Item 1A. Risk Factors.
As a “smaller reporting company,”
as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information in this Item.
Item 1B. Unresolved Staff
Comments.
None.
Item 1C. Cybersecurity.
We acknowledge the increasing importance of cybersecurity
in today’s digital and interconnected world. Cybersecurity threats pose significant risks to the integrity of our systems and data,
potentially impacting our business operations, financial condition and reputation.
As a smaller reporting company, we currently
do not have formalized cybersecurity measures, a dedicated cybersecurity team or specific protocols in place to manage cybersecurity
risks. Our approach to cybersecurity is in the developmental stage, and we have not yet conducted comprehensive risk assessments, established
an incident response plan or engaged with external cybersecurity consultants for assessments or services.
Given our current stage of cybersecurity development, we have not experienced
any significant cybersecurity incidents to date. However, we recognize that the absence of a formalized cybersecurity framework may leave
us vulnerable to cyberattacks, data breaches and other cybersecurity incidents. Such events could potentially lead to unauthorized access
to, or disclosure of, sensitive information, disrupt our business operations, result in regulatory fines or litigation costs and negatively
impact our reputation among customers and partners. In addition, cybersecurity incidents could have material adverse effects on our business
strategy, financial condition, and results of operations (e.g., a significant breach could result in direct financial losses due to fraud,
system downtime impacting revenue generation, increased compliance costs or contractual liabilities with third-party vendors and customers).
39
We are in the process of evaluating our cybersecurity
needs and developing appropriate measures to enhance our cybersecurity posture. This includes considering the engagement of external
cybersecurity experts to advise on best practices, conducting vulnerability assessments and developing an incident response strategy.
Our goal is to establish a cybersecurity framework that is commensurate with our size, complexity and the nature of our operations, thereby
reducing our exposure to cybersecurity risks.
In addition, the Board will oversee any cybersecurity risk management
framework and a dedicated committee of the Board or an officer appointed by the Board will review and approve any cybersecurity policies,
strategies and risk management practices. The Board (or designated committee or officer) will receive periodic updates on cybersecurity
risks, including emerging threats, mitigation efforts and incident response activities. The updates will be provided at least annually,
or more frequently as needed, to ensure cybersecurity risks are appropriately managed and integrated into our broader risk oversight strategy.
Despite our efforts to improve our cybersecurity
measures, there can be no assurance that our initiatives will fully mitigate the risks posed by cyber threats. The landscape of cybersecurity
risks is constantly evolving, and we will continue to assess and update our cybersecurity measures in response to emerging threats.
For a discussion of potential cybersecurity risks
affecting us, please refer to the “Risk Factors” section of our Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on February 14, 2025 titled “Cybersecurity risks could adversely affect our business and disrupt our
operations.”
Item 2. Properties.
Our corporate headquarters are located at 1025
Connecticut Avenue NW Suite 1000, Washington, D.C. 20036. We do not own any physical property, plant or labs. We currently lease one
office at the above address and in December 2024, we renewed our lease for an additional one-year term that expires March 31, 2026.
Item 3. Legal Proceedings.
From time to time, we may become involved in
various claims and legal proceedings. We are not currently a party to any legal proceedings that, in the opinion of our management, are
likely to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because
of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures.
Not applicable.
40
PART
II
Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is currently listed on The Nasdaq Capital Market under
the symbol “SXTP,” and warrants under the symbol “SXTPW.” Trading in our common stock has historically lacked
consistent volume, and the market price has been volatile.
On March 26, 2025 the closing price for our common
stock and warrants as reported on The Nasdaq Capital Market was $1.88 per share and $0.024, respectively.
Holders of Common Stock
On March 27, 2025, there were 21 holders of record of our common stock.
Reverse Stock Split
On November 6, 2024, our Board approved a reverse
stock split of our Common Stock at a split ratio ranging between 1:3 and 1:5, as determined by the Board in its sole discretion. On November
6, 2024, a majority of the stockholders of the Company approved the proposed reverse stock split. On February 10, 2025, the Board approved
a 1-for-5 reverse split ratio. On February 24, 2025, the Company effectuated a 1-for-5 reverse stock split of our common stock (the “1:5
Reverse Stock Split”). Beginning February 24, 2025, our common stock traded on The Nasdaq Capital Market on a split adjusted basis.
In July 2024, our Board approved a reverse stock
split of our Common Stock at a split ratio ranging between 1:5 and 1:12, as determined by the Board in its sole discretion. On July 16,
2024, a majority of the stockholders of the Company approved the proposed reverse stock split. On July 19, 2024, our Board approved a
1-for-12 reverse split ratio. On August 12, 2024, the Company effectuated a 1-for-12 reverse stock split of our common stock (the “1:12
Reverse Stock Split” and together, with the 1:5 Reverse Stock Split, the “Reverse Stock Splits”). Beginning August 12,
2024, our common stock traded on The Nasdaq Capital Market on a split adjusted basis.
All common share and applicable per share amounts in this Annual Report
on Form 10-K have been retroactively restated to reflect the effect of the Reverse Stock Splits.
