the end of its contractual term.
Expected Volatility — The Company
computes stock price volatility over expected terms based on its historical common stock trading prices.
Risk-Free Interest Rate — The
Company bases the risk-free interest rate on the implied yield available on United States Treasury zero-coupon issues with an equivalent
remaining term.
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Expected Dividend — The Company
has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future,
and, therefore, uses an expected dividend yield of zero in its valuation models.
Interest income
Interest income consists of interest earned on
our cash and cash equivalents.
Grant revenue
The Company received grant revenue from the Army
Medical Research and Material Command on June 5, 2023, for a pre-clinical study on the use of the ALPHA-1062 Intranasal to reduce
blast of mTBI induced functional deficit and brain abnormalities. All funds relating to government grants are being recorded under the
gross method of accounting for government grants whereby any income received and associated expenses incurred will be reported as grant
income and included in research and development expenses, respectively on the statement of operations and comprehensive loss. When grant
proceeds are initially received, they are recorded as deferred income and restricted cash. Grant proceeds used to pay for study costs
and are expensed as incurred, with a corresponding amount of grant revenue recorded along with a reduction of the balance of the deferred
income liability. The Company classifies the balance of cash received from grants as restricted cash, when the proceeds from the grant
have been designated for use in specified research. During the year ended December 31, 2024 and December 31, 2023, the Company recorded
grant income of $463,881 and $191,087, respectively, from its R&D Grant in the consolidated statements of operations and comprehensive
loss.
Interest expense
Interest expense relates primarily to the interest
paid on the Neurodyn Life Sciences Inc. (“NLS”) promissory note. Effective April 1, 2024, the Company and NLS agreed to another
amendment to the promissory note pursuant to which the interest rate was increased from 5.5% to 7% and the maturity date was extended
from July 2024 to July 2025. Additionally, $300,000 was paid on December 31, 2024, with the remaining principal balance due at maturity.
The balance was repaid in full on January 29, 2025.
Change in fair value of derivatives
The change in the fair value of derivative liabilities
consists of the Company’s revaluation of their liability classified warrants that have an exercise price in USD, recognition and
revaluation of the conversion feature and warrant liabilities from the convertible debentures and warrants issued to agent. The Company
uses the Black-Scholes Option Pricing Model to determine the fair value of the warrant liability at the end of each reporting period.
This model requires the input of subjective assumptions including expected share price volatility, risk-free interest rate, and term of
the warrant. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings (loss) and
equity.
Currency translation adjustment
For the purpose of presenting consolidated financial
statements, the assets and liabilities of the Company’s CAD operations are translated to USD at the exchange rate on the reporting
date. The income and expenses are translated using average exchange rates. Foreign currency differences that arise on translation for
consolidated purposes are recognized in other comprehensive loss on the consolidated statement of operations and comprehensive loss.
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Results of Operations
Comparison of the Three Months ended December 31, 2024 and
2023
For the Three Months Ended December 31, Dollar Percentage
Operating expenses
Other income (expense)
Other comprehensive loss
Currency translation adjustment - - - (100 )
Net loss per share, basic and diluted $ (0.51 ) $ (1.33 ) $ 0.82 (62 )
Comparison of the Year ended December 31, 2024 and 2023
For the Year Ended December 31, Dollar Percentage
Operating expenses
Other income (expense)
Other comprehensive loss (income)
Net loss per share, basic and diluted $ (2.02 ) $ (3.84 ) $ 1.82 (47 )
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Research and development expenses
Comparison of Research and Development for the Three Months
ended December 31, 2024 and 2023
Research and development expenses decreased by $71,495,
or 5%, from $1,110,093 for the three months ended December 31, 2023, to $1,038,598 for the three months ended December 31, 2024.
