UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,September 30, 20222023
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from________ to_________.
Commission File Number: 001-40874
Cingulate Inc.
(Exact name of registrant as specified in its charter)
Delaware | 86-3825535 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1901 W. 47th Place Kansas City, KS | 66205 | |
(Address of principal executive offices) | (Zip Code) |
(913) 942-2300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
The Stock Market LLC (Nasdaq Capital Market) | ||||
The Stock Market LLC (Nasdaq Capital Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 5, 2022,November 10, 2023, shares of the registrant’s common stock, $0.0001 par value, were issued and outstanding.
Cingulate Inc.
Form 10-Q for the Quarter Ended March 31, 2022September 30, 2023
TABLE OF CONTENTS
Page | ||
PART I | ||
Item 1 | Financial Statements | 4 |
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4 | Controls and Procedures | |
PART II | ||
Item 1 | Legal Proceedings | |
Item 1A | Risk Factors | |
Item 6 | ||
Signatures |
2 |
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Theseamended, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements are generally identified by the use ofterms such words as “may,” “could,“will,” “should,” “would,“expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “estimate,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “continue,” “outlook,” “will,“predict,” “potential” andor “continue” or the negative of these terms or other similar expressions intended to identify statements of a future or forward-looking nature.about the future. These forward-looking statements speak only as of the date of filing this report with the SECSecurities and Exchange Commission (the “SEC”) and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements include, without limitation, statements about the following:
● | our ability to maintain compliance with the continued listing requirements of The Nasdaq Capital Market; | |
● | our lack of operating history and need for additional capital; | |
● | our plans to develop and commercialize our product candidates; | |
● | the timing of our planned clinical trials for CTx-1301, CTx-1302, and CTx-2103; | |
● | the timing of our New Drug Application (NDA) submissions for CTx-1301, CTx-1302, and CTx-2103; | |
● | the timing of and our ability to obtain and maintain regulatory approvals for CTx-1301, CTx-1302, CTx-2103, or any other future product candidate; | |
● | the clinical utility of our product candidates; | |
● | our commercialization, marketing and manufacturing capabilities and strategy; | |
● | our expected use of cash;
| |
● | our competitive position and projections relating to our competitors or our industry; | |
● |
our ability to identify, recruit, and retain key personnel; | |
● | the impact of laws and regulations; | |
● | our expectations regarding the time during which we will be an emerging growth company under the | |
● | our plans to identify additional product candidates with significant commercial potential that are consistent with our commercial objectives; and | |
● | our estimates regarding future revenue and expenses. |
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. You should refer to the “Risk Factors” section of this report, our other SEC filings and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, filed with the SEC on March 28, 2022,10, 2023, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. We operate in an evolving environment and new risk factors and uncertainties may emerge from time to time. It is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should review the factors and risks and other information we describe in the reports we will file from time to time with the SEC.
3 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
Cingulate Inc.
Consolidated Balance Sheets (unaudited)
March 31, | December 31, | September 30, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 12,614,180 | $ | 16,492,745 | $ | 1,986,313 | $ | 5,356,276 | ||||||||
Short-term investments | 933 | 933 | ||||||||||||||
Miscellaneous receivables | 651,371 | 690,248 | 5,836 | 234,432 | ||||||||||||
Prepaid expenses and other current assets | 1,307,137 | 1,698,353 | 910,286 | 2,278,944 | ||||||||||||
Total current assets | 14,573,621 | 18,882,279 | 2,902,435 | 7,869,652 | ||||||||||||
Property and equipment, net | 3,054,349 | 3,145,378 | 2,531,330 | 2,904,787 | ||||||||||||
Operating lease right-of-use assets | 804,711 | 858,600 | 436,493 | 630,618 | ||||||||||||
Total assets | 18,432,681 | 22,886,257 | 5,870,258 | 11,405,057 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | 556,326 | 264,687 | 1,670,436 | 762,357 | ||||||||||||
Accrued expenses | 756,035 | 601,300 | 692,008 | 894,635 | ||||||||||||
Current installments of obligations under finance leases | 15,335 | 15,096 | ||||||||||||||
Other current liabilities | 303,263 | 295,595 | ||||||||||||||
Note payable | 3,000,000 | 5,000,000 | ||||||||||||||
Finance lease liability, current | 16,805 | 16,053 | ||||||||||||||
Operating lease liability, current | 353,183 | 339,755 | ||||||||||||||
Total current liabilities | 1,630,959 | 1,176,678 | 5,732,432 | 7,012,800 | ||||||||||||
Long-term liabilities: | ||||||||||||||||
Obligations under finance leases | 33,613 | 37,534 | ||||||||||||||
Operating lease liabilities | 749,508 | 828,503 | ||||||||||||||
Finance lease liability, net of current | 8,792 | 21,487 | ||||||||||||||
Operating lease liability, net of current | 225,368 | 488,748 | ||||||||||||||
Total long-term liabilities | 234,160 | 510,235 | ||||||||||||||
Total liabilities | 2,414,080 | 2,042,715 | 5,966,592 | 7,523,035 | ||||||||||||
Stockholders’ Equity | ||||||||||||||||
Common Stock, $ | par value; shares authorized and shares issued and outstanding as of March 31, 2022 and December 31, 20211,131 | 1,131 | ||||||||||||||
Preferred Stock, $ | par value; shares authorized and shares issued and outstanding as of December 31, 2021- | - | ||||||||||||||
Common Stock, $ | par value; shares authorized and and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively1,738 | 1,131 | ||||||||||||||
Preferred Stock, $ | par value; shares authorized and shares issued and outstanding as of September 30, 2023 and December 31, 2022- | - | ||||||||||||||
Additional Paid-in-Capital | 72,756,028 | 72,574,510 | 85,910,674 | 73,289,387 | ||||||||||||
Accumulated other comprehensive income | (2,783 | ) | 165 | |||||||||||||
Accumulated deficit | (56,735,775 | ) | (51,732,264 | ) | (86,008,746 | ) | (69,408,496 | ) | ||||||||
Total stockholders’ equity | 16,018,601 | 20,843,542 | (96,334 | ) | 3,882,022 | |||||||||||
Total liabilities and stockholders’ equity | $ | 18,432,681 | $ | 22,886,257 | $ | 5,870,258 | $ | 11,405,057 |
See notes to consolidated financial statements.
4 |
Cingulate Inc.
Consolidated Statements of Operations and Comprehensive Loss (unaudited)
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||
Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development | $ | 2,762,284 | $ | 562,519 | $ | 3,923,852 | $ | 2,123,114 | $ | 10,508,395 | $ | 7,063,626 | ||||||||||||
General and administrative | 2,247,060 | 767,645 | 1,825,822 | 1,845,248 | 5,453,643 | 5,963,067 | ||||||||||||||||||
Operating loss | (5,009,344 | ) | (1,330,164 | ) | (5,749,674 | ) | (3,968,362 | ) | (15,962,038 | ) | (13,026,693 | ) | ||||||||||||
Interest and other income (expense), net | 5,833 | (3,759 | ) | (229,380 | ) | (58,885 | ) | (638,212 | ) | (44,512 | ) | |||||||||||||
Loss before income taxes | (5,003,511 | ) | (1,333,923 | ) | (5,979,054 | ) | (4,027,247 | ) | (16,600,250 | ) | (13,071,205 | ) | ||||||||||||
Income tax benefit (expense) | - | - | - | - | - | - | ||||||||||||||||||
Net loss | (5,003,511 | ) | (1,333,923 | ) | (5,979,054 | ) | (4,027,247 | ) | (16,600,250 | ) | (13,071,205 | ) | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Change in unrealized gain on short-term investments | (2,948 | ) | - | |||||||||||||||||||||
Change in unrealized loss on short-term investments | - | 3,249 | - | (166 | ) | |||||||||||||||||||
Comprehensive loss | $ | (5,006,459 | ) | $ | (1,333,923 | ) | $ | (5,979,054 | ) | $ | (4,023,998 | ) | $ | (16,600,250 | ) | $ | (13,071,371 | ) | ||||||
Net loss per share of common stock, basic and diluted | $ | (0.44 | ) | - | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||||||
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted | 11,309,412 | - |
See notes to consolidated financial statements.
5 |
Cingulate Inc.