Transfer Agent
The transfer agent for our common stock is Equity
Stock Transfer, LLC (“Equity Stock Transfer”), located at 237 West 37th Street, Suite 602, New York, NY 10018. The phone
number and facsimile number for Equity Stock Transfer are (212) 575-5757 and (347) 584-3644, respectively. Additional information about
Equity Stock Transfer can be found on its website at www.equitystock.com.
Dividend Policy
We have never paid any cash dividends on our
common stock. We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development
of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination to pay dividends
will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, and other
factors that our Board deems relevant. In addition, the terms of any future debt or credit financings may preclude us from paying dividends.
Unregistered Sales of Equity Securities
Common Stock
The issuances of shares of common stock listed
above were deemed exempt from registration under Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder in that
the issuance of securities did not involve a public offering.
41
Warrants
On September 4, 2024, we issued 579,711 pre-funded
warrants, 579,711 Series A Warrants and 579,711 Series B Warrants to investors in a private offering. The Pre-Funded Warrants are exercisable
immediately upon issuance and expire when exercised in full at an exercise price of $0.005 per share. The Series A Warrants and Series
B Warrants have an exercise price of $6.90 per share and were exercisable beginning on the effective date of stockholder approval of
the issuance of the shares of Common Stock (the “Stockholder Approval”), which was received on November 6, 2024. The Series
A Warrants will expire five years from Stockholder Approval and the Series B Warrants will expire eighteen (18) months from Stockholder
Approval. H.C. Wainwright & Co., LLC acted as the exclusive placement agent in connection with the Private Placement. In connection
with the Private Placement, we issued to Wainwright the Placement Agent Warrants to purchase 43,479 shares of Common Stock. The Placement
Agent Warrants have an exercise price equal to $8.625 per share and are exercisable beginning on the effective date of the Stockholder
Approval for five years from Stockholder Approval.
In January 2025, we issued warrants to purchase
up to an aggregate of 408,621 shares of common stock at an exercise price of $3.855 per share. The January 2025 Warrants are exercisable
upon issuance and expire twenty-four months from the date of issuance. We issued to the Placement Agent (or its designees) warrants to
purchase up to 15,325 shares of common stock. The January 2025 Placement Agent Warrants have an exercise price equal to $6.382 per share
and are exercisable upon issuance, or January 30, 2025, for twenty-four months from the date of issuance, or January 30, 2027.
On February 5, 2025, we issued warrants to purchase
up to an aggregate of 300,700 shares of common stock at an exercise price of $2.95 per share. The February 2025 Warrants are exercisable
upon issuance and expire twenty-four months from the date of issuance. We issued to the Placement Agent (or its designees) warrants to
purchase up to 22,554 shares of common stock. The February 2025 Placement Agent Warrants have an exercise price equal to $4.469 per share
and are exercisable upon issuance, or February 6, 2025, for twenty-four months from the date of issuance, or February 8, 2027.
The warrants described above were deemed exempt
from registration in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder in that the issuance of
securities were made to an accredited investor and did not involve a public offering. The recipients of such securities represented its
intention to acquire the securities for investment purposes only and not with a view to or for sale in connection with any distribution
thereof.
Option Grants
On July 16, 2024, the effective date of shareholder
approval to increase the number of shares authorized under the 2022 Plan, we granted a total of 504 fully vested, non-qualified options
to purchase shares of common stock at a per share exercise price of $318.00 to the following directors and in the amounts listed: (i)
Stephen Toovey (126 common stock options), (ii) Charles Allen (126 common stock options), (iii) Paul Field (126 common stock options)
and (iv) Cheryl Xu (126 common stock options).
42
On July 16, 2024, the effective date of shareholder
approval to increase the number of shares authorized under the 2022 Plan, we granted a total of 12,334 options to purchase shares of
common stock at a per share exercise price of $60.00 to Geoff Dow, our Chief Executive Officer, (5,000 common stock options), Tyrone
Miller, our Chief Financial Officer (4,000 common stock options), and Bryan Smith, an external consultant, (3,334 common stock options).
These options vest in five equal tranches on the last date of each fiscal year, with the first vesting date being December 31, 2024.
On September 26, 2024, we granted 4,167 options
to purchase shares of common stock at a per share exercise price of $6.85 to Kristen Landon, our Chief Commercial Officer, which vest
in five equal tranches on the last date of each fiscal year, with the first vesting date being December 31, 2024.
On January 2, 2025, we granted a total of 120,000
options to purchase shares of common stock at a per share exercise price of $6.55 to Geoff Dow, our Chief Executive Officer, (105,000
common stock options) and Tyrone Miller, our Chief Financial Officer (15,000 common stock options), which vest in five equal tranches.
The first tranche was fully vested on the date of grant and thereafter, the options vest on the last date of each fiscal year beginning
December 31, 2025.
Issuance
of Notes
On May 14, 2020, we issued the Note to the U.S.
Small Business Administration with a principal amount of $150,000 and a per annum interest rate of 3.75%.
On May 19, 2022, we issued the Convertible Promissory
Note to Geoffrey Dow, as assigned to the Geoffrey S. Dow Revocable Trust dated August 27, 2018 (the “Dow Note”), in the amount
of $44,444.44 and a per annum interest rate of 6%. Immediately prior to the closing of our initial public offering, the balance of the
Dow Note converted at a price equal to 80% of the IPO price.