Research and development costs decreased primarily due to lower product development costs and consulting fees for ALPHA-1062 in AD, offset
by grant expenses of $130,419 which were incurred in 2024 following the receipt of the DOD grant in June 2023, and decreased management
fees and salaries. The Company’s research and development expenses are summarized below:
For the three months ended December 31, Dollar Percentage
Comparison of Research and Development for the Year ended December
31, 2024 and 2023
Research and development expenses decreased by $965,430,
or 20%, from $4,883,973 for the year ended December 31, 2023, to $3,918,543 for the year ended December 31, 2024. Research and development
costs decreased primarily due to lower product development costs including clinical trial costs and consulting fees for ALPHA-1062 in
AD following the submission of the NDA filed in September of 2023, offset by grant expenses of $463,881 which were incurred in 2024 following
the receipt of the DOD grant in June 2023 and increased management fees and salaries. The Company’s research and development expenses
are summarized below:
For the year ended December 31, Dollar Percentage
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General and administrative expenses
General and administrative expenses costs consist
of personnel costs, consulting fees, other outside professional services including legal, human resources, audit and accounting services,
and pre-commercialization expenses, including selling and marketing costs as well attendance to various conferences. Personnel costs consist
of salaries, benefits, and share-based compensation. We expect to continue to incur expenses to support our continued operations as a
public company, including expenses related to existing and future compliance with rules and regulations of the stock exchanges on which
our securities are traded, insurance expenses, investor relations, audit fees, professional services and general overhead and administrative
costs.
Comparison of General and Administrative Expenses for the Three Months
ended December 31, 2024 and 2023
General and administrative expenses increased
by $191,586 or 15%, from $1,309,958 for the three months ended December 31, 2023, to $1,501,544, for the three months ended
December 31, 2024. Professional fees, registrar and filing fees, subcontractors and other general and administrative costs were primarily
higher in the three months ended December 31, 2024, in support of the Company’s US IPO filing and expansion of the business operating
support. Share-based compensation was lower primarily due to fluctuations in the Company stock price and accounting for equity awards
that were issued after December 31, 2023. The following table depicts the fluctuation in the general and administrative accounts:
For the three months ended December 31, Dollar Percentage
General and Administrative Expenses:
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Comparison of General and Administrative Expenses for the Year
ended December 31, 2024 and 2023
General and administrative expenses increased
by $2,887,992 or 57%, from $5,054,120 for the year ended December 30, 2023, to $7,942,112, for the year ended December 31, 2024, primarily
due to the increase in expenses related to consulting fees, financing fees, professional fees, investor relations and registrar and filing
fees. Consulting fees during the year ended December 31, 2024, included $2,273,949 relating to the issuance of 582,331 Common Shares pursuant
to the Spartan Consulting Agreement. Management fees and salaries, professional fees, registrar and filing fees, investor relations were
primarily higher in the year ended December 31, 2024, in support of the Company’s NDA filing for ALPHA-1062, the US IPO filing and
general business operating support. Share-based compensation was lower primarily due to fluctuations in the Company stock price and accounting
for equity awards that were issued after September 30, 2023. The following table depicts the fluctuation in the general and administrative
accounts:
For the Year ended December 31, Dollar Percentage
General and Administrative Expenses:
Foreign Exchange (Loss) Gain
The foreign exchange (loss) gain amount consists
of changes in the value of the Canadian Dollar compared to the U.S. Dollar throughout the year.
The foreign exchange gain (loss) changes by $21,413,
or 158%, from a loss of $13,512 for the three months ended December 31, 2023, to a loss of $7,901 for the three months ended December
31, 2024. The foreign exchange loss increased by $47,357, or 479%, from a gain of $9,928 as of December 31, 2023, to a loss of $37,609
as of December 31, 2024, due primarily to the fluctuations in exchange rate between the Canadian Dollar and the U.S. Dollar. This
variance is largely due to the Company changing its functional currency from the CAD to the USD on August 31, 2023, therefore having
less transactions needing to be denominated in a foreign currency. The change in mix and balance of the Company’s assets and liabilities
over the periods also impacted the changes in foreign currency exchange (loss) gain.