Consolidated Statements of Stockholders’ Equity (unaudited)
Common Stock | Additional | Members’ | Accumulated | Accumulated Other Comprehensive | Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Paid-in-Capital | Capital | Deficit | Income | Equity | ||||||||||||||||||||||
Balance January 1, 2021 | - | - | $ | - | 32,314,441 | $ | (31,022,336 | ) | $ | 165 | $ | 1,292,270 | ||||||||||||||||
Member contributions | - | 1,385,688 | 1,385,688 | |||||||||||||||||||||||||
Net loss | - | - | - | (1,333,923 | ) | - | (1,333,923 | ) | ||||||||||||||||||||
Balance March 31, 2021 | - | $ | - | $ | - | $ | 33,700,129 | $ | (32,356,259 | ) | $ | 165 | $ | 1,344,035 | ||||||||||||||
Balance January 1, 2022 | 11,309,412 | 1,131 | $ | 72,574,510 | - | $ | (51,732,264 | ) | $ | 165 | $ | 20,843,542 | ||||||||||||||||
Activity for the three months to March 31, 2022: | ||||||||||||||||||||||||||||
Unrealized losses on available for sale investments | - | - | - | - | - | (2,948 | ) | (2,948 | ) | |||||||||||||||||||
Stock-based compensation expense | - | - | 181,518 | - | - | - | 181,518 | |||||||||||||||||||||
Net loss | - | - | - | - | (5,003,511 | ) | - | (5,003,511 | ) | |||||||||||||||||||
Balance March 31, 2022 | 11,309,412 | $ | 1,131 | $ | 72,756,028 | $ | - | $ | (56,735,775 | ) | $ | (2,783 | ) | $ | 16,018,601 |
Shares | Amount | Paid-in-Capital | Deficit | Income | Equity | |||||||||||||||||||
Common Stock | Additional | Accumulated | Accumulated Other Comprehensive | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Paid-in-Capital | Deficit | Income | Equity | |||||||||||||||||||
Balance January 1, 2022 | 11,309,412 | 1,131 | $ | 72,574,510 | $ | (51,732,264 | ) | $ | 165 | $ | 20,843,542 | |||||||||||||
Activity for the three months to March 31, 2022: | ||||||||||||||||||||||||
Unrealized losses on available for sale investments | - | - | - | - | (2,948 | ) | (2,948 | ) | ||||||||||||||||
Stock-based compensation expense | - | - | 181,518 | - | - | 181,518 | ||||||||||||||||||
Net loss | - | - | - | (5,003,511 | ) | - | (5,003,511 | ) | ||||||||||||||||
Balance March 31, 2022 | 11,309,412 | $ | 1,131 | $ | 72,756,028 | $ | (56,735,775 | ) | $ | (2,783 | ) | $ | 16,018,601 | |||||||||||
Activity for the three months to June 30, 2022: | ||||||||||||||||||||||||
Unrealized losses on available for sale investments | - | - | - | - | (466 | ) | (466 | ) | ||||||||||||||||
Stock-based compensation expense | - | - | 207,186 | - | - | 207,186 | ||||||||||||||||||
Net loss | - | - | - | (4,040,447 | ) | - | (4,040,447 | ) | ||||||||||||||||
Balance June 30, 2022 | 11,309,412 | $ | 1,131 | $ | 72,963,214 | $ | (60,776,222 | ) | $ | (3,249 | ) | $ | 12,184,874 | |||||||||||
Activity for the three months to September 30, 2022: | ||||||||||||||||||||||||
Unrealized losses on available for sale investments | - | - | - | - | 3,249 | 3,249 | ||||||||||||||||||
Stock-based compensation expense | - | - | 205,656 | - | - | 205,656 | ||||||||||||||||||
Net loss | - | - | - | (4,027,247 | ) | - | (4,027,247 | ) | ||||||||||||||||
Balance September 30, 2022 | 11,309,412 | $ | 1,131 | $ | 73,168,870 | $ | (64,803,469 | ) | $ | - | $ | 8,366,532 | ||||||||||||
Balance January 1, 2023 | 11,309,412 | 1,131 | $ | 73,289,387 | $ | (69,408,496 | ) | $ | - | $ | 3,882,022 | |||||||||||||
Activity for the three months to March 31, 2023: | ||||||||||||||||||||||||
Stock-based compensation expense | - | - | 204,479 | - | - | 204,479 | ||||||||||||||||||
Net loss | - | - | - | (4,004,887 | ) | - | (4,004,887 | ) | ||||||||||||||||
Balance March 31, 2023 | 11,309,412 | $ | 1,131 | $ | 73,493,866 | $ | (73,413,383 | ) | $ | - | $ | 81,614 | ||||||||||||
Activity for the three months to June 30, 2023: | ||||||||||||||||||||||||
Issuance of common stock in connection with At the Market Offering and Purchase Agreement, net of fees | 747,376 | 75 | 218,723 | 218,798 | ||||||||||||||||||||
Stock-based compensation expense | - | - | 217,376 | - | - | 217,376 | ||||||||||||||||||
Net loss | - | - | - | (6,616,309 | ) | - | (6,616,309 | ) | ||||||||||||||||
Balance June 30, 2023 | 12,056,788 | $ | 1,206 | $ | 73,929,965 | $ | (80,029,692 | ) | $ | - | $ | (6,098,521 | ) | |||||||||||
Balance | 12,056,788 | $ | 1,206 | $ | 73,929,965 | $ | (80,029,692 | ) | $ | - | $ | (6,098,521 | ) | |||||||||||
Activity for the three months to September 30, 2023: | ||||||||||||||||||||||||
Issuance of common stock in connection with At the Market Offering and Purchase Agreement, net of fees | 1,778,855 | 178 | $ | 1,621,761 | 1,621,939 | |||||||||||||||||||
Issuance of common stock in connection with private placement with WFIA | 1,823,155 | 182 | $ | 999,818 | 1,000,000 | |||||||||||||||||||
Issuance of common stock and pre-funded warrants sold for cash in public offering, net of fees | 1,720,000 | 172 | 3,310,379 | 3,310,551 | ||||||||||||||||||||
Issuance of pre-funded warrants in connection with the conversion of related party note payable | - | - | 3,949,765 | 3,949,765 | ||||||||||||||||||||
Capital contribution in connection with conversion of related party note payable | 1,862,735 | 1,862,735 | ||||||||||||||||||||||
Stock-based compensation expense | - | - | 236,251 | - | - | 236,251 | ||||||||||||||||||
Net loss | - | - | - | (5,979,054 | ) | - | (5,979,054 | ) | ||||||||||||||||
Balance September 30, 2023 | 17,378,798 | $ | 1,738 | $ | 85,910,674 | $ | (86,008,746 | ) | $ | - | $ | (96,334 | ) | |||||||||||
Balance | 17,378,798 | $ | 1,738 | $ | 85,910,674 | $ | (86,008,746 | ) | $ | - | $ | (96,334 | ) |
See notes to consolidated financial statements
6 |
Cingulate Inc.
Consolidated Statements of Cash Flows (unaudited)
2023 | 2022 | |||||||||||||||
Three Months Ended March 31, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Operating activities: | ||||||||||||||||
Net loss | $ | (5,003,511 | ) | $ | (1,333,923 | ) | $ | (16,600,250 | ) | $ | (13,071,205 | ) | ||||
Adjustments to reconcile net loss to net | ||||||||||||||||
cash used in operating activities: | ||||||||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation | 101,429 | 174,698 | 410,593 | 304,287 | ||||||||||||
Stock-based compensation | 181,518 | 658,106 | 594,360 | |||||||||||||
Other | (2,948 | ) | - | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Miscellaneous receivables | 38,877 | (54,128 | ) | 228,596 | 642,899 | |||||||||||
Prepaid expenses and other current assets | 391,216 | (187,294 | ) | 1,368,658 | (293,140 | ) | ||||||||||
Operating lease right-of-use assets | 53,889 | (49,826 | ) | 194,125 | 167,828 | |||||||||||
Trade accounts payable and accrued expenses | 446,374 | (257,690 | ) | 1,517,952 | 197,462 | |||||||||||
Other current liabilities | 7,668 | 38,833 | 13,428 | 31,147 | ||||||||||||
Operating lease liabilities | (78,995 | ) | (4,669 | ) | (263,380 | ) | (249,952 | ) | ||||||||
Net cash used in operating activities | (3,864,483 | ) | (1,673,999 | ) | (12,472,172 | ) | (11,676,314 | ) | ||||||||
Investing activities: | ||||||||||||||||
Purchase of property and equipment | (10,400 | ) | (66,469 | ) | (37,136 | ) | (10,400 | ) | ||||||||
Proceeds from sale of short-term investments | - | 933 | ||||||||||||||
Other | - | (165 | ) | |||||||||||||
Net cash used in investing activities | (10,400 | ) | (66,469 | ) | (37,136 | ) | (9,632 | ) | ||||||||
Financing Activities: | ||||||||||||||||
Members’ capital contributions | - | 1,385,688 | ||||||||||||||
Proceeds from notes payable | - | 69,789 | ||||||||||||||
Proceeds from issuance of common stock and pre-funded common stock purchase warrants, net of fees | 6,151,288 | - | ||||||||||||||
Proceeds from note payable | 3,000,000 | 5,000,000 | ||||||||||||||
Principal payments on finance lease obligations | (3,682 | ) | (104,438 | ) | (11,943 | ) | (11,229 | ) | ||||||||
Net cash provided by financing activities | (3,682 | ) | 1,351,039 | 9,139,345 | 4,988,771 | |||||||||||
Cash and cash equivalents: | ||||||||||||||||
Net increase in cash and cash equivalents | (3,878,565 | ) | (389,429 | ) | ||||||||||||
Net decrease in cash and cash equivalents | (3,369,963 | ) | (6,697,175 | ) | ||||||||||||
Cash and cash equivalents at beginning of year | 16,492,745 | 1,197,672 | 5,356,276 | 16,492,745 | ||||||||||||
Cash and cash equivalents at end of year | $ | 12,614,180 | $ | 808,243 | ||||||||||||
Non-cash activities | ||||||||||||||||
Property and equipment accrued but not yet paid at end of period | $ | 10,400 | $ | - | ||||||||||||
Cash and cash equivalents at end of period | $ | 1,986,313 | $ | 9,795,570 | ||||||||||||
Cash payments: | ||||||||||||||||
Interest paid | $ | 793 | $ | 3,075 | $ | 10,266 | $ | 10,291 |
See notes to consolidated financial statements
7 |
CINGULATE INC.
Notes to Consolidated Financial Statements (unaudited)
(1) Nature of the Business and Liquidity
Organization
Cingulate Inc. is a clinical stage biopharmaceutical company focused on the development of products utilizing its drug delivery platform technology that enables the formulation and manufacture of once-daily tablets of multi-dose therapies, with an initial focus on the treatment of Attention Deficit/Hyperactivity Disorder (ADHD). The Company is developing two proprietary, first-line stimulant medications, CTx-1301 (dexmethylphenidate) and CTx-1302 (dextroamphetamine), for the treatment of ADHD intended for all patient segments: children, adolescents, and adults. CTx-1301 and CTx-1302 utilize a flexible core tableting technology with target product profile designed to deliver a rapid onset and last the entire active day with a controlled descent of plasma drug level and have favorable tolerability. The Company is preparing to startcompleted its first Phase 3 clinical trialstrial for CTx-1301 with two additional Phase 3 trials in the second half of 2022.process. In addition, the Company has a third product to treat anxiety, CTx-2103, in a proof-of-conceptformulation stage.
On November 14, 2012, Cingulate Therapeutics LLC (CTx), a Delaware limited liability company, was formed. On May 10, 2021, Cingulate Inc. (Cingulate, or the Company), a Delaware corporation and wholly-owned subsidiary of CTx, was formed to serve as a holding company, in anticipation of the Company becoming publicly traded. Through a Reorganization Merger which occurred in the third quarter of 2021, Cingulate effectively acquired CTx and all outstanding units of CTx were converted into shares of Cingulate common stock. CTx remains the entity through which the Company conducts operations.
CTx is the predecessor of Cingulate for financial reporting purposes. The consolidated financial statements and notes for the yearperiods ended December 31, 2021September 30, 2023 and 2022, represent the full consolidation of Cingulate and its subsidiaries, including CTx and all references to the Company represent this full consolidation. For periods prior to the year ended December 31, 2021, the consolidated financial statements and notes represent the full consolidation of CTx and its subsidiaries.
Liquidity
The Company has incurred losses and negative cash flows from operations since inception. As a pre-revenue entity, the Company is dependent on the ability to raise capital to support operations until such time as the product candidates under development are U.S.U.S Food and Drug Administration (FDA) approved, manufactured, commercially available to the marketplace and produce revenues. The IPO,initial public offering, which was completed in December 2021, provided approximately $20.4 million in net proceeds. In addition, the Company received proceeds of $5.0 million from a promissory note in August 2022 and an additional $3.0 million when the abilitypromissory note was amended and restated in May 2023, a portion of which was subsequently converted to continueequity, as further described in Note 7. The Company has utilized its researchAt-the-Market Agreement with H.C. Wainwright and development activities; however,Purchase Agreement with Lincoln Park Capital LLC in 2023, providing a total of approximately $2.1 million in net proceeds through September 30, 2023. Additional capital raised in the third quarter of 2023 included the issuance and sale of common stock and pre-funded common stock warrants in connection with a public offering, which provided approximately $3.3 million in net proceeds and the issuance and sale of common stock in connection with a $1 million private placement, as further described in Note 9. However, the Company will need additional funding for operations and development in order to meet its obligations in the longer term.development. Management is evaluating various strategies to obtain additional funding, for operations and development beyond that time which may include additional offerings of common stock,equity, issuance of debt, or other capital sources, including potential collaborations with other companies or other strategic research and development partners, and licensing and/or marketing arrangements with pharmaceutical companies.transactions. Successful implementation of these plans involves both the Company’s efforts and factors that are outside its control, such as market factors and FDA approval of product candidates. The Company can give no assurance that its plans will be effectively implemented in such a way that they will sufficiently alleviate or mitigate the conditions and events noted above, which results in substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.