On May 19, 2022, we issued the Mountjoy Note
in the amount of $294,444.42 and a per annum interest rate of 6%. Immediately prior to the closing of our initial public offering, the
balance of the Mountjoy Note converted at a price equal to 80% of the IPO price.
On May 24, 2022, we issued the Bigger Capital
Fund Note in the amount of $333,333.30 to Bigger Capital Fund, LP. On the date of the pricing of our initial public offering, we delivered
to Bigger Capital Fund, LP shares of our common stock equal to the number of shares of common stock calculated using a share price of
the IPO price.
On May 24, 2022, we issued the Cavalry Investment
Fund Note in the amount of $277,777.78 to Cavalry Investment Fund, LP. On the date of the pricing of our initial public offering, we
delivered to Cavalry Investment Fund, LP shares of our common stock equal to the number of shares of common stock calculated using a
share price of the IPO price.
43
On May 24, 2022, we issued the Walleye Note in
the amount of $277,777.78 to Walleye Opportunities Master Fund Ltd. On the date of the pricing of our initial public offering, we delivered
to Walleye Opportunities Master Fund Ltd shares of our common stock equal to the number of shares of common stock calculated using a
share price of the IPO price.
On May 8, 2023, we issued the Cyberbahn Note
in the amount of $111,111.10 to Cyberbahn Federal Solutions, LLC with a 10% original issue discount. On the date of the pricing of our
initial public offering, we delivered to Cyberbahn Federal Solutions, LLC shares of our common stock equal to the number of shares of
our common stock calculated using a share price of the IPO price.
On May 8, 2023, we issued the Ariana Note in
the amount of $111,111.10 to Ariana Bakery Inc with a 10% original issue discount. On the date of the pricing of our initial public offering,
we delivered to Ariana Bakery Inc shares of our common stock equal to the number of shares of our common stock calculated using a share
price of the IPO price.
On May 8, 2023, we issued the Sabby Note in the
amount of $333,333.30 to Sabby Volatility Warrant Master Fund, Ltd. with a 10% original issue discount. On the date of the pricing of
our initial public offering, we delivered to Sabby Volatility Warrant Master Fund, Ltd. shares of our common stock equal to the number
of shares of our common stock calculated using a share price of the IPO price.
On May 8, 2023, we issued the Anderson Note in
the amount of $55,555.55 to Steel Anderson with a 10% original issue discount. On the date of the pricing of our initial public offering,
we delivered to Steel Anderson shares of our common stock equal to the number of shares of our common stock calculated using share price
of the IPO price.
On May 8, 2023, we issued the Gao & Wang
Note in the amount of $111,111.10 to Bixi Gao & Ling Ling Wang with a 10% original issue discount. On the date of the pricing of
our initial public offering, we delivered to Bixi Gao & Ling Ling Wang shares of our common stock equal to the number of shares of
our common stock calculated using a share price of the IPO price.
The notes described above were deemed exempt
from registration in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder in that the issuance of
securities were made to an accredited investor and did not involve a public offering. The recipients of such securities represented its
intention to acquire the securities for investment purposes only and not with a view to or for sale in connection with any distribution
thereof.
Preferred
Stock
The issuance of shares of Series A Preferred
Stock listed above was deemed exempt from registration under Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder
in that the issuance of securities did not involve a public offering.
44
2022 Equity Incentive Plan
On November 22, 2022, the Board and majority
stockholder adopted the 60 Degrees Pharmaceuticals, Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan provides
for the grant of the following types of stock awards: (i) incentive stock options, (ii) nonstatutory stock options, (iii) stock appreciation
rights, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. The 2022 Plan is intended to help
us secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for our
success and any of our affiliates and provide a means by which the eligible recipients may benefit from increases in value of the common
stock. Initially, the Board reserved 3,977 shares of common stock issuable upon the grant of awards under the 2022 Plan. The 2022 Plan
provides for an automatic increase in the number of shares available for issuance beginning on January 1, 2023 and each January 1 thereafter,
by 4% of the number of outstanding shares of common stock on the immediately preceding December 31, or such number of shares as determined
by the Board of Directors.
On July 16, 2024 and November 6, 2024, our stockholders approved an
increase to the number of shares available under the 2022 Plan by 83,334 shares and 100,000 shares, respectively, which increases were
previously approved by the Board. The total number of shares that remain available for issuance under the 2022 Plan is 57,068 shares effective
as of March 27, 2025, which additional reservation of shares provides us with flexibility to address future equity compensation needs.
This increase is essential to attract and retain qualified employees, directors and consultants, and to align their interests with those
of our stockholders.
EQUITY PLAN INFORMATION
2022 Equity Incentive Plan:
Equity compensation plans approved by security holders 4,437 $ 116.07 154,392
Equity compensation plans not approved by security holders — — —
(1) Balances presented as of December 31, 2024
45
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
None.
Item 6. [Reserved]
Not applicable.
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Prospective investors should read the following
discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes
and other financial information included elsewhere in this annual report. Some of the information contained in this discussion and analysis
or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.”
This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere
in this report. In this discussion, we may use certain non-generally accepted accounting principles (GAAP) financial measures. An explanation
of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures are included in this
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Investors should not consider
non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP.