Interest Income
Interest income consists of interest earned on the Company’s
cash.
Interest income increased $143,7730, or 8,239%,
from $1,745 for the three months ended December 31, 2023, to $145,518 for the three months ended December 31, 2024. Interest income increased
$154,860, or 2,276%, from $6,804 for the year ended December 30, 2023, to $161,664 for the year ended December 31, 2024.
Grant Income
The Company received grant revenue from the Army Medical Research and
Material Command on June 5, 2023, for a pre-clinical study on the use of the ALPHA-1062 Intranasal to reduce blast of mTBI induced
functional deficit and brain abnormalities. During the three months ended December 30, 2024 and 2023, the Company recorded grant income
of $130,419 and $227,746, respectively. During the year ended December 31, 2024 and 2023, the Company recorded grant income of $463,881
and $191,087, respectively. During the year ended December 31, 2024 and 2023, the Company recorded grant income from the federal wage
tax credits refund relating to subcontractor costs of $0 and $69,416, respectively.
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Interest Expense
Interest expense increased $59,621, or 1704%,
from $3,499 for the three months ended December 31, 2023, to $63,120 for the three months ended December 31, 2024. Interest expense increased
$87,757, or 501%, from $17,516 for the year months ended December 31, 2023, to $105,273 for the year ended December 31, 2024, following
the increase in interest rates on the NLS note which occurred in 2023 and interest on convertible debentures prior to conversion to shares
. Interest expense relates primarily to the interest paid on the NLS promissory note and the accrued interest for the convertible debentures.
Impairment of Intangible Assets
During the three months and year ended December
31, 2024, the Company recorded an impairment of intangible assets of $0 and $39,166, respectively, from the impairment of the ALPHA-0602
license as the Company decided to discontinue development of the ALPHA-602 technology, no impairments were reported in the comparable
2023 periods.
Change in Fair Value of Derivative Liabilities and
Conversion of Convertible Debt
The Company used the Monte Carlo Simulation to
determine the fair value of the conversion feature liability and warrants liability for recognition and subsequent conversion of the convertible
debentures. The Company uses the Black-Scholes Option Pricing Model to determine the fair value of stock options, standalone share purchase
warrants issued and derivative liability. This model requires the input of subjective assumptions including expected share price volatility,
interest rate, and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s
earnings (loss) and equity reserves.
The loss of $3,323,540 for the three months ended
December 31, 2024 for the fair value of the warrant liabilities was a net change of $229,315, or 6%, compared to a loss of $3,552,855
for the three months ended December 31, 2023. The loss of $3,164,707 for the year ended December 31, 2024 for the fair value of the warrant
liabilities was a net change of $920,577, or 23%, compared to a loss of $4,085,284 for the year ended December 3, 2023. The change was
primarily due to the recognition and revaluation the conversion feature liability, fluctuation in the Company’s stock price as
well as the volatility of the financial markets, coupled with the addition of new warrants issued during the first quarter of 2023 which
were priced differently that the Company’s functional currency at the time of issuance and new warrants issued during the third
quarter of 2024 which have a variable exercise price.
Provision for Loan Losses
The Company recorded a provision for loan losses
of $55,000 relating to its loan to Alpha Seven during the nine months ended September 30, 2024, following a delay in Alpha Seven’s
initial capital raise and therefore potential inability to repay the loan when due.
Currency Translation Adjustment
For the purpose of presenting consolidated financial
statements, the assets and liabilities of the Company’s CAD operations were translated to USD at the exchange rate on the reporting
date. The income and expenses were translated using average exchange rates. Foreign currency differences that arise on translation for
consolidated purposes are recognized in other comprehensive loss on the consolidated statement of operations and comprehensive loss.