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(2) Summary of Significant Accounting Policies
(a)Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”)(U.S. GAAP). The consolidated financial statements include the accounts of Cingulate and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
(b)Unaudited Interim Financial Information
The accompanying consolidated balance sheet as of March 31,September 30, 2023, the consolidated statements of operations and comprehensive loss for the three and nine-month periods ended September 30, 2023 and 2022, the consolidated statements of operations for the three months ended March 31, 2022 and 2021, the consolidated statement of stockholders’ equity for the three-monththree and nine-month periods ended March 31,September 30, 2023 and 2022, and 2021, the consolidated statements of cash flows for the three monthsnine-month periods ended March 31,September 30, 2023 and 2022, and 2021, and the related interim disclosures are unaudited. These unaudited consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of operations and cash flows for interim periods in accordance with U.S. GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto.thereto as of and for the year ended December 31, 2022.
(c)Concentration of Credit Risk
The Company maintains cash equivalent deposits, which at various times throughout the fiscal year exceeded the amounts insured by the Federal Deposit Insurance Corporation limit of $250,000 (without regard to reconciling items). Management monitors the soundness of these financial institutions and does not believe the Company is subject to any material credit risk relative to the uninsured portion of the deposits.
(d)Miscellaneous Receivables
Miscellaneous receivables consist of payroll tax credits generated from the Company’s 2020 and 2019 federal income tax returns, which have not yet been received as of MarchDecember 31, 2022, as well asprimarily consisted of employee retention tax credits for payroll costs incurred in 2020 and the first three quartersresearch and development tax credits. The Company analogized to IAS 20, Accounting for Government Grants and Disclosure of 2021.Government Assistance, in accounting for these receivables. As of MarchDecember 31, 2022, and December 31, 2021, the Company determined that there was no allowance necessary relating to these receivables. As of September 30, 2023, all employee retention tax credits and research and development tax credits had been collected.
(e)Impairment of Long-lived Assets
The Company assesses the carrying value of its long-lived assets, including property and equipment, as well as lease ROUright of use (ROU) assets, when events or circumstances indicate that the carrying value of such assets may not be recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted cash flows expected to be generated by the assets. If the sum of the expected future cash flows is less than the carrying amount, the Company would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived asset groups. NaNNo impairment was recognized during the three monthsor nine-month periods ended March 31, 2022September 30, 2023 or 2021.2022.
(f)Stock-Based Compensation
The Company measures employee and director stock-based compensation expense for all stock-based awards based on their grant date fair value using the Black-Scholes option-pricing model. For stock-based awards with service conditions, stock-based compensation expense is recognized over the requisite service period using the straight-line method. Forfeitures are recognized as they occur. See additional information in Note 9.11.
(3)Fair Value of Assets and Liabilities
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair values based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1—Inputs represent unadjusted quoted prices for identical assets exchanged in active markets.
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Level 2—Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets exchanged in active or inactive markets; quoted prices for identical assets exchanged in inactive markets; other inputs that are considered in fair value determinations
(3) Prepaid Expenses
Prepaid expenses consisted of the assets, such as interest ratesfollowing at September 30, 2023 and yield curves that are observable at commonly quoted intervals.December 31, 2022:
Level 3—Inputs include unobservable inputs used in the measurement of assets. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or related observable inputs that can be corroborated at the measurement date. Measurements of certain investments carried at fair value are based primarily on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets.
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s policy is to recognize significant transfers between the levels at the actual date of the event. There were no transfers in or out of Levels 1, 2, or 3 during the three months ended March 31, 2022 or March 31, 2021.
The Company has no Level 2 or Level 3 investments. The cash and short-term investments held by the Company are categorized as Level 1 investments as quoted market prices are readily available for these investments.
Assets measured and carried at fair value on a recurring basis are summarized below:
Schedule of Assets Measured and Carried at Fair Value on Recurring BasisPrepaid Expenses
March 31, 2022 | ||||||||||||||||||||||||
Fair | Fair | Fair | ||||||||||||||||||||||
Amortized | Gross Unrealized | Gross Unrealized | Value of Current | Value of Non-Current | Value of Total | |||||||||||||||||||
Cost | Gains | Losses | Assets | Assets | Assets | |||||||||||||||||||
Money Market Fund | $ | 12,003,223 | - | $ | (2,949 | ) | - | - | $ | 12,000,274 | ||||||||||||||
Equity investments | ||||||||||||||||||||||||
Mutual funds | 933 | - | - | - | - | 933 | ||||||||||||||||||
Total | $ | 12,004,156 | $ | - | $ | (2,949 | ) | $ | - | $ | - | $ | 12,001,207 |
December 31, 2021 | ||||||||||||||||||||||||
Fair | Fair | Fair | ||||||||||||||||||||||
Amortized | Gross Unrealized | Gross Unrealized | Value of Current | Value of Non-Current | Value of Total | |||||||||||||||||||
Cost | Gains | Losses | Assets | Assets | Assets | |||||||||||||||||||
Equity investments | ||||||||||||||||||||||||
Mutual Funds | $ | 920 | $ | - | $ | - | $ | - | $ | - | $ | 933 |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Research and development | $ | 413,431 | $ | 1,377,391 | ||||
Insurance | 339,676 | 472,152 | ||||||
Active pharmaceutical ingredients | 77,422 | 209,156 | ||||||
Deferred capital raise costs | - | 100,339 | ||||||
Professional fees | 20,775 | 61,524 | ||||||
Dues and subscriptions | 38,284 | 37,684 | ||||||
Other | 20,698 | 20,698 | ||||||
Total prepaid expenses | $ | 910,286 | $ | 2,278,944 |
(4)Property and Equipment
Property and equipment, net consistsconsisted of the following at March 31, 2022September 30, 2023 and December 31, 2021:2022:
Schedule of Property and Equipment
Estimated | Estimated | |||||||||||||||||||||
Useful Life | March 31, | December 31, | Useful Life | September 30, | December 31, | |||||||||||||||||
(in years) | 2022 | 2021 | (in years) | 2023 | 2022 | |||||||||||||||||
Equipment | 2-7 | $ | 2,509,126 | $ | 2,509,126 | 2-7 | $ | 4,342,832 | $ | 2,565,997 | ||||||||||||
Furniture and fixtures | 7 | 145,754 | 145,754 | 7 | 145,754 | 145,754 | ||||||||||||||||
Computer equipment | 5 | 41,898 | 41,898 | 5 | 41,898 | 41,898 | ||||||||||||||||
Leasehold improvements | 5 | 471,505 | 471,505 | 5 | 471,505 | 471,505 | ||||||||||||||||
Construction-in-process | - | 1,653,550 | 1,643,150 | |||||||||||||||||||
Construction-in-process- equipment | - | - | 1,739,699 | |||||||||||||||||||
Property and equipment, gross | 4,821,833 | 4,811,433 | 5,001,989 | 4,964,853 | ||||||||||||||||||
Less: accumulated depreciation | (1,767,484 | ) | (1,666,055 | ) | (2,470,659 | ) | (2,060,066 | ) | ||||||||||||||
Property and equipment, net | $ | 3,054,349 | $ | 3,145,378 | $ | 2,531,330 | $ | 2,904,787 |
Depreciation expense for the nine months ended September 30, 2023 was $410,593 and for the nine months ended September 30, 2022 was $304,287. Depreciation expense for the three months ended March 31, 2022September 30, 2023 was $101,429154,663 and for the three months ended March 31, 2021September 30, 2022 was $174,698101,429.
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(5) Accrued Expenses
Accrued expenses consisted of the following at March 31, 2022September 30, 2023 and December 31, 2021:2022:
Schedule of Accrued Expenses
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Professional and consulting fees | $ | 280,500 | $ | 15,000 | ||||
Research and development | 405,000 | 250,000 | ||||||
CIP- Equipment | - | 279,730 | ||||||
Other | 70,535 | 56,570 | ||||||
Accrued Expenses | $ | 756,035 | $ | 601,300 |
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Interest | $ | 157,339 | $ | 292,339 | ||||
Research and development | 253,524 | - | ||||||
Professional fees | 15,000 | 314,446 | ||||||
Employee bonuses | 175,625 | 175,625 | ||||||
Active pharmaceutical ingredients | 62,393 | - | ||||||
Other | 28,127 | 112,225 | ||||||
Accrued expenses | $ | 692,008 | $ | 894,635 |
(6) Contingencies
The Company may, from time to time, be subject to legal proceedings and claims arising in the ordinary course of business and otherwise. A substantial legal liability against us could have an adverse effect on our business, financial condition and results of operations.
The Company records legal costs associated with loss contingencies as incurred and establishes reserves when those matters present material loss contingencies that management determines to be both probable and reasonably estimable in accordance with ASC 450, Contingencies. If a range of loss is estimated, and some amount within that range appears to be a better estimate than any other amount within that range, then that amount is accrued. If no amount within the range can be identified as a better estimate than any other amount, we accrue the minimum amount in the range. These amounts are not reduced by amounts that may be recovered under insurance or claims against third parties, but undiscounted receivables from insurers or other third parties may be accrued separately if recovery is considered probable. Management’s judgment is required related to loss contingencies because the outcomes are difficult to predict, and the ultimate resolution may differ from our current analysis. The Company revises accruals in light of new information. While it is not possible to predict the outcome of loss contingencies with certainty, management is of the opinion that adequate provision for potential losses associated with any such matters has been made in the consolidated financial statements.
(7) Related Party Note Payable
In August 2022, the Company received $5.0 million of debt financing from Werth Family Investment Associates LLC (WFIA). Peter Werth, manager of WFIA, is a member of the Company’s Board of Directors. The promissory note, dated August 9, 2023, is unsecured with interest accruing at 15% per annum. In May 2023, the Company received an additional $3.0 million of debt financing from WFIA by amending and restating the note to increase the principal amount to $8.0 million. All other terms of the note remained the same.
On September 8, 2023, the Company and CTx entered into a Note Conversion Agreement (Note Conversion Agreement) with WFIA, pursuant to which WFIA agreed to convert the original principal amount of $5.0 million under the note plus all accrued interest on the original principal, or $5,812,500, by issuing pre-funded warrants (WFIA Pre-Funded Warrants) to purchase 6,838,235 shares of the Company’s common stock at a conversion price per WFIA Pre-Funded Warrant of $0.85. The closing price of the Company’s common stock on Nasdaq on September 8, 2023, was $0.5776 per share. The WFIA Pre-Funded Warrants have no expiration date and are exercisable immediately at an exercise price of $0.0001 per share, to the extent that after giving effect to such exercise, WFIA and its affiliates would beneficially own, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), no more than 19.99% of the outstanding shares of common stock of the Company.
The Company considered ASC 470-60, Troubled Debt Restructurings by Debtors, in accounting for this debt conversion. The difference between the fair value of the pre-funded warrants issued and the carrying value of the debt settled in the transaction was recognized as a capital contribution of $1,862,735 in the Statement of Stockholders’ Equity.
The remaining outstanding principal of the note of $3.0 million and all accrued and unpaid interest are due and payable on August 8, 2025, or 120 days following written demand made by WFIA during the first five business days of a calendar quarter. WFIA has not demanded payment on the note. The Company may prepay the note, in whole or in part, without premium or penalty; provided, that no amount repaid may be reborrowed.