1. Overview
We are a specialty pharmaceutical company with
a goal of using cutting-edge biological science and applied research to further develop and commercialize new therapies for the prevention
and treatment of infectious diseases. We have successfully achieved regulatory approval of Arakoda® (“Arakoda”), a malaria
preventative treatment that has been on the market since late 2019. Currently, 60P’s pipeline under development covers development
programs for vector-borne, fungal, and viral diseases utilizing three of the Company’s future products: (i) new products that contain
the Arakoda regimen of Tafenoquine; (ii) new products that contain Tafenoquine; and (iii) Celgosivir.
46
Following our initial public offering in July
2023, our initial strategic priority was to conduct a Phase IIB study that would have evaluated the potential of the Arakoda regimen
of Tafenoquine to accelerate disease recovery in COVID-19 patients with low risk of disease progression. In October 2023, we made a decision
to suspend this study. This was a consequence of advice previously received from the U.S. Food and Drug Administration (FDA), which we
interpreted to mean that the agency would not have granted clearance for the study to proceed unless we redesigned it to (i) enroll a
patient population in which receipt of Paxlovid or Lagevrio would be medically contraindicated, or (ii) compare Tafenoquine to placebo
in patients taking a “standard of care” regimen (defined by the FDA as Lagevrio or Paxlovid). The FDA’s position was
somewhat surprising given that neither Paxlovid nor Lagevrio is indicated for treatment of COVID-19 in low-risk patients. We determined
that conducting our study in an alternate population in the United States would be unfeasible, and that conducting an add-on-to standard
of care study might not be Phase III enabling. Accordingly, we made a decision to pivot back to continue commercialization of Arakoda
for malaria, and further evaluation of the Arakoda regimen of Tafenoquine for babesiosis and other diseases. We believe such an approach
is both less risky and less expensive.
Moving forward, our general strategy to achieve
profitability and grow shareholder value has three facets: (i) increase sales of Arakoda; (ii) conduct clinical trials to expand the
number of patients who can use Tafenoquine for new indications in the future; and (iii) reposition small molecule therapeutics with good
clinical safety profiles for new indications.
2. Components of Results of Operations
Product Revenues - net of Discounts and Rebates
We receive the majority of our product revenues
from sales of our Arakoda product to resellers in the U.S. and abroad. Foreign sales to both Australia and Europe are further subject
to profit sharing agreements for boxes sold to customers. Sales to resellers in the US are subject to considerable discounts and rebates
for services provided by our third-party logistics (“3PL”) partner and wholesalers and pharmacy benefit managers (“PBMs”).
Cost of Revenues, Gross Profit (Loss), and Gross Margin
Cost of revenues associated with our products
is primarily comprised of direct materials, shipping, manufacturing related costs incurred in the production process, serialization costs
and inventory write-downs due to expiration.
Other Operating Revenues
Other operating revenues for the periods presented
include research revenue earned from the Australian Tax Authority for research activities conducted in Australia. Beginning in the third
quarter of 2024, we began to recognize research revenues associated with our new contract with the United States Army Medical Materiel
Development Activity (USAMMDA) for Arakoda supply chain upgrade support. Research revenue under this contract is recognized when we incur
the direct costs eligible for reimbursement, up to the maximum allowable amount.
Operating Expenses
Research and Development
Research and development costs for the periods
presented primarily consist of contracted R&D services and costs associated with preparation for and conducting our Babesiosis trial
in 2024 and, in 2023, related to our halted COVID-19 clinical trial. We expense all research and development costs in the period in which
they are incurred. Payments made prior to the receipt of goods or services to be used in research and development are recognized as prepaid
assets and expensed over the service period as the services are provided. We have also issued shares of our common stock to vendors in
exchange for research and development services.
47
General and Administrative Expenses
Our general and administrative expenses primarily
consist of salaries, advertising and promotion expenses, professional services fees, such as consulting, audit, accounting and legal
fees, general corporate costs and allocated costs, including facilities, information technology and amortization of intangibles.
Interest and Other Income (Expense), Net
Prior to the IPO, our interest expense consisted
of interest accrued on our outstanding debt obligations and amortization of debt discounts and deferred issuance costs. Subsequently,
interest expense is mostly limited to a single, $150,000 SBA loan. Other components of other income and expense include changes in the
fair value of financial instruments, gains and losses on extinguishments of debt, and other miscellaneous income or expenses. We also
earn interest income from cash invested in interest-bearing accounts, as well as cash equivalents and short-term investments consisting
of certificates of deposits with original maturities ranging from three to six months.