The currency translation adjustment was $(19,573)
for December 31, 2023, compared to $nil for the year ended December 31, 2024. The change is due to the Company changing its functional
currency from the CAD to the USD on August 31, 2023, resulting in no currency translation adjustment being required after August 31,
2023.
Liquidity and Capital Resources
Sources of Liquidity
The Company does not have operating revenue to
finance its existing obligations and therefore must continue to rely on external financing to generate capital to maintain its capacity
to meet working capital requirements. The Company has relied on debt and equity raises to finance its operating activities since incorporation.
The Company expects to continue to rely on debt and the issuance of shares, and possibly other non-dilutive financing options to finance
its ongoing operations and plans for commercialization of ZUNVEYL. However, there is a risk that additional financing will not be available
on a timely basis or on terms acceptable to the Company.
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Future Funding Requirements
We expect our expenses to increase substantially
in connection with our ongoing activities, particularly as we continue the commercialization of ZUNVEYL, following the FDA’s approval
in July 2024 and potentially seek to discover and develop additional product candidates, conduct our ongoing and planned clinical trials
and preclinical studies, continue our R&D activities, utilize third parties to manufacture ZUNVEYL, hire additional personnel, expand
and protect our intellectual property, and incur additional costs associated with being a public company.
Cash used to fund operating expenses is impacted
by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses, and prepaid
expenses. The timing and amount of our funding requirements will depend on many factors, including:
Based upon our current operating plan, we estimate
that our existing cash, cash equivalents and marketable securities as of the date of this filing, will be sufficient to fund our projected
base ongoing operating expenses, the initial costs to prepare for commercialization of ZUNVEYL in AD, planned CMC costs, ongoing operating
costs and capital expenditures through at least the next 24 months. We expect to look to raise additional capital to continue to
further advance our commercialization plans and ongoing operating costs. However, we have based our estimates on assumptions that may
prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us. In addition, we could utilize
our available capital resources sooner than we expected. The Company is also contemplating raising additional capital by pursuing
both dilutive and non-dilutive strategic sources of capital; to fully execute its commercial and operating plans following receipt of
the NDA approval for ZUNVEYL from the FDA. Any additional capital would further support our planned costs to begin commercial activities
including launching U.S. sales of ZUNVEYL in AD.
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We have no other committed sources of capital.
Until such time, if ever, we can generate substantial product revenue, we expect to finance our operations through equity offerings, debt
financings, or other capital sources, including current or potential future collaborations, licenses, royalties and other similar arrangements.
We do not know what the terms of these future financings will be and whether they will be acceptable to the us or not and, therefore,
we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent
we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the
terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt
financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability
to take specific actions, such as incurring additional debt, making acquisitions, engaging in acquisition, merger or collaboration transactions,
selling or licensing our assets, making capital expenditures, redeeming our stock, making certain investments or declaring dividends.
If we raise additional funds through collaborations or license agreements with third parties, we may have to relinquish valuable rights
to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable
to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce
or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that
we would otherwise prefer to develop and market ourselves, or even cease operations.
Financing Activities
Recent capital raising activities
During the third quarter of 2022 the Company initiated
cost cutting measures to extend its cash runway and reduce ongoing cash burn. The Company streamlined R&D programs and has prioritized
spend towards the NDA filing and development of ALPHA-1062 in AD. The Company has reduced headcount and other operating costs related
to the ZUNVEYL NDA file and other development costs. The Company has lowered its near-term operating burn until additional capital can
be secured. If we are unable to raise adequate funds, we may have to further delay or reduce the scope of or eliminate some or all of
our current research and development. Any of these actions could have a material adverse effect on our business, results of operations
or financial condition.
During the first quarter of 2023 the Company completed
the brokered private placement by issuing 949,906 units at a price of CAD$6.38 for total proceeds of $4,506,055 (CAD$6,055,650) with each
unit consisting of one Common share and one warrant exercisable at a price of CAD$9.75 per warrant for a term of 5 years from the closing
date (“Q1 2023 PP”).