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(6)Members’ Capital
Prior to the Reorganization Merger, the Company had multiple classesAs of Members’ capital, comprised of Founders Units, Class B, D, E, FSeptember 30, 2023 and G Preferred Units, and Class C Profits Interests. Class B, E, F and G Preferred Units had similar rights specifically related to cash distributions as a return of invested capital. Class D Preferred Units had all the rights of Founders and the other Classes of Preferred Units plus some additional rights noted below. All classes of Members’ capital had voting rights. The Company maintained capital accounts for each Member. 3,243,201 Units of Class F and Class G were issued during the year ended December 31, 2021, prior to the Reorganization Merger. 614,137 Units of Class F and Class G were issued during the three months ended March 31, 2021.
Class F Preferred Units
The CTx Board authorized 6,984,985 Class F Preferred Units in two tranches; all authorized Class F Units were issued prior to the Reorganization Merger. The Company raised a total of2022, $11.33.0 million from issuance of Class F Units. The newly created Class F Units as authorized by the CTx Board and as reflected in the 3rd Amended and Restated Operating Agreement to reflect the creation of the Class F Units became effective on December 14, 2018.
Class G Preferred Units
The CTx Board authorized 12,000,000 Class G Preferred Units; 2,998,184 were issued prior to the Reorganization Merger. The Company raised a total of $6.75.0 million, from issuancerespectively, of Class G Units. The newly created Class G Units as authorized byprincipal were outstanding on the CTx Board became effective on February 9, 2021.
Distributions, if any, from the Company were to be made first to the holders of Class B, D, E, F and G Preferred Units, pro rata in proportion to each such Member’s unreturned capital contributions. Distributions were then to be made to all Members including Founders Units, pro rata in proportion to the number of units held by each Member, with consideration given to the applicable distribution thresholds for Class C Profits Interests at which each was issued and as disclosed in each Profits Interest Unit agreement, as further described in Note 7.
Costs associated with issuance of the Units is immaterial. Pursuant to the terms of the Reorganization Merger, all Units were converted into shares of common stock of Cingulate, as further described in Note 1.
(7) Profits Interest Plannote.
During 2017, the CTx Board established and adopted the Cingulate Therapeutics LLC Equity Incentive Plan (the “Plan”) to provide for issuance of Class C PIU’s to employees, CTx Members, Board members and service providers ofthree months ended September 30, 2023, the Company as defined inrecognized $237,500 of interest expense relating to the Plan, eligible to receive PIU’s as an incentive undernote. During the Plan. PIU’s were granted at the discretion of the Board of Managers ofnine months ended September 30, 2023, the Company and in some cases at the discretionrecognized $677,500 of the Chief Executive Officer of the Company based upon Board authorization. The PIU’s were issued at a Distribution Threshold equalinterest expense relating to the pre-money fair market valuation ofnote. All interest expense relating to the Company at the date of issuance. The Distribution Threshold was the amount by which a cash distribution, made pro rata to all Members, if any, must have been exceedednote is included in order for a particular PIU holder to participate in the allocated distribution beyond that threshold. Basedaccrued expenses on the terms of the award, the Distribution Threshold was treated as a performance condition for purposes of financial statement recognition. The PIU’s vesting period with respect to the service condition was defined in the PIU award agreement and ranged from 30 days to three years with an average vesting period for all PIU’s granted of days. As defined in the Company’s Operating Agreement, all PIU’s issued under the Plan entitled the holder to participate pro rata in the profits, if any, of the Company over the stated Distribution Threshold, assuming a cash distribution was generally made to all Members, subject to any preference or priorities of the other classes of Units. The Class C PIU’s also held voting rights on a one-for-one basis.consolidated balance sheet.
Immediately prior to the Reorganization Merger and as of December 31, 2020, the Company had granted and issued and PIU’s, net of forfeitures, respectively. In April 2021, the Company issued the remaining PIU’s. The Company accounted for these awards under FASB ASC Topic 718, Compensation – Stock Compensation, as equity classified awards. No compensation expense was recorded prior to the Reorganization Merger related to the PIU’s as the future achievement of the thresholds and targets (the performance condition) to achieve payout was not deemed probable. This assessment was made based on the Company’s history of operating losses and continued challenges in raising necessary equity capital to fund operations. In connection with the Reorganization Merger, 8.5 million PIU’s were exchanged for shares of Cingulate common stock. The exchange of PIU’s for common stock created a modification of the terms, character and rights of the PIU’s and achievement of performance was considered probable. This resulted in the Company recognizing a noncash modification charge equal to $12.7 million, which charge was calculated based on the Company’s assessment of the fair value of the shares of Cingulate common stock on the date of the modification. $8.2 million of this charge was recorded to general and administrative expense and $4.5 million was recorded to research and development expense.
Prior to the Reorganization Merger, the Company had issued all units available under the Plan and all units had vested based upon the vesting period as outlined in the PIU agreement.
PIUs issued and outstanding prior to the Reorganization Merger, which was also the modification date, at the various distribution thresholds were as follows:
Schedule of Various Distribution Thresholds
Distribution Threshold $ (in millions): | ||||||||||||||||||||||||||||||||
Year Granted | $25 | $40 | $75 | $80 | $90 | $120 | $160 | Total | ||||||||||||||||||||||||
2017 | 4,753,000 | 125,200 | - | - | - | - | - | 4,878,200 | ||||||||||||||||||||||||
2018 | - | 661,525 | 217,725 | 22,883 | - | - | - | 902,133 | ||||||||||||||||||||||||
2019 | - | - | - | - | 377,524 | 458,924 | - | 836,448 | ||||||||||||||||||||||||
2020 | - | - | - | 1,476,126 | - | 49,554 | - | 1,525,680 | ||||||||||||||||||||||||
2021 | 357,539 | 357,539 | ||||||||||||||||||||||||||||||
Total | 4,753,000 | 786,725 | 217,725 | 1,499,009 | 377,524 | 508,478 | 357,539 | 8,500,000 |
(8) Stockholders’ Equity
The Company has authorized March 31, 2022September 30, 2023, and December 31, 20212022, of which and shares of common stock were issued and shares of $ par value common stock and shares of $ par value preferred stock at outstanding.outstanding as of September 30, 2023 and December 31, 2022, respectively. The Company has not issued any shares of preferred stock.
shares of common stock issued and outstanding were issued in connection with the Reorganization Merger to convert Units of CTx outstanding immediately prior to the Reorganization Merger and reflects the stock dividend and reverse stock splits described below.
shares of common stock were issued at a price to the public of $ per share in connection with the Company’s IPO, which was completed in December 2021. The Company received net proceeds of approximately $20.4 million, after deducting underwriting discounts and commissions and other offering expenses.
The holders of common stock are entitled to one vote for each share of common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment or provision for payment of all debts and liabilities of the Company, the holders of common stock shall be entitled to share in the remaining assets of the Company available for distribution, if any. Holders of the shares of common stock are entitled to dividends when, as and if declared by the Board of Directors.
(9) Sale of Securities
Private Placement
On August 11, 2023, the Company entered into a Securities Purchase Agreement with WFIA and issued, in a private placement priced at the market under Nasdaq rules, $1.0 million. Peter Werth, a member of the Company’s Board of Directors, is the manager of WFIA. shares of its common stock at a purchase price per share of $ , resulting in gross proceeds to the Company of approximately
Public Offering
On September 11, 2023, the Company entered into a Securities Purchase Agreement with an institutional investor (September 2023 Offering) pursuant to which the Company issued 1,720,000 shares of its common stock at a combined price of $0.5776 per share and accompanying Series A and Series B warrants and pre-funded warrants (Pre-Funded Warrants) to purchase up to an aggregate of 5,205,208 shares of its common stock at a combined purchase price of $0.5775 per Pre-Funded Warrant, and accompanying Series A and Series B warrants, which represents the public offering price for the common stock less the $0.0001 per share exercise price per share for each Pre-Funded Warrant. The September 2023 Offering closed on September 13, 2023. The Pre-Funded Warrants are exercisable at any time after the date of issuance and have no expiration date. The holder of Pre-Funded Warrants may not exercise the warrants if the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. The September 2023 Offering resulted in gross proceeds to the Company of $3,999,480 before deducting $688,929 of placement agent fees and other offering expenses. See Note 10 for a description of Series A and Series B warrants issued in the September 2023 Offering.
Conversion of Related Party Note
On September 8, 2023, the Company issued WFIA Pre-Funded Warrants to purchase 6,838,235 shares of the Company’s common stock as part of the Note Conversion Agreement, as described in Note 7. The WFIA Pre-Funded Warrants have no expiration date and are exercisable immediately at an exercise price of $0.0001 per share, to the extent that after giving effect to such exercise, WFIA and its affiliates would beneficially own, for purposes of Section 13(d) of the Exchange Act, no more than 19.99% of the outstanding shares of common stock of the Company.
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Purchase Agreement with Lincoln Park
In April 2023, the Company entered into a purchase agreement (LP Purchase Agreement) and a registration rights agreement (Registration Rights Agreement) with Lincoln Park Capital Fund, LLC (Lincoln Park). Pursuant to the terms of the LP Purchase Agreement, Lincoln Park has agreed to purchase from the Company up to $12 million of the Company’s common stock subject to certain limitations and satisfaction of the conditions set forth in the LP Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, the Company filed with the SEC a registration statement to register for resale under the Securities Act 4.5 million shares of common stock that have been or may be issued to Lincoln Park under the LP Purchase Agreement.
Pursuant to the terms of the LP Purchase Agreement, at the time the Company signed the LP Purchase Agreement and the Registration Rights Agreement, the Company issued 400,409 and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the LP Purchase Agreement. shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of common stock under the LP Purchase Agreement. The commitment shares were valued at $
During the quarter ended September 30, 2023, the Company sold 196,167. During the nine months ended September 30, 2023, the Company sold shares of common stock under the LP Purchase Agreement, for net proceeds of $450,427. shares of common stock under the LP Purchase Agreement, for net proceeds of $
At the Market Offering
In January 2023, the Company entered into an At The Market Offering Agreement (ATM Agreement) with H.C. Wainwright & Co., LLC (HCW) pursuant to which the Company may issue and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $4.97 million in at-the-market offerings sales. HCW will act as sales agent and will be paid a 3% commission on each sale under the ATM Agreement. The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary. During the quarter ended September 30, 2023, the Company sold shares of common stock under the ATM Agreement, for net proceeds of $1,595,429. During the nine months ended September 30, 2023, the Company sold shares of common stock under the ATM agreement, for net proceeds of $1,696,407.
(10) Common Stock Purchase Warrants
In addition to the 6,925,208 shares of common stock and Pre-Funded Warrants issued in the September 2023 Offering, the Company issued Series A warrants to purchase up to 6,925,208 shares of common stock and Series B warrants to purchase up to 3,462,604 shares of common stock. The Series A and Series B warrants have an exercise price of $0.5776 per share and are exercisable on the effective date of stockholder approval of the shares issuable pursuant to the warrants. The Series A warrants have a -year term and the Series B warrants have a -year term from the initial exercise date.
The Company evaluated the Pre-Funded Warrants for liability or equity classification in accordance with the provisions of ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging, and determined that equity treatment was appropriate. The Company valued the Pre-Funded Warrants to purchase 5,205,208 shares of common stock based on their issuance date fair value of $3,006,008. As of September 30, 2023, none of the Pre-Funded Warrants had been exercised.