3. Results of Operations
The following table sets forth our results of
operations for the periods presented:
For the Year Ended December 31,
Consolidated Statements of Operations Data: 2024 2023
Product Revenues – net of Discounts and Rebates $ 607,574 $ 253,573
Research Revenues 73,771 -
Operating Expenses:
Derivative Expense - (399,725 )
Change in Fair Value of Derivative Liabilities 1,665,966 (37,278 )
Loss on Debt Extinguishment - (1,231,480 )
Change in Fair Value of Promissory Note - 5,379,269
Loss from Operations before Provision for Income Taxes (7,955,413 ) (3,813,550 )
Provision for Income Taxes (Note 9) 250 250
Net Loss – Noncontrolling Interest (8,556 ) (48,098 )
48
The following table sets forth our results of
operations as a percentage of revenue:
For the Year Ended December 31,
Consolidated Statements of Operations Data: 2024 2023
Product Revenues – net of Discounts and Rebates 100.00 % 100.00 %
Research Revenues 12.14 -
Operating Expenses:
Derivative Expense - (157.64 )
Change in Fair Value of Derivative Liabilities 274.20 (14.70 )
Loss on Debt Extinguishment - (485.65 )
Change in Fair Value of Promissory Note - 2,121.39
Other Income (Expense), net 16.70 (32.78 )
Total Interest and Other Income (Expense), net 289.60 528.85
Loss from Operations before Provision for Income Taxes (1,309.37 ) (1,503.93 )
Provision for Income Taxes (Note 9) 0.04 0.10
Net Loss including Noncontrolling Interest (1,309.41 ) (1,504.02 )
Net Loss – Noncontrolling Interest (1.41 ) (18.97 )
4. Comparison of the Years Ended December
31, 2024, and 2023
Product Revenues - net of Discounts and Rebates, Cost of Revenues,
Gross Profit (Loss), and Gross Margin
For the Year Ended December 31,
Consolidated Statements of Operations Data: 2024 2023 $ Change % Change
Product Revenues - net of Discounts and Rebates
Our product revenues - net of discounts and rebates
were $607,574 for the year ended December 31, 2024, as compared to $253,573 for the year ended December 31, 2023. For the year ended
December 31, 2024, our U.S. pharmaceutical distributor accounted for 95% of our total net product sales and Kodatef sales to our Australian
distributor accounted for 5% of total net product sales (72% and 21% for the year ended December 31, 2023, respectively). Domestic commercial
product sales are primarily driving increased sales volume during the period.
49
We offer discounts and rebates to the civilian
U.S. supply chain distribution channel. We record sales when our 3PL partner transfers boxes into their title model. Discounts and rebates
offered to our 3PL partner amount to 12% (lower rates available upon reaching larger revenue tiers) along with a $5,500 fixed monthly
fee that started in 2023. The product is then transferred usually to one of the three large U.S. pharmaceutical distributors where rebates
are 10%. Lastly, we have relationships with several large pharmacy benefit managers (“PBMs”) that allow patients to purchase
Arakoda at a discount. The rebate associated with PBMs ranges from 30% to 41.25% depending on the amount of coverage provided. For the
year ended December 31, 2024, discounts and rebates were $476,218 compared to $216,031 for the year ended December 31, 2023.
Arakoda entered the U.S. civilian supply chain
in the third quarter of 2019. For the year ended December 31, 2023, 1,632 boxes were sold to pharmacies and dispensaries. Sales volume
increased by 214% to 5,119 boxes sold to pharmacies and dispensaries for the year ended December 31, 2024. Based on IQVIA data, this
growth in sales volume appears to be driven primarily by organic growth in the Lyme disease community, whose prescribers utilize Arakoda
for treatment of babesiosis.
Kodatef sales to our distributor Biocelect in
Australia for the year ended December 31, 2024 were $30,652 ($53,718 for the year ended December 31, 2023). Sales to Biocelect are currently
subject to a profit share distribution once the original transfer price has been recouped. The most recent sale of boxes to Biocelect
reached profit share at the end of Q1 2024. Biocelect reported approximately 105% year-over-year growth, the equivalent of 1,850 boxes
sold for the year ended December 31, 2024, compared to 903 boxes for the year ended December 31, 2023. As of December 31, 2024, Biocelect’s
unsold inventory that remains subject to profit share was the equivalent of 385 boxes. While growth in Australia is similarly positive
to that in the US, Biocelect has achieved that growth by competing directly with Malarone in terms of price in their market for the approved
antimalarial prophylaxis indication. As of December 31, 2024, $9,444 of profit share was due to us ($0 as of December 31, 2023).
Arakoda sales volume is also showing signs of
sales growth in Europe. We first shipped Arakoda to our distributor Scandinavian Biopharma (“SB”) in September 2022. For
the year ended December 31, 2024, SB reported 147 boxes sold (0 for the year ended December 31, 2023). According to our distributor,
this is due to greater interest in treating babesiosis.
Cost of Revenues, Gross Profit (Loss), and
Gross Margin
Cost of revenues was $384,765 for the year ended
December 31, 2024, as compared to $474,550 for the year ended December 31, 2023. While net product sales increased over the same periods,
the decrease in cost of goods sold is primarily attributable to the fixed part of cost of goods. As the sales volume has increased, the
gross margin has improved as the variable cost of goods of each unit sold is substantially less than the sales price. Additionally, write-downs
for expired inventory were significantly higher during the year ended December 31, 2023 at $191,111, as compared to $22,046 during the
year ended December 31, 2024. Due to these factors, the Gross Margin % increased significantly from (87.15%) for the year ended December
31, 2023 to 37.78% for the year ended December 31, 2024.