In March 2023, the Company entered into an
amendment of the Promissory Note and License Agreement with the NLS promissory note holders to extend the maturity of the $1.2M outstanding
promissory note to July 15, 2024, the previous maturity date of the promissory note was December 31, 2022. The parties also
agreed to increase the Promissory Note interest rate from 2% annually to a market rate of 5.5% annually. (see Note 7 of the accompanying
audited financial statements).
On May 30, 2023, the Company announced a
best-efforts private placement offering of up to $6,500,000 of units at the initial pricing of $5.50 per unit (“Q2 2023 PP”).
Each unit consists of one common share and one-half of a warrant. Each whole warrant will entitle the holder to purchase an additional
common share of the Company at the initial pricing of $7.75 per share for a period of three years from the closing date. The aggregate
proceeds may be increased by 30% to accommodate any overallotment. The Company also announced that it entered into an Investment Banking
Agreement (“IBA”) with Spartan Securities LLC (“Spartan”) pursuant to which Spartan will act as agent on a best-efforts
basis in connection with the Q2 2023 PP. In accordance with the Q2 2023 PP, the Company has agreed to pay Spartan cash commissions
of 10% of the gross proceeds, issue Spartan finder’s warrants equal to 10% of the number of the warrants issued to investors, in
each case excluding investors on the Company’s president’s list and pay Spartan a non-accountable expense fee equal to 5%
of the gross proceeds of the Q2 2023 PP excluding the president’s list.
The Q2 2023 PP capital raising are summarized
below for each closing date.
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The Following table summarizes the Q2 2023 PP
closing activity:
(1) Each warrant is exercisable at $0.31 per warrant.
On September 24, 2024, the Company announced
the closing of a $4.545 million bridge financing through the issuance of convertible notes and warrants led by existing investors
and select new investors comprised of institutional funds and high-net-worth accredited investors.
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On November 13, 2024, the Company completed a
public offering of common shares by issuing 8,695,653 common shares at a public offering price of $5.75 per share for gross proceeds of
approximately $50 million. In connection with the US public offering, the Company’s Common Shares began trading on The Nasdaq Capital
Market on November 12, 2024.
The completion of the public offering of common
shares was a “Qualified Offering” under the Company’s convertible notes, which automatically converted into 801,413
common shares at closing of the public offering at a price of $5.75 per share, being the public offering price in the Qualified Offering.
The amount converted consisted of the converted principal amount of convertible notes and interest through November 13, 2024.
Additionally, as a result of the closing of the
Qualified Offering, the Company issued an additional 215,418 warrants exercisable to acquire 215,421 Common Shares with an exercise price
of $7.19 per share and the exercise price of the Company’s existing 430,835 warrants issued in connection with the offering of the
convertible notes was repriced from $10.55 per share to $7.19 per share.
On December 12, 2024, the underwriter of the Company’s underwritten
U.S. public offering partially exercised its over-allotment option to purchase an additional 488,506 common shares at the public offering
price of $5.75 per share for additional gross proceeds of $2.8 million.
The following table includes our cash flow data
for the periods indicated:
Cash Flows
The following table provides information regarding
our cash flows for the years ended December 31, 2024, and 2023:
For the year ended December 31, Dollar Percentage
Consolidated Statement of Cash Flows Data
Cash provided by investing activities $ (26,701 ) $ - $ (26,701 ) 100 %
Cash used in operating activities
Cash used in operating activities decreased by
$1,043,911 to $7,755,654 for the year ended December 31, 2024, from $8,799,565 for the comparative period. The change in cash flows from
operating activities represents the effect on cash flows from net losses adjusted for items not affecting cash, principally amortization
and depreciation, accretion on convertible debentures, accrued expenditures for government grant, share-based compensation, impairment
of intangible assets, provision for loan losses, shares issued for services, changes in the value of conversion feature liability and
warrant liabilities, and bonus rights liability, in addition to net changes in non-cash balances related to working capital items.