In connection with the September 2023 Offering, the Company issued placement agent warrants to purchase up to 346,260 shares of common stock. The placement agent warrants have an exercise price of $0.722 per share. These warrants have a -year term ending September 11, 2028.
The Series A, Series B and placement agent warrants issued in the September 2023 Offering were valued using a Black-Scholes model with a risk-free rate of 4.5%-5.3%, the respective terms of and , and a volatility of - . The estimated volatility of the Company’s common stock at the date of measurement is based on an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as the Company does not have sufficient trading history for its common stock. The risk-free rate is based on the expected term of the warrants based on the constant maturity of U.S. Treasury securities with similar maturities as of the date of grant. The expected term has been estimated using the contractual term of the warrants.
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The following table summarizes the Company’s outstanding common stock purchase warrants as of September 30, 2023:
Schedule of Warrants and Rights Outstanding
Issuance Date | Issuance Date | |||||||||||||||
Number of | Exercise | Fair Value | Fair Value | |||||||||||||
Warrants | Price | per Warrant | Total | |||||||||||||
December 2021 Initial Public Offering | 4,791,665 | $ | 6.00 | $ | 4.77 | $ | 22,856,242 | |||||||||
December 2021 Underwriter Warrants | 208,333 | $ | 7.50 | $ | 4.64 | 966,665 | ||||||||||
September 2023 WFIA Pre-funded Warrants | 6,838,235 | $ | 0.0001 | $ | 0.85 | 5,812,500 | ||||||||||
September 2023 Public Offering Pre-funded Warrants | 5,205,208 | $ | 0.0001 | $ | 0.5775 | 3,006,008 | ||||||||||
September 2023 Public Offering Series A Warrants | 6,925,208 | $ | 0.58 | $ | 0.540 | 3,739,612 | ||||||||||
September 2023 Public Offering Series B Warrants | 3,462,604 | $ | 0.58 | $ | 0.420 | 1,454,294 | ||||||||||
September 2023 Placement Agent Warrants | 346,260 | $ | 0.72 | $ | 0.530 | 183,518 | ||||||||||
Balance- September 30, 2023 | 27,777,513 | $ | 38,018,839 |
The Company has accounted for these warrants as equity-classified instruments under ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, as they are indexed to the Company’s common stock, and they meet all other conditions as defined in ASU 2020-06 for equity classification. The gross proceeds of the September 2023 public offering was allocated to the common stock/pre-funded warrants and common stock purchase warrants using the relative fair value method shown as follows. Fair value of the warrants was recorded to Additional Paid-in-Capital on the Company’s balance sheet.
Fair Value of the Warrants to Additional Paid in Capital
Percent | ||||||||||||
Fair | of Total | Amount | ||||||||||
Value | Fair Value | Allocated | ||||||||||
Common Stock and Pre-Funded Warrants | $ | 3,999,480 | 42.7 | % | $ | 1,707,778 | ||||||
Series A, B and Placement Agent Warrants | 5,377,424 | 57.3 | % | 2,291,702 | ||||||||
Total | $ | 9,376,904 | 100 | % | $ | 3,999,480 |
In September 2021, the Company’s board of directors and stockholders adopted the 2021 Equity Incentive Plan (the “2021 Plan”)(2021 Plan), which provides for the grant of incentive stock options and non-qualified stock options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, incentive bonus awards, other stock-based awards and other cash-based awards. No awards may be made under the 2021 Plan on or after September 24, 2031, but the 2021 Plan will continue thereafter while previously granted awards remain outstanding.
The maximum number of shares of common stock available for issuance in connection with options and other awards granted under the 2021 Plan is March 31, 2022,September 30, 2023, shares of common stock were available for issuance under the 2021 Plan. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2021 Plan will be added back to the shares of common stock available for issuance under the 2021 Plan. and as of
14 |
The Company recorded stock-based compensation expense of $March 31, 2021,September 30, 2023 and $ during the three months ended September 30, 2022, all relating to options issued induring 2021, 2022 and 2022.2023. As of March 31, 2022September 30, 2023 and December 31, 2021,2022, there was $ and $ , respectively, of unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2021 Plan, which is expected to be recognized over the next one to four years. during the nine months ended September 30, 2023 and $ during the nine months ended September 30, 2022. The Company recorded stock-based compensation expense of $ during the three months ended
Summary of Option Activity
Weighted-Average | Weighted-Average | Aggregate | ||||||||||||||
Shares | Exercise Price per Share | Remaining Contractual Term | Intrinsic Value | |||||||||||||
Outstanding at December 31, 2021 | 523,285 | $ | 6.00 | |||||||||||||
Grants | 342,999 | $ | 1.82 | |||||||||||||
Exercised | — | |||||||||||||||
Forfeitures or expirations | — | |||||||||||||||
Outstanding at March 31, 2022 | 866,284 | $ | 4.35 | $ | 182,900 | |||||||||||
Vested and expected to vest at March 31, 2022 | - | |||||||||||||||
Exercisable at March 31, 2022 | - |
Weighted-Average | Aggregate | |||||||||||||||
Weighted-Average | Remaining Contractual | Intrinsic | ||||||||||||||
Shares | Exercise Price | Term (years) | Value | |||||||||||||
Outstanding at January 1, 2023 | 861,019 | |||||||||||||||
Granted | 384,500 | $ | 1.75 | |||||||||||||
Exercised | - | |||||||||||||||
Forfeitures or expirations | (5,615 | ) | ||||||||||||||
Outstanding at March 31, 2023 | 1,239,904 | $ | 3.16 | |||||||||||||
Granted | 127,758 | $ | 0.96 | |||||||||||||
Exercised | - | |||||||||||||||
Forfeitures or expirations | (17,983 | ) | ||||||||||||||
Outstanding at June 30, 2023 | 1,349,679 | $ | 3.16 | |||||||||||||
Granted | 104,066 | $ | 0.61 | |||||||||||||
Exercised | - | |||||||||||||||
Forfeitures or expirations | (1,000 | ) | ||||||||||||||
Outstanding at September 30, 2023 | 1,452,745 | $ | 2.99 | $ | 10,607 | |||||||||||
Vested and expected to vest at September 30, 2023 | 1,452,745 | |||||||||||||||
Exercisable at September 30, 2023 | 336,310 |
Schedule of Fair Value Assumption
Risk-free interest rate | 4.073 | % | ||
5.9 | ||||
Expected volatility | 1.27 | |||
Expected dividend yield | % |
Risk-Free Interest Rate: The Company based the risk-free interest rate over the expected term of the options based on the constant maturity of U.S. Treasury securities with similar maturities as of the date of grant.
Expected Term: The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting dates and the end of the contractual term.)
Expected Volatility: The Company uses an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as the Company does not have sufficient trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding volatility of its own stock price becomes available.
15 |
Expected Dividend Yield: The Company has not paid and does not anticipate paying any dividends in the near future. Therefore, the expected dividend yield was zero.
The grant-date fair value of options granted during the yearthree months ended December 31, 2021 wasSeptember 30, 2023, ranged from $ to $ , and the grant date fair value of the options issuedgranted during the threenine months ended March 31, 2022September 30, 2023, ranged from ranged from $ to $.
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock. The fair value per share of common stock was $MarchSeptember 30, 2023, and $ as of December 31, 2022, based upon the closing price of our common stock on the Nasdaq Capital Market.Market on those dates. as of
(10)(12) Income Taxes
Cingulate Inc. is taxed as a C corporation under the Internal Revenue Code. Cingulate Inc. records deferred income taxes to reflect the impact of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. CTx is a wholly-owned disregarded entity of Cingulate Inc., and all of the activity for CTx, along with its wholly-owned subsidiary Cingulate Works Inc., is included in the calculation of the current and deferred tax assets and liabilities for Cingulate Inc. NaNNo deferred income tax benefit or expense was recorded as of March 31,for the three-month periods ended September 30, 2023, and 2022 or the nine-month periods ended September 30, 2023 and 2022, for federal or state income taxes.
Income tax expense differed from the expected expense computed by applying the U.S. Federal income tax rate as follows:
Schedule of Effective Income Tax Rate Reconciliation
Three Months Ended | ||||||||||||||||||||
March 31, 2022 | Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | ||||||||||||||||
Federal income tax benefit at statutory rate | $ | (1,039,582 | ) | $ | (1,255,601 | ) | $ | (845,722 | ) | $ | (3,486,052 | ) | $ | (2,733,779 | ) | |||||
State income tax benefit | (273,757 | ) | (330,642 | ) | (222,707 | ) | (917,994 | ) | (719,896 | ) | ||||||||||
Permanent differences | 5,665 | 6,154 | 3,157 | 14,457 | 11,920 | |||||||||||||||
Change in valuation allowance | 1,361,886 | 2,218,188 | 1,132,895 | 5,089,875 | 3,572,189 | |||||||||||||||
Prior period adjustment to actual | (620,630 | ) | - | (620,630 | ) | - | ||||||||||||||
Other | (54,212 | ) | (17,469 | ) | (67,623 | ) | (79,656 | ) | (130,434 | ) | ||||||||||
Total income tax expense | $ | - | $ | - | $ | - | $ | - | $ | - |
Evaluating the need for, and amount of, a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence on a jurisdiction-by-jurisdiction basis. Such judgments require the Company to interpret existing tax law and other published guidance as applied to its circumstances. As part of this assessment, the Company considers both positive and negative evidence about its profitability and tax situation. A valuation allowance is provided if, based on available evidence, it is more likely than not that all or some portion of a deferred tax asset will not be realized. The Company determined that it was more likely than not that it would not realize its deferred tax assets, based on historical levels of income and future forecasts of taxable income, among other items. The Company recorded a valuation allowance of its net deferred tax assets totaling $2,209,15610,988,821 as of March 31, 2022September 30, 2023, and $847,2695,580,595 at December 31, 2021,2022, which was recorded as a component of income tax expense on the accompanying consolidated statements of operations and other comprehensive loss.
The Company files income tax returns in the U.S. federal and various state jurisdictions. The Companies areCompany is not subject to U.S. federal and state income tax examinations by tax authorities for years before 2018.
The Company follows the provisions of FASB ASC 740, Income Taxes, to evaluate uncertain tax positions. This topic prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has not identified any material uncertain tax positions requiring recognition in the consolidated financial statements as of MarchSeptember 30, 2023 or December 31, 2022.