Other Operating Revenues
For the Year Ended December 31,
Consolidated Statements of Operations Data: 2024 2023 $ Change % Change
The research revenues earned by us were $73,771
for the year ended December 31, 2024, as compared to $0 for the year ended December 31, 2023. Our research revenues for the year ended
December 31, 2024 primarily relate to research revenues earned from the Australian Tax Authority for research expenses conducted in Australia,
and we earned $55,395 during the year ended December 31, 2024 ($0 during the year ended December 31, 2023). We did not earn research
revenues from the Australian Tax Authority in 2023 due to the cancellation of our COVID-19 trial, after which we made the decision not
to file for the research rebate. In 2024, we also began to recognize research revenues related to the new USAMMDA contract we were awarded
in July 2024 to facilitate commercial validation of a new bottle and replacement blister packaging of Arakoda.
Operating Expenses
For the Year Ended December 31,
Consolidated Statements of Operations Data: 2024 2023 $ Change % Change
50
Research and Development
Research and development costs increased during
the year ended December 31, 2024 when compared to the year ended December 31, 2023. Research and development costs incurred during the
year ended December 31, 2023 consisted of initiation costs related to our Phase IIB COVID-19 clinical trial, which was later suspended
in the fourth quarter of 2023. Direct COVID-19-related trial costs represent less than 1% of the total research and development costs
for the year ended December 31, 2024 at $16,247 and 83% of the costs for the year ended December 31, 2023 at $574,609. During the year
ended December 31, 2024, $3,225,000, or 65% of the total research and development costs, relate to share-based payments granted to two
vendors in January 2023, which payments were initially deferred and capitalized. Kentucky Technology, Inc. delivered us a report on the
potential development of SJ733 + tafenoquine in the second quarter of 2024 and Trevally completed the synthesis of 8.8 kilograms of castanospermine
in the third quarter of 2024, resulting in $2,625,000 and $600,000, respectively, of research and development expense recognized for the
year ended December 31, 2024. We also incurred $1,359,532 in costs related to our babesiosis trial for tafenoquine during the year ended
December 31, 2024 ($0 during the year ended December 31, 2023).
General and Administrative Expenses
For the year ended December 31, 2024, our general
and administrative expenses increased by 18.46% or $783,149 from the year ended December 31, 2023. During the year ended December 31,
2024, we recorded higher compensation expenses including $275,114 of bonus expense and $662,951 of salaries, taxes, and benefits expense,
respectively (compared to $0 and $492,780 for the year ended December 31, 2023, respectively) due to certain sales and performance bonuses
payable to our executives, and higher salaries due to hiring of our new Chief Commercial Officer in February 2024. Additionally, during
the year ended December 31, 2024, we incurred $410,016 in legal and professional fees, $549,912 of insurance expenses, $1,019,111 of
investor outreach expenses, and $433,884 of advertising and promotion expenses (up from $268,611, $304,581, $668,639, and $172,551 for
the year ended December 31, 2023, respectively). These were partially offset by a significant decrease in stock-based compensation, which
decreased from $528,926 for the year ended December 31, 2023 to $32,767 for the year ended December 31, 2024. The decrease is, in part,
due to a decrease in the average grant date fair value of stock-based awards granted in 2024 as compared to 2023, as well as certain
fully vested stock-based awards granted to our directors on the closing date of our IPO, and to our executives at the end of 2023.
Interest and Other Income (Expense), Net
For the Year Ended December 31,
Consolidated Statements of Operations Data: 2024 2023 $ Change % Change
Interest Expense
For the year ended December 31, 2024, we recognized
$7,912 of interest expense ($2,286,637 for the year ended December 31, 2023). The decrease in interest expense is the result of the settlement
or conversion of a majority of our outstanding debt obligations upon the closing of our IPO on July 14, 2023. Cash paid for interest
was $8,772 and $179,117 for the years ended December 31, 2024 and December 31, 2023, respectively.
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Derivative Expense
For the year ended December 31, 2023, we recognized
$399,725 of derivative expense in connection with the raising of $555,000 in net proceeds from our bridge funding in May 2023. We record
derivative expense when the initial fair value of the related derivative liabilities exceeds the cash proceeds received. We did not record
derivative expense for the year ended December 31, 2024 as we did not complete any debt financing transactions during the period.
Change in Fair Value of Derivative Liabilities
For the year ended December 31, 2024, we recognized a net gain on the
change in fair value of derivative liabilities of $1,665,966 compared to a net loss of $37,278 for the year ended December 31, 2023. During
the year ended December 31, 2024, derivative liabilities include the contingent milestone payment due to Knight upon a future sale of
Arakoda or a Change of Control. The fair value of the contingent milestone payment is inversely related to the net present value of future
investments in the Company and anticipated timing to profitability within our budget models. During the year ended December 31, 2023,
derivative liabilities consisted of bridge shares, certain warrants, and embedded conversion features in our convertible notes, which
were each converted or reclassified to equity upon the closing of our IPO. We use a probability-weighted expected return method or a Monte
Carlo simulation model to estimate the fair value of these instruments.