Cash used in investing activities
Cash used in investing activities increased by
$26,701 to $26,701 for the year ended December 31, 2024 from $nil compared to the comparative period. During the year ended December 31,
2024, investing activities consisted of acquiring equipment.
Cash provided by financing activities
Cash provided by financing activities for the
year ended December 31, 2024, increased by $46,621,849 compared to the comparative period. During the year ended December 31, 2024, financing
activities primarily consisted of raising proceeds of $3,732,469 from units issued for cash, raising proceeds of $4,545,000 from the issuance
of convertible debentures, raising proceeds of $52,808,915 from shares issued from the US listing, $300,000 from the exercise of warrants,
and receiving $373,825 in government grant proceeds offset by $466,366 of related grant expenses. The funds raised under financing activities
were offset by share issuance costs of $5,740,824 and debt issuance costs of $459,360. During the three months ended December 31, 2024,
the Company made a principal payment of $300,000 on the promissory note.
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Contractual Obligations and Other Commitments
In the normal course of business, we enter into
agreements with contract service providers to assist in the performance of R&D and clinical and commercial manufacturing activities.
We currently have two license agreements, ALPHA-1062 technology and ALPHA-602 technology, which are outlined below. We expect to enter
into additional clinical development, contract research, clinical and commercial manufacturing, supplier, and collaborative research agreements
in the future, which may require upfront payments and long-term commitments of capital resources.
See “Note 13 – Commitments and Contingencies”
of the accompanying financial statements for a discussion of our contractual obligations and long-term commitments.
Contingencies
The Company did not have any contingencies as
of December 31, 2024, or the date of this report.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis
of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance
with US GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial
statements and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical
and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Use of Estimates and Assumptions
The preparation of these consolidated financial
statements in conformity with US GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts
of assets and liabilities and disclosure of contingent liabilities as of the date of the consolidated financial statements and the reported
amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including valuing equity securities
in share-based payment arrangements, estimating the fair value of financial instruments recorded as a warrant liability, useful lives
of depreciable assets and definite lived intangible assets, and whether impairment charges may apply, and the determination of whether
an asset constitutes a business a business combination or asset acquisition. Management bases these estimates on historical and anticipated
results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions
as to forecasted amounts and future events. Actual results could differ materially from these estimates under different assumptions or
conditions.
Functional Currency
The functional currency of an entity is the currency
of the primary economic environment in which the entity operates. Effective August 31, 2023, the functional currency of the Company
was updated to the United States Dollar (“USD” or U.S. Dollar”) as management assessed that the currency of
the primary economic environment in which the Company operates changed to USD on that date. The key factor influencing this decision was
the change in the Company’s primary funding from Canadian dollars (“CAD”) to USD, whereas the functional currency of
its subsidiaries was unchanged and remain in USD. Prior to USD the functional currency of the Company was CAD, and its subsidiaries
was USD. Changes to the Company’s functional currency have been accounted for on a prospective basis from August 31, 2023.
The determination of functional currency was made in accordance with the Financial Accounting Standards Board (“FASB”) Accounting
Standard Codification (“ASC”) 830, Foreign Currency Matters.
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The Company’s reporting currency is the
USD. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s CAD operations
are translated to USD at the exchange rate on the reporting date. The income and expenses are translated using average exchange rates.
Foreign currency differences that arise on translation for consolidated purposes are recognized in other comprehensive loss on the consolidated
statements of operations and comprehensive (loss) income.
Grant Accounting
All funds relating to government grants are being
recorded under the gross method of accounting for government grants whereby any income received and associated expenses incurred will
be reported as grant income and included in research and development expenses, respectively on the statement of comprehensive loss. When
grant proceeds are initially received, they are recorded as deferred income and restricted cash. Grant proceeds are then used to pay for
study costs and are expensed, the Company will also record a corresponding amount to grant revenue and reduce the balance of the deferred
income liability.