Schedule of Deferred Tax Assets and Liabilities
March 31, 2022 | December 31, 2021 | |||||||
Deferred income tax assets: | ||||||||
Current: | ||||||||
Research and development costs | $ | 569,826 | $ | - | ||||
Unvested stock options | 119,333 | 11,835 | ||||||
Other | - | 4,050 | ||||||
Non-current: | ||||||||
Patents | 99,580 | 90,480 | ||||||
Net operating losses | 1,824,223 | 1,201,974 | ||||||
Other | 80,190 | 49,606 | ||||||
Gross deferred income tax assets | 2,693,152 | 1,357,945 | ||||||
Less: valuation allowance | (2,209,156 | ) | (847,269 | ) | ||||
Net deferred income tax asset | 483,996 | 510,676 | ||||||
Deferred income tax liabilities: | ||||||||
Current: | ||||||||
Accrual to cash | (105,778 | ) | (105,075 | ) | ||||
Non-current | ||||||||
Property and equipment | (378,218 | ) | (405,601 | ) | ||||
Gross deferred income tax liabilities | (483,996 | ) | (510,676 | ) | ||||
Net deferred tax asset (liability) | $ | - | $ | - |
September 30, 2023 | December 31, 2022 | |||||||
Deferred income tax assets: | ||||||||
Current: | ||||||||
Research and development costs | $ | 723,577 | $ | 343,087 | ||||
Other | 59,126 | 59,018 | ||||||
Non-current: | ||||||||
Net operating losses | 5,862,906 | 3,381,215 | ||||||
Research and development costs | 3,645,038 | 1,762,716 | ||||||
Research and development tax credit | 756,122 | - | ||||||
Unvested stock options | 405,739 | 204,380 | ||||||
Patents | 99,118 | 92,417 | ||||||
Right-of-use assets | 45,265 | 63,563 | ||||||
Gross deferred income tax assets | 11,596,891 | 5,906,396 | ||||||
Less: valuation allowance | (10,988,821 | ) | (5,580,595 | ) | ||||
Net deferred income tax asset | 608,070 | 325,801 | ||||||
Deferred income tax liabilities: | ||||||||
Current: | ||||||||
Accrual to cash | - | (11,228 | ) | |||||
Non-current | ||||||||
Property and equipment | (608,070 | ) | (314,573 | ) | ||||
Gross deferred income tax liabilities | (608,070 | ) | (325,801 | ) | ||||
Net deferred tax asset (liability) | $ | - | $ | - |
Basic net loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of common shares and pre-funded warrants outstanding during the period. The pre-funded warrants are included in the calculation of the weighted-average number of shares outstanding because their exercise requires only nominal consideration for the delivery of shares. The following table sets forth the computation of the basic and diluted net loss per share for the three and nine months ended March 31,September 30, 2023 and 2022:
Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | |||||||||||||||||
Numerator: | ||||||||||||||||||||
Net loss | $ | (5,003,511 | ) | $ | (5,979,054 | ) | $ | (4,027,247 | ) | $ | (16,600,250 | ) | $ | (13,071,205 | ) | |||||
Denominator: | ||||||||||||||||||||
Weighted average common shares outstanding | 11,309,412 | |||||||||||||||||||
Weighted average shares outstanding | ||||||||||||||||||||
Net loss per share, basic and diluted | $ | (0.44 | ) | $ | ) | $ | ) | $ | ) | $ | ) |
Schedule of Potentially Dilutive Securities
September 30, 2023 | September 30, 2022 | |||||||
Stock options issued under the 2021 Equity Incentive Plan | 1,452,745 | 883,801 | ||||||
Common stock purchase warrants outstanding | 15,734,070 | 4,999,998 | ||||||
Total | 17,186,815 | 5,883,799 | ||||||
Antidilutive securities | 17,186,815 | 5,883,799 |
(12)(14) License Agreement
CTx has a licensing agreement with a company related to the patents and licensed know-how for use in the development of CTx-1301, CTx-1302, and CTx-2103. CTx will pay the followingPayments are to be made upon the occurrence of the following milestone events:
● | $250,000 Milestone payment upon dosing of first patient in a Phase 3 Clinical Trial for each product in the field, payable on a per product basis. | |
● | $250,000 Milestone payment upon licensee filing of new drug application for each product in the field, payable on a per product basis. | |
● | $250,000 Milestone payment for CTx-1301 and CTx-1302 and $500,000 Milestone payment for CTx-2103 upon receipt of first marketing approval from the FDA, | |
● | $250,000 Milestone payment for CTx-2103 upon receipt of first marketing approval from the EMA (European Medicines Agency) |
The Company has accruedAs of December 31, 2022, the $250,000 milestone for CTx-1301 relatedrelating to the dosing of first patient in a Phase 3 Clinical Trial was accrued as management has deemed the milestone probable of occurring. In early 2023, the Company paid this milestone to be probable.amount as the first patient in a CTx-1301 Phase 3 Clinical Trial was dosed. The Company has not recorded any expense relating to the other milestones for eitherany other product as it has not deemed them probable of occurring as of March 31, 2022.September 30, 2023.
(13)(15) Related Party Transactions
The general counsel of the Company is a partner with a law firm providing office facilities space that is leased by the Company. Rental expense incurred by the Company to the law firm was $27,000 for both the nine months ended September 30, 2023 and 2022 and $9,000 for both the three months ended March 31,September 30, 2023 and 2022, and 2021, which approximates fair value. As of March 31, 2022September 30, 2023 and December 31, 2021,2022, the Company had no outstanding amounts payable under this lease.
A member of the Company’s Board of Directors, Peter Werth, is the manager of WFIA, the entity which provided $8.0 million in debt financing to the Company, $5.0 million of which was converted to equity in September 2023, as described in Note 7. The remaining principal balance of $3.0 million was outstanding as of September 30, 2023 and the initial principal balance of $5.0 million was outstanding as of December 31, 2022. Interest expense of $237,500 and $104,838 was recognized during the three months ended September 30, 2023 and September 30, 2022, respectively. Interest expense of $677,500 and $104,838 was recognized during the nine months ended September 30, 2023 and September 30, 2022, respectively. $157,339 and $292,339 of accrued interest relating to this note was outstanding as of September 30, 2023 and December 31, 2022.
On August 11, 2023, the Company entered into a Securities Purchase Agreement with WFIA and issued, in a private placement priced at the market under Nasdaq rules, 1.0 million. shares of its common stock at a purchase price per share of $ , resulting in gross proceeds to the Company of approximately $
(14)(16) Subsequent Events
Management evaluated events that occurred subsequent to March 31, 2022September 30, 2023, through May 12, 2022,November 13, 2023, which is the date the interim financial statements were issued.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”)2022 (Form 10-K) and in this report, as well as disclosures in this report and our other reports filed with the Securities and Exchange Commission (SEC), for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical stage biopharmaceutical company using our proprietary Precision Timed ReleaseTM (PTR)(PTRTM) drug delivery platform technology to build and advance a pipeline of next-generation pharmaceutical products designed to improve the lives of patients suffering from frequently diagnosed conditions characterized by burdensome daily dosing regimens and suboptimal treatment outcomes. We are initially focusing our effortsfocused on the treatment of Attention Deficit/Hyperactivity Disorder (ADHD).; however, we have expanded our pipeline to include a product candidate for the treatment of anxiety. Our PTR platform incorporates a proprietary Erosion Barrier Layer (EBL) designed to allow for the release of drug substance at specific, pre-defined time intervals, unlocking the potential for once-daily, multi-dose tablets. We believe there remains a significant, unmet need within the current treatment paradigm for true once-daily ADHD stimulant medications with lasting duration and a superior side effect profile to better serve the needs of patients throughout their entire active-day.
Since inception in 2012, our operations have focused on developing our product candidates, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials. We do not have any product candidates approved for sale and have not generated any revenue. We have funded our operations through public and private capital raised. Cumulative capital raised from these sources, including debt financing, was approximately $63.8$79.0 million as of March 31, 2022.September 30, 2023.
We have incurred significant losses since our inception. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net losses were $5.0$6.0 million and $1.3$4.0 million for the three monthsthree-month periods ended March 31,September 30, 2023 and 2022, respectively, and March 31, 2021,$16.6 million and $13.1 million for the nine-month periods ended September 30, 2023 and 2022, respectively. See “Results of Operations” below for an explanation of the fluctuations in our net losses. As of March 31, 2022,September 30, 2023, we had an accumulated deficit of $56.7$86.0 million.
We expect to continue to incur significant expenses and increasing operating losses in the near term. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
● | seek regulatory approval for CTx-1301; | |
● | continue research and development activities for our existing and new product candidates, primarily for CTx-1301; | |
● | manufacture supplies for our | |
● | ||
● |
Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.
19 |
Clinical, Manufacturing and Business Update
CTx-1301: We have designed our clinical program for CTx-1301 (dexmethylphenidate), our lead investigational assetproduct candidate for the treatment of ADHD, based on U.S. Food and Drug Administration (FDA) feedback regarding our CTx-1301 initial Pediatric Study Plan (iPSP), and longstanding guidance on the acceleratedstreamlined approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act. We continue to be in discussions with the FDA regarding our obligations under the Pediatric Research Equity Act (PREA) regarding the data required to assess the safety and efficacy of CTx-1301, and the outcome of these discussions could result in changes to the timing, structure and cost of our clinical study plan.
We plan to commence two CTx-1301The pivotal Phase 3 clinical studies in 2022: (1) a fixed-dose pediatric and adolescent safety and efficacy study commenced in late July 2023 and a Phase 3 pediatric dose-optimization onset and duration study commenced in early August 2023, with dosing ofresults expected in the first patient targeted in the second half of 2022, and (2)2024.
We completed a pediatric safety and efficacyPhase 3 adult dose-optimization study to assess thein June 2023, which assessed efficacy and safety, along with onset and duration of efficacy, also targetedCTx-1301 in 21 adults (age range: 18-55 years old) with ADHD in an adult laboratory classroom setting. Top-line results for the Phase 3 adult study were included in our Quarterly Report on Form 10-Q for the period ended June 30, 2023 and detailed trial results were presented on September 8, 2023 at the 36th Annual Psych Congress in Nashville, Tennessee and included in our Current Report on Form 8-K filed with the SEC on September 11, 2023.
In order to begin inmeet the second half of 2022. We have experienced certain manufacturing delays; our contract manufacturing organization (CMO) has experienced operational resource issues in the manufacturing and delivery of clinical supplypharmacology requirement for the CTx-1301 fixed-dose study. This has delayed the first patient dosed, initially targeted for the second quarterNew Drug Application (NDA) submission, we completed a food effect study in October of 2022. Manufacturing of the final two dosage strengths is expected to begin in the second2022, which demonstrated that CTx-1301 can be taken with or third quarter of this year. Results from the fixed-dose study are expected in late 2022/early 2023. without food.
Assuming we receive positive clinical results from our Phase 3 trials, we still planexpect to submit a New Drug Application (NDA)the NDA for CTx-1301 in late 2023the second half of 2024 under the Section 505(b)(2) pathway.
Societal CDMO, Inc. (Societal), a contract development and manufacturing organization (CDMO) dedicated to solving complex formulation and manufacturing challenges primarily in small molecule therapeutic development, will manufacture all clinical, registration, and commercial batches of our lead ADHD candidate, CTx-1301. In April 2023, we successfully completed the transfer of our proprietary PTR™ manufacturing processes for our lead candidate, CTx-1301 (dexmethylphenidate), to Societal, which has produced a scalable supply of CTx-1301 for our Phase 3 trials in the manufacturing suite within Societal’s Gainesville, GA facility that is outfitted with equipment supplied by us.
In March 2023, we announced a joint commercialization agreement with Indegene, a comprehensive life sciences commercialization company, to provide commercial support for our lead candidate CTx-1301 (dexmethylphenidate). The agreement spans cross-functional services through an omnichannel marketing approach uniquely designed to successfully manage pre-commercial support during our Phase 3 clinical trials and to effectively commercialize CTx-1301 nationwide following potential FDA approval.