Loss on Debt Extinguishment
For the year ended December 31, 2024, we did
not recognize a gain or loss on debt extinguishment ($1,231,480 loss recognized during the year ended December 31, 2023). The decrease
is related, in part to the conversion of the cumulative outstanding debt pursuant to the Knight Debt Conversion Agreement in January
2023, which was accounted for as a debt extinguishment, as well as losses recognized upon extinguishment of our interim bridge financing
notes, all of which were settled or converted upon our IPO in July 2023. The net amount for the year ended December 31, 2023 was partially
offset by a debt extinguishment gain of $223,077 recognized on conversion of the Xu Yu promissory note on the date of our IPO.
Change in Fair Value of Promissory Note
For the year ended December 31, 2023, we recognized
a net gain of $5,379,269 related to the change in the fair value of the Convertible Knight Loan, which was held at fair value beginning
on the modification date in January 2023. The gain relates to the mark to market adjustment recognized immediately prior to the automatic
conversion of the outstanding debt obligation into our equity shares upon the closing of our IPO. We no longer have any debt obligations
measured at fair value on a recurring basis, hence we recorded a $0 change in fair value for the year ended December 31, 2024.
Other Income (Expense), net
For the year ended December 31, 2024, we recognized
$101,464 in other income compared to $83,116 in other expense for the year ended December 31, 2023. As a result of the IPO as well as
additional equity financing transactions completed in 2024, we have earned higher interest income from investing certain cash proceeds
in interest-bearing accounts and short-term certificates of deposit. We recognized interest income of $103,299 during the year ended
December 31, 2024 ($19,985 during the year ended December 31, 2023). Additionally, during the year ended December 31, 2024, we recognized
$10,789 in service revenue in association with the final payment from the USAMMDA for storing Arakoda purchases ($0 for the year ended
December 31, 2023), upon the final resolution of storage fees payable from the USAMMDA under the original development contract entered
into in 2014. As the development contract ended on August 31, 2022, additional storage revenue is not expected in the near future. Other
expense during the year ended December 31, 2023, was primarily related to net foreign exchange transaction losses as well as a one-time
write off of an uncollectible receivable from our 3PL for an uninvoiced return of $48,236.
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5. Liquidity and Capital Resources
As of December 31, 2024, we had cash and cash
equivalents of $1,659,353 ($2,142,485 as of December 31, 2023). For the year ended December 31, 2024 and 2023, our net cash used in operating
activities was $5,648,088 and $4,542,910, respectively. To date, we have financed our operations primarily through the issuance of common
stock, warrants to purchase common stock, and proceeds from the issuance of convertible debt and promissory notes. Based on current internal
projections, taking into consideration the net proceeds of approximately $1.9 million received under the ATM Agreement, an additional
$5.127 million in cumulative net proceeds received from the September, 2024 Private Placement and 2025 offerings, and recent growth in
Arakoda sales, we estimate that we will have sufficient funds to remain viable through August 31, 2025, excluding the additional costs
of conducting the expanded access study for chronic babesiosis patients (currently being planned), and assuming no additional capital
raises. We cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash
balances for our planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than
recently experienced. We may need to raise additional capital in the future. However, we cannot assure you that we will be able to raise
additional capital on acceptable terms, or at all.
Going Concern
In their audit report for the fiscal year ended
December 31, 2024, our auditors have expressed their concern as to our ability to continue as a going concern. Our ability to continue
as a going concern is dependent upon our ability to generate cash flows from operations and obtain financing. The audited consolidated
financial statements for the years ended December 31, 2024, and December 31, 2023, respectively, included an explanatory note referring
to our recurring operating losses and expressing substantial doubt in our ability to continue as a going concern.
Our future results are subject to substantial
risks and uncertainties. Since our inception, we have not demonstrated the ability to generate enough revenues to date to cover operating
expenses and we have accumulated losses to date. To date, we have funded our operations primarily with proceeds from sales of common stock
and warrants for the purchase of common stock, sales of preferred stock, proceeds from the issuance of convertible debt and borrowings
under loan and security agreements.
Continuation as a going concern is dependent upon
our ability to meet our financial requirements, raise additional capital, and achieve gross profitability from our single marketed product.
To achieve profitability, we expect we will need to raise additional capital to fund our activities relating to commercial support for
our existing product and any future clinical research trials and operating activities. However, there can be no assurance that we
will ever achieve or maintain profitability. These conditions, among others, raise substantial doubt about our ability to continue as
a going concern for one year from the date these financial statements are issued.
We plan to fund our operations through third party
and related party debt/advances, private placement of restricted securities and the issuance of stock in a subsequent offering until such
a time as the business achieves profitability or a business combination may be achieved. However, there can be no assurance that we will
be successful in raising additional capital or that such capital, if available, will be on terms that are favorable to us. Debt financing
and 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 capital expenditures or declaring dividends. If we raise funds through collaborations,
or other similar arrangements 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 and/or may reduce the value of our
common stock. 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 our product candidates
even if we would otherwise prefer to develop and market such product candidates ourselves.
As such, we have concluded that such plans do
not alleviate the substantial doubt about our ability to continue as a going concern for one year from the date the accompanying financial
statements are issued.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business, and
do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to
continue as a going concern.
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Contractual Obligations
The following table summarizes our contractual obligations as of December
31, 2024:
Payments Due By Period
Total Less than 1 year 1-3 years 4-5 years More than 5 Years
Amounts related to contingent milestone payments
are not considered contractual obligations as they are contingent on the achievement of certain milestones. These contingent milestones
may or may not be achieved. We have not included any of these amounts in the table above as we cannot estimate or predict when, or if,
these amounts will become due.