On June 5, 2023, the Company was awarded
a $750,000 research and development grant from the Army Medical Research and Material Command for a pre-clinical study on the use of the
ALPHA-1062IN (Intranasal) to reduce blast mTBI (mild Traumatic Brain Injury) induced functional deficit and brain abnormalities (‘R&D
Grant”). The grant funds are to be used on the following project “Assessment of Functional Recovery and Reduced Tauopathy
Following ALPHA-1062 Administration in a Repetitive Blast TBI Model in Rodents.” The R&D Grant is issued in collaboration
with the Seattle Institute of Biomedical and Clinical Research and endorsed by the Department of Defense. Funds received from the R&D
grant are restricted and to be used solely as outlined in the grant. The R&D grant funding will expire for use on September 30,
2028. The award funding is to subsidized the costs for research and development with the following specific Aims:
Per the R&G Grant budget expenses are expected
to include cost to carry out the clinical trials including personnel costs, materials and supplies, animal housing, publications, and
travel costs. The Company classifies any cash received from the R&D Grant that has not yet been used to pay ongoing R&D grant
expenditures as restricted cash, as the proceeds from the grant are to be designated for the specified grant research.
Fair Value Measurements
Fair value is defined as the price that would
be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement
date. U.S. GAAP establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● Level 3 — inputs that are unobservable.
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The Company’s financial instruments consist
of cash, restricted cash, prepaid and other current assets, notes receivable, accounts payable and accrued liabilities, warrant liability,
promissory note, and other liabilities.
Share Based Compensation
Share-based compensation cost is recorded for
all option grants and awards of non-vested stock based on the grant date fair value of the award using the Black-Scholes option-pricing
model and is recognized over the service period required for the award. We estimate the fair value of stock option grants using the Black-Scholes
option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates
and involve inherent uncertainties and the application of management’s judgment.
Expected Term — The
expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the
simplified method, which is the half-life from vesting to the end of its contractual term.
Expected Volatility — The
Company computes stock price volatility over expected terms based on its historical common stock trading prices.
Risk-Free Interest Rate — The
Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent
remaining term.
Expected Dividend — The
Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable
future, and, therefore, uses an expected dividend yield of zero in its valuation models.
Liability-Based Awards
Bonus right awards that include cash settlement
features are accounted for as liability-based awards in accordance with ASC 718, Compensation — Stock Compensation.
The fair value of the bonus right awards is estimated using a Black-Scholes option-pricing model and is revalued on each reporting date,
based on the probability of the expected awards to vest, until settlement. Changes in the estimated fair value of the bonus right awards
are recognized within general and administrative expense on the consolidated statement of operations and comprehensive income. Key assumptions
in the calculation of the fair value of the bonus right awards include expected volatility, risk-free interest rate, expected life, and
fair value per award.
Research and Development Costs
Research and development costs are expensed as
incurred unless there is an alternate future use in other research and development projects or otherwise. Research and development costs
include salaries and benefits, share-based compensation expense, management fees and salaries, research costs, travel costs and other
consulting services. We expect our research and development expenses will increase as we progress our product candidates into later stage
clinical trials, add to the number of ongoing clinical trials, advance our discovery research projects into the pre-clinical stage, continue
our early-stage research, and prepare for the commercialization of our product candidates. The process of conducting research, identifying
potential product candidates, and conducting pre-clinical and clinical trials necessary to obtain regulatory approval and commencing pre-commercialization
activities is costly and time intensive. We may never succeed in achieving marketing approval for our product candidates regardless of
our costs and efforts. The probability of success of our product candidates may be affected by numerous factors, including pre-clinical
data, clinical data, competition, manufacturing capability, our cost of goods to be sold, our ability to receive, and the timing of, regulatory
approvals, market conditions, and our ability to successfully commercialize our products if they are approved for marketing. As a result,
we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will
generate revenue from the commercialization and sale of any of our product candidates. Our research and development programs are subject
to change from time to time as we evaluate our priorities and available resources.