CTx-2103: We have embarked on a program to develop CTx-2103 (buspirone) for the treatment of anxiety, which is one of the most common mental health concern in the U.S. We completed a formulation study in which the pharmacokinetics were evaluated for this trimodal tablet providing three precisely timed doses of buspirone versus one immediate release dose. In addition, scintigraphic imaging visualized transit of the tablets through the gastrointestinal tract to confirm both the site and onset of release, which will then be correlated with pharmacokinetic data to establish the full release profile of the CTx-2103 formulation. Based on the pharmacokinetic profile seen in the data, CTx-2103 achieved a triple release of buspirone. These results provided the critical information required to allow us to request a Pre-IND meeting with the FDA to discuss the design of our clinical and regulatory program for CTx-2103. Based on feedback from the FDA, we will work towards an IND filing in the first half of 2024.
CTx-1302: We plan to initiate a Phase 1/2 bioavailability study in ADHD patients for CTx-1302 (dextroamphetamine), our second investigational asset for the treatment of ADHD, in 2023the second half of 2024 and, if the results from this study are successful, we plan tosubsequently initiate pivotal Phase 3 clinical trials in all patient segments for CTx-1302 in late 20232025.
20 |
PTRTM Platform: We continue to evaluate opportunities to out-license our PTR platform and to license our product candidates outside of the U.S. In addition, we are evaluating opportunities to expand our relationship with results expected in late 2024.BDD Pharma Limited.
CTx-2103: Securities IssuancesWe have embarked on a program to develop CTx-2103 (buspirone), which would expand the PTR platform into the anxiety therapeutic category and extend the potential of PTR technology in another indication where multiple daily doses are required and the timing, style, and ratio of this medication delivery is paramount. We initiated a human formulation study for CTx-2103 in May 2022 and have dosed the first subject. Results from the study are expected in July 2022, and the site for the study is BDD Pharma, Glasgow, Scotland, UK.
ATM Agreement
We entered into an At The Market Offering Agreement (ATM Agreement) with H.C. Wainwright & Co., LLC (HCW), as sales agent, in January 2023 as amended in May 2023, pursuant to which we may offer and sell, from time to time through HCW, shares of our common stock for aggregate proceeds of up to $4.97 million (upon the terms and subject to the conditions and limitations set forth in the ATM Agreement). During the three months ended September 30, 2023, we sold 1,538,855 shares of common stock pursuant to the ATM Agreement, for net proceeds of $1,595,429 after deducting $49,502 of compensation to HCW and other administration fees. During the nine months ended September 30, 2023, we sold 1,648,208 shares of common stock pursuant to the ATM Agreement, for net proceeds of $1,696,407 after deducting $59,898 of compensation to HCW and other administration fees. Subsequent to September 30, 2023, we did not sell any shares of common stock pursuant to the ATM Agreement.
Equity Line of Credit
In April 2023, we entered into a purchase agreement (Lincoln Park Agreement) with Lincoln Park Capital Fund LLC (Lincoln Park). Pursuant to the Lincoln Park Agreement, Lincoln Park has agreed to purchase from us up to an aggregate of $12.0 million of common stock (upon the terms and subject to the conditions and limitations set forth in the Lincoln Park Agreement) from time to time and at our sole discretion over the 36-month term of the Lincoln Park Agreement. During the three months ended September 30, 2023, we sold 240,000 shares of common stock pursuant to the Lincoln Park Agreement, for net proceeds of $196,167. During the nine months ended September 30, 2023, we sold 510,000 shares of common stock pursuant to the Lincoln Park Agreement, for net proceeds of $450,427. Subsequent to September 30, 2023, we did not sell any shares of common stock pursuant to the Lincoln Park Agreement.
Private Placement
On August 11, 2023, we entered into a Securities Purchase Agreement with Werth Family Investment Associates LLC (WFIA) and issued, in a private placement priced at the market under Nasdaq rules, 1,823,155 shares of our common stock at a purchase price per share of $0.5485, resulting in gross proceeds to us of approximately $1.0 million (WFIA Private Placement).
Debt Conversion
In August 2022, Cingulate Therapeutics LLC (CTx), a wholly-owned subsidiary of Cingulate Inc. issued a Promissory Note (Original Note) to WFIA with a principal amount of $5.0 million (Original Principal Amount), and in May 2023, CTx issued an Amended and Restated Promissory Note (WFIA Note) increasing the principal amount under the Original Note by $3.0 million to $8.0 million (2023 WFIA Debt Financing).
On September 8, 2023, Cingulate Inc. and CTx entered into a Note Conversion Agreement (Note Conversion Agreement) with WFIA, pursuant to which WFIA agreed to convert the Original Principal Amount under the WFIA Note plus all accrued interest thereon, or $5,812,500, into pre-funded warrants (WFIA Pre-Funded Warrants) to purchase 6,838,235 shares of our common stock at a conversion price per WFIA Pre-Funded Warrant of $0.85. The closing price of our common stock on Nasdaq on September 8, 2023 was $0.5776 per share. The WFIA Pre-Funded Warrants have no expiration date and are exercisable immediately at an exercise price of $0.0001 per share, to the extent that after giving effect to such exercise, WFIA and its affiliates would beneficially own, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), no more than 19.99% of the outstanding shares of our common stock.
The WFIA Note is unsecured with interest accruing at 15% per annum. Outstanding principal and all accrued and unpaid interest is due and payable on August 8, 2025 unless accelerated due to an event of default. WFIA has the right during the first five business days of each calendar quarter to demand payment of all outstanding principal and interest 120 days following notice to us. To date, we have not received a demand notice from WFIA. We may prepay the WFIA Note, in whole or in part, without premium or penalty; provided, that no amount repaid may be reborrowed. As of March 31, 2022, we had cash and cash equivalents of $12.6 million. Based on our operating plan, we believe that our cash and cash equivalents will enable us to fund our research and development and general and administrative expenses through late 2022. In addition, in order to achieve the filing of our NDA for CTx-1301 in lateSeptember 30, 2023, for potential FDA approval, we believe that we will need approximately $21.5there was $3.0 million of additional capital, which amount has increased approximately $6.5 million fromprincipal and accrued interest on the original estimate due primarily to an estimated six months of additional operating expenses resulting from the manufacturing delay described above. Inflation and additional clinical site expenses and manufacturing costs are also expected. We will also need additional capital to advance our other programs. We are evaluating alternatives to raise additional capital, including equity and debt financing and non-dilutive strategic collaborations in the U.S. and abroad. In addition, we continue to evaluate commercial collaborations and strategic relationships with established pharmaceutical companies, which would provide us with more immediate access to marketing, sales, market access and distribution infrastructure.WFIA Note was $0.2 million. See “Liquidity and Capital Resources” below.
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Impact of the COVID-19 Pandemic
Public Offering
WeOn September 11, 2023, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we issued 1,720,000 shares of our common stock, pre-funded warrants to purchase up to an aggregate of 5,205,208 shares of our common stock, Series A warrants to purchase up to 6,925,208 shares of our common stock and Series B warrants to purchase up to 3,462,604 shares of our common stock (September 2023 Offering). The September 2023 Offering closed on September 13, 2023. The combined purchase price per share of common stock and accompanying Series A and Series B warrants was $0.5776 The combined purchase price per pre-funded warrant and accompanying Series A and Series B warrants was $0.5775, which represents the public offering price per share of common stock and accompanying warrants less the $0.0001 per share exercise price for each pre-funded warrant. The pre-funded warrants are continuing to monitorexercisable at any time after the impactdate of issuance and have no expiration date. The holder of pre-funded warrants may not exercise the warrants if the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the COVID-19 pandemic on our business,holder, 9.99%) of the extent of which will depend on a number of factors, including, but not limitedshares of common stock outstanding immediately after giving effect to such exercise. The Series A warrants have an exercise price of $0.5776 per share, are exercisable beginning on November 3, 2023, the effective date of stockholder approval of the issuance of the shares issuable upon exercise of the warrants, and will expire five years after the initial exercise date, and the Series B warrants have an exercise price of $0.5776 per share, are exercisable beginning on November 3, 2023, the effective date of stockholder approval of the issuance of the shares issuable upon exercise of the warrants and will expire two years after the initial exercise date. We received gross proceeds of approximately $4.0 million, before deducing the placement agent’s fees and other offering expenses, pursuant to the extent and severity of the impact on our service providers, suppliers, contract research organizations and our preclinical and clinical trials, all of which are uncertain and cannot be predicted.
While the full impact of the pandemic continues to evolve, the financial markets have been subject to significant volatility that may adversely impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing initiatives. The uncertain financial markets, disruptions in supply chains, mobility restraints, and changing priorities as well as volatile asset values may also affect our ability to enter into collaborations, joint ventures, and license and royalty agreements. The outbreak and government measures taken in response to the pandemic have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, have spiked, while demand for other goods and services, such as travel, have fallen. We may face difficulties recruiting or retaining patients in our ongoing and planned preclinical and clinical trials if patients are affected by the virus or are fearful of traveling to our clinical trial sites. We and our third-party CMOs, clinical research organizations (CROs), and clinical sites may also face disruptions in procuring items that are essential to our research and development activities, including, for example, medical and laboratory supplies used in our clinical trials or preclinical studies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts to address the outbreak.
The extent to which the COVID-19 pandemic may in the future impact our financial condition, liquidity or results of operations is uncertain. While the pandemic did not materially affect our financial results and business operations in the quarter ended March 31, 2022, we are unable to predict the impact that COVID-19 may have on our financial position and operating results in future periods due to numerous uncertainties. Management continues to actively monitor the situation and the possible effects on our financial condition, operations, suppliers, vendors, our workforce and the overall industry. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, our financial condition or our results of operations, see the “Risk Factors” section in our Form 10-K.September 2023 Offering.
Components of Operating Results
Revenue
Since inception, we have not generated any revenue and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration of license agreements.
Operating Expenses
Research and Development Expenses
Research and development expenses consist of costs incurred in the discovery and development of our product candidates, and primarily include:
● | expenses incurred under third party agreements with | |
● | costs of raw materials, as well as manufacturing cost of our materials used in clinical trials and other development testing; | |
● | expenses, including salaries and benefits of employees engaged in research and development activities; | |
● | costs of manufacturing equipment, depreciation and other allocated expenses; and | |
● | fees paid for contracted regulatory services as well as fees paid to regulatory authorities including the |
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We expense all research and development costs as incurred.incurred, other than manufacturing equipment used in research and development which is capitalized and amortized over its estimated useful life. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued costs.
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue clinical development for our product candidates. As products enter later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Historically, our research and development costs have primarily related to the development of CTx-1301. As we advance CTx-1301, CTx-1302, and CTx-2103, as well as identify any other potential product candidates, we will continue to allocate our direct external research and development costs to the products. We expect to fund our research and development expenses from our current cash and cash equivalents and any future equity or debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions.sources.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for our employees in administrative, executive and finance functions. General and administrative expenses also include professional fees for legal, accounting, audit, tax and consulting services, insurance, office, and travel expenses.
We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development andgrowing operations including the potential commercialization of our product candidates. We have experienced increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services; director and officer insurance; and investor and public relations costs.
Interest and other income (expense), net
Interest and other income (expense), net consists of interest expense on our related party notes payable and interest earned on our short-term investmentscash and interest expense.cash equivalents, including money market funds. The primary objective of our investment policy is liquidity and capital preservation.
Interest expense to date has consisted primarily of interest expense on notes payable to related parties, interest charged by certain vendors, and credit card interest. All related party notes were paid in full in December 2021 with proceeds from our IPO.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during a reporting period. Actual results could differ from estimates.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we have identified severalbelieve the following accounting policies that are those most critical to the judgements and estimates used in the preparation of our consolidated financial statements. These policies relate to research and development costs and stock-based compensation. A discussion of these policies can be found in the “Critical Accounting Policies and Significant Judgments and Estimates” section of our Form 10-K.
There have been no changes in our application of critical accounting policies since December 31, 2021.2022.
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Results of Operations
Comparison of the three months ended March 31, 2022September 30, 2023 and March 31, 2021September 30, 2022:
The following table summarizes our results of operations for the three months ended March 31, 2022September 30, 2023 and March 31, 2021:September 30, 2022:
Three months ended | Three Months ended | % | ||||||||||||||||||||||||||||||
March 31, | Increase | % Increase | September 30, | Increase | Increase | |||||||||||||||||||||||||||
(in thousands) | 2022 | 2021 | (Decrease) | (Decrease) | 2023 | 2022 | (Decrease) | (Decrease) | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||
Research and development | $ | 2,762 | $ | 562 | $ | 2,200 | 391.5 | % | $ | 3,924 | $ | 2,123 | $ | 1,801 | 84.8 | % | ||||||||||||||||
General and administrative | 2,247 | 768 | 1,479 | 192.6 | % | 1,826 | 1,845 | (19 | ) | -1.0 | % | |||||||||||||||||||||
Loss from operations | (5,009 | ) | (1,330 | ) | (3,679 | ) | (584.0 | )% | (5,750 | ) | (3,968 | ) | 1,782 | (44.9 | %) | |||||||||||||||||
Interest and other income (expense), net | 6 | (4 | ) | 10 | (250.0 | )% | (229 | ) | (59 | ) | (170 | ) | NM | |||||||||||||||||||
Net loss | $ | (5,003 | ) | $ | (1,334 | ) | $ | (3,669 | ) | 275.0 | % | |||||||||||||||||||||
Net Loss | $ | (5,979 | ) | $ | (4,027 | ) | $ | 1,612 | (40.0 | %) |
Research and development expenses
The following table summarizes our research and development (R&D) expenses for the three months ended March 31, 2022September 30, 2023 and 2021:September 30, 2022:
Three months ended | Three Months ended | % | ||||||||||||||||||||||||||||||
March 31, | Increase | % Increase | September 30, | Increase | Increase | |||||||||||||||||||||||||||
(in thousands) | 2022 | 2021 | (Decrease) | (Decrease) | 2023 | 2022 | (Decrease) | (Decrease) | ||||||||||||||||||||||||
Clinical operations | $ | 808 | $ | 21 | $ | 787 | NM | $ | 2,346 | $ | 581 | $ | 1,765 | 303.8 | % | |||||||||||||||||
Drug manufacturing and formulation | 1,353 | 248 | 1,105 | 445.6 | % | 817 | 673 | 144 | 21.4 | % | ||||||||||||||||||||||
Personnel expenses | 583 | 298 | 285 | 95.6 | % | 644 | 860 | (216 | ) | (25.1 | %) | |||||||||||||||||||||
Regulatory costs | 18 | (5 | ) | 23 | 460.0 | % | 117 | 9 | 108 | NM | ||||||||||||||||||||||
Total research and development expenses | $ | 2,762 | $ | 562 | $ | 2,200 | 391.5 | % | $ | 3,924 | $ | 2,123 | $ | 1,801 | 84.8 | % |
Research and development (R&D)R&D expenses were $2.8$3.9 million for the three months ended March 31, 2022,September 30, 2023, an increase of $2.2$1.8 million, or 391.5%84.8%, from the three months ended March 31, 2021.September 30, 2022. This increasechange was related toprimarily the result of increased developmentclinical activity as compared to the same period in 2022. During the third quarter of 2023, we prepare for ainitiated two Phase 3 clinical trialstudies for CTx-1301. Manufacturing clinical supply beganCTx-1301, the pediatric dose optimization onset and duration study and the fixed dose pediatric and adolescent safety and efficacy study. In addition, the Phase 3 adult dose-optimization study for CTx-1301 was completed in the first quarter of 2022 and study start-up activities have been occurring since late 2021.June 2023.
General and administrative expenses
The following table summarizes our general and administrative (G&A) expenses for the three months ended March 31, 2022September 30, 2023 and 2021:September 30, 2022:
General and Administrative expenses | ||||||||||||||||||||||||||||||||
Three months ended | Three Months ended | % | ||||||||||||||||||||||||||||||
March 31, | Increase | % Increase | September 30, | Increase | Increase | |||||||||||||||||||||||||||
(in thousands) | 2022 | 2021 | (Decrease) | (Decrease) | 2023 | 2022 | (Decrease) | (Decrease) | ||||||||||||||||||||||||
Personnel expenses | $ | 662 | $ | 286 | $ | 376 | 131.5 | % | $ | 672 | $ | 595 | $ | 77 | 12.9 | % | ||||||||||||||||
Legal and professional fees | 648 | 264 | 384 | 145.5 | % | 511 | 373 | 138 | 37.0 | % | ||||||||||||||||||||||
Occupancy | 126 | 102 | 24 | 23.5 | % | 144 | 109 | 35 | 32.1 | % | ||||||||||||||||||||||
Insurance | 674 | 41 | 633 | NM | 398 | 669 | (271 | ) | (40.5 | %) | ||||||||||||||||||||||
Other | 137 | 75 | 62 | 82.7 | % | 101 | 99 | 2 | (2.0 | %) | ||||||||||||||||||||||
Total general and administrative expenses | $ | 2,247 | $ | 768 | $ | 1,479 | 192.6 | % | $ | 1,826 | $ | 1,845 | $ | (19 | ) | (1.0 | %) |
Total G&A expenses were $2.2 million for the three months ended March 31, 2022, an increase of $1.5 million or 192.6% fromSeptember 30, 2023 were flat compared to the three months ended March 31, 2021. The increase wasSeptember 30, 2022, primarily attributable to an increase in personnel expensesthe result of $0.4 million as we added personnel in late 2021 in anticipation of becoming a public company, an increase of $0.6 milliondecrease in insurance costs, which relateswas related to a decline in the directorsannual directors’ and officersofficers’ insurance policy obtained when we became a publicly traded company, andpremium that was renewed in December of 2022, offset by an increase in legal and professional fees of $0.4 million, which relatesrelating to capital raise activities during the audit and tax fees for the 2021 audit which were in incurred in the firstthird quarter of 2022, an earlier timeframe as compared to 2021.2023.
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Interest and other income (expense), net
The following table summarizes interest and other income (expense), net for the three months ended March 31, 2022September 30, 2023 and 2021:September 30, 2022:
Interest and other income (expense): | ||||||||||||||||||||||||||||||||
Three months ended | Three Months ended | % | ||||||||||||||||||||||||||||||
March 31, | Increase | % Increase | September 30, | Increase | Increase | |||||||||||||||||||||||||||
(in thousands) | 2022 | 2021 | (Decrease) | (Decrease) | 2023 | 2022 | (Decrease) | (Decrease) | ||||||||||||||||||||||||
Interest and other income (expense), net | $ | 6 | $ | (4 | ) | $ | 10 | (250.0 | )% | $ | (229 | ) | $ | (59 | ) | $ | (171 | ) | (289.8 | %) |
Total interest and other income (expense), net primarily relates to interest and dividends earned on invested balances duringin the three months ended March 31, 2022 and relatesSeptember 30, 2023 primarily related to interest incurred on outstanding notes payable duringthe $8.0 million of principal under the WFIA Note, of which $5.0 million of principal was converted to equity in early September 2023.
Total interest and other income (expense), net in the three months ended March 31, 2021. All notes payableSeptember 30, 2022 primarily related to interest on the initial $5.0 million of principal under the WFIA Note, dated August 2022, offset by interest earned during the period.
Comparison of the nine months ended September 30, 2023 and September 30, 2022:
The following table summarizes our results of operations for the nine months ended September 30, 2023 and September 30, 2022:
Nine Months ended | % | |||||||||||||||
September 30, | Increase | Increase | ||||||||||||||
(in thousands) | 2023 | 2022 | (Decrease) | (Decrease) | ||||||||||||
Operating Expenses: | ||||||||||||||||
Research and development | $ | 10,508 | $ | 7,064 | $ | 3,444 | 48.8 | % | ||||||||
General and administrative | 5,454 | 5,963 | (509 | ) | (8.5 | %) | ||||||||||
Loss from operations | (15,962 | ) | (13,027 | ) | 2,935 | (22.5 | %) | |||||||||
Interest and other income (expense), net | (638 | ) | (44 | ) | 594 | NM | ||||||||||
Net Loss | $ | (16,600 | ) | $ | (13,071 | ) | $ | 3,529 | (27.0 | %) |
Research and development expenses
The following table summarizes our R&D expenses for the nine months ended September 30, 2023 and September 30, 2022:
Nine Months ended | % | |||||||||||||||
September 30, | Increase | Increase | ||||||||||||||
(in thousands) | 2023 | 2022 | (Decrease) | (Decrease) | ||||||||||||
Clinical operations | $ | 5,071 | $ | 2,082 | $ | 2,989 | 143.6 | % | ||||||||
Drug manufacturing and formulation | 3,254 | 2,827 | 427 | 15.1 | % | |||||||||||
Personnel expenses | 1,902 | 2,097 | (195 | ) | (9.3 | %) | ||||||||||
Regulatory costs | 281 | 58 | 223 | 384.5 | % | |||||||||||
Total research and development expenses | $ | 10,508 | $ | 7,064 | $ | 3,444 | 48.8 | % |
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R&D expenses were paid$10.5 million for the nine months ended September 30, 2023, an increase of $3.4 million, or 48.8%, from the nine months ended September 30, 2022. The increase was primarily the result of a significant increase in fullclinical activity as compared to the same period in 2022. We initiated the Phase 3 adult dose-optimization study for CTx-1301 in late 2022 and completed it in June 2023. Additionally, we incurred expenses in connection with the pivotal Phase 3 fixed-dose pediatric and adolescent safety and efficacy study and the Phase 3 pediatric dose-optimization onset and duration study, both for CTx-1301, which were initiated during the third quarter of 2023. Manufacturing activity also increased in 2023, as we completed the manufacturing of clinical supply for the CTx-1301 Phase 3 studies.
General and administrative expenses
The following table summarizes our general and administrative (G&A) expenses for the nine months ended September 30, 2023 and September 30, 2022:
Nine Months ended | % | |||||||||||||||
September 30, | Increase | Increase | ||||||||||||||
(in thousands) | 2023 | 2022 | (Decrease) | (Decrease) | ||||||||||||
Personnel expenses | $ | 2,023 | $ | 1,803 | $ | 220 | 12.2 | % | ||||||||
Legal and professional fees | 1,495 | 1,422 | 73 | 5.1 | % | |||||||||||
Occupancy | 396 | 353 | 43 | 12.2 | % | |||||||||||
Insurance | 1,173 | 2,013 | (840 | ) | (41.7 | %) | ||||||||||
Other | 367 | 372 | (5 | ) | (1.3 | %) | ||||||||||
Total general and administrative expenses | $ | 5,454 | $ | 5,963 | $ | (509 | ) | (8