Cash Flows
Year Ended December 31,
Net Cash (Used In) Provided By :
Cash Used in Operating Activities
Net cash used in operating activities was $5,648,088
for the year ended December 31, 2024, as compared to $4,542,910 for the year ended December 31, 2023. Our net cash used in operating
activities increased, in part due to higher general and administrative expenses of $5,024,985 for the year ended December 31, 2024 ($4,241,836
for the year ended December 31, 2023) primarily due to higher cash compensation and related expenses, legal and professional fees, insurance
expenses, investor outreach expenses, and advertising and promotion expenses, as discussed above. In addition, we incurred $1,304,183
in costs related to our planned babesiosis trial for tafenoquine during the year ended December 31, 2024 ($0 during the year ended December
31, 2023).
Cash Used in Investing Activities
Net cash used in investing activities was $1,889,114
for the year ended December 31, 2024, as compared to $115,888 for the year ended December 31, 2023. The increase in cash used in investing
activities is primarily driven by purchases of short-term certificates of deposit for a total cost of $1,708,000 during the year ended
December 31, 2024 ($0 during the year ended December 31, 2023), purchased for the purposes of earning interest income. Additionally,
purchases of computer and lab equipment totaled $103,773 during the year ended December 31, 2024 ($57,623 during the year ended December
31, 2023), and capitalized website development costs and patent costs totaled $25,374 and $51,967, respectively, for the year ended December
31, 2024 ($18,283 and $39,982 for the year ended December 31, 2023, respectively).
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Cash Provided by Financing Activities
Net cash provided by financing activities was
$7,053,571 for the year ended December 31, 2024, as compared to $6,474,565 for the year ended December 31, 2023. The increase in net
cash provided by financing activities is primarily attributable to (i) net proceeds of $1,914,513 received for the sale of common stock
and warrants in January 2024, (ii) net proceeds of $1,790,670 from the sale of common stock pursuant to the At-the-Market Sales Agreement
in July and August 2024, and (iii) $3,439,502 received from the sale of warrants in our Private Placement offering that closed in September
2024, in each case partially offset by payment of deferred offering costs. Cash provided by financing activities for the year ended December
31, 2023 related to net proceeds of $6,454,325 generated from our IPO, which closed on July 14, 2023, as well as $1,131,771 received
from the exercise of warrants, but partially offset by repayments of certain of our outstanding debt obligations in July 2023.
Effect of Foreign Currency Translation on
Cash Flow
Our foreign operations were small relative to
U.S. operations for the years ended December 31, 2024 and December 31, 2023, thus effects of foreign currency translation have been minor.
6. Critical Accounting Policies, Significant
Judgments, and Use of Estimates
The preparation of 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 disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
We recognize revenue in accordance with FASB
ASC Topic No. 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when control is transferred
to customers in amounts that reflect the consideration we expect to be entitled to receive in exchange for those goods. Revenue recognition
is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification
of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price
to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied. As part
of the accounting for these arrangements, we may be required to make significant judgments, including identifying performance obligations
in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price
to each performance obligation.
Revenues from product sales are recorded at the
net sales price, or “transaction price,” which may include estimates of variable consideration that result from product returns.
We determine the amount of variable consideration by using either the expected value method or the most-likely-amount method. We include
the unconstrained amount of estimated variable consideration in the transaction price, which reflects the amount for which it is probable
that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, we re-evaluate
the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate
of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment. Reserves
are established for the estimates of variable consideration based on the amounts we expect to be earned or to be claimed on the related
sales.
We record U.S. commercial revenues as a receivable
when our American distributor transfers shipped product to their title model for 60P. Foreign sales to both Australia and Europe are
recognized as a receivable at the point product is shipped to distributor. The shipments to Australia and Europe are further subject
to profit sharing agreements for boxes sold to customers.
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Inventory
We report inventories at the lower of cost or
net realizable value. Cost is comprised of direct materials and, where applicable, costs we incur in bringing the inventories to their
present location and condition. We use the Specific Identification method per lot. A box price is calculated per lot number and sales
are recognized by their lot number.
We regularly monitor our inventory levels to
identify inventory that may expire or has a cost basis in excess of its estimated realizable value, and record write-downs for inventory
that has expired, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected
sales requirements. We charge any write-downs of inventories to Cost of Revenues in the Consolidated Statements of Operations and Comprehensive
Loss.
Share-Based Payments
We account for share-based payments in accordance
with ASC Subtopic 718, Compensation - Stock Compensation (“ASC 718”). We measure compensation for all share-based
payment awards granted to employees, directors, and nonemployees, based on the estimated fair value of the awards on the date of grant.
For awards that vest based on continued service, the service-based compensation cost is recognized on a straight-line basis over the
requisite service period, which is generally the vesting period of the awards. For service vesting awards with compensation expense recognized
on a straight-line basis, at no point in time does the cumulative grant date value of vested awards exceed the cumulative amount of compensation
expense recognized. The grant date is determined based on the date when a mutual understanding of the key terms of the share-based awards
is established. We account for forfeitures as they occur.