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Going concern
We continue to assess the ability to continue
as a going concern, which involves management judgement and analysis of resources and prospects. The Company has reported negative cash
flow from operating activities since inception and expects to experience negative operating cash flows for the foreseeable future. The
Company has not generated revenues from its operations to date and as of December 31, 2024, had a deficit of $76,285,038 (December 31,
2023 - $61,648,173) which has been primarily financed by equity. The Company had $48,564,082 in cash and restricted cash and $3,350,752
in current liabilities (of which $97,515 is payable from the Company’s available restricted cash balance) as of December 31, 2024.
The Company’s continuing operations, as intended, are highly dependent upon its ability to obtain additional funding and generate
cash flows. Based upon our current operating plan and our closing of our public offering of common shares for approximately $46.42 million
in net proceeds on November 13, 2024, we estimate that our existing cash, cash equivalents and marketable securities as of the date of
this filing would be sufficient to fund our projected base ongoing operating expenses, the initial costs to prepare for commercialization
of ZUNVEYL in AD, planned CMC costs, ongoing operating costs and capital expenditures through at least the next 12 months from the
date of this Form 10-K. However, we may look to raise additional capital to continue to further advance our commercialization plans, R&D
pipeline, and ongoing operating costs through a debt or equity financing in the next 12 months from the date of the filing of this Form
10-K. We have based our estimates on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors
currently unknown to us. In addition, we could utilize our available capital resources sooner than we expected. The Company is also
contemplating raising additional capital by pursuing both dilutive and non-dilutive strategic sources of capital; to fully execute its
commercial and operating plans following receipt of the NDA approval for ZUNVEYL from the FDA. Any additional capital would further support
our planned costs to begin commercial activities including launching U.S. sales of ZUNVEYL in AD.
The Company has maintained the cost cutting measures
it initiated in the third quarter of 2022 to extend its cash runway and reduce ongoing cash burn. The Company focus has been to streamline
R&D programs and has prioritized spend towards the NDA filing and development of ALPHA-1062 in AD. The Company reduced headcount
and other operating costs to focus spending on the ALPHA-1062 NDA file and other related development costs. The Company expects to continue
to operate under the lower operating burn until further additional capital can be secured. If we are unable to raise adequate funds,
we may have to further delay or reduce the scope of or eliminate some or all of our operating and commercialization plans and product
development. Any of these actions could have a material adverse effect on our business, results of operations or financial condition.
Income taxes
In assessing the probability of realizing income
tax assets, management makes estimates related to expectation of future taxable income, applicable tax opportunities, expected timing
of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable
tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively
verified.
Impairment of intangible assets
The application of the Company’s accounting
policy for intangible assets requires judgment in determining whether it is likely that future economic benefits will flow to the Company
and whether any impairment indicators exist, which may be based on assumptions about future events or circumstances. Estimates and assumptions
may change if new information becomes available. If, after expenditures are capitalized, information becomes available suggesting that
the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes
available.
Useful lives of intangible assets
Amortization is recorded on a straight-line basis
based upon management’s estimate of the useful life and residual value. The estimates are reviewed at least annually and are updated
if expectations change as a result of technical obsolescence or legal and other limits to use.
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Valuation of debt modification
The Company calculated the debt modification using
the net present value of cash flows approach. This approach requires the input of subjective assumptions including the Company’s
borrowing rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings (loss).
Recent Accounting Pronouncements Not Yet Adopted
In August 2020, FASB issued ASU 2020-06,
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, which is intended
to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments
and contracts on an entity’s own equity. ASU 2020-06 is effective for the Company for the fiscal year beginning after December 15,
2023. There was no material impact of this new guidance on the accompanying unaudited condensed interim consolidated financial statements.
Emerging Growth Company Status and Smaller
Reporting Company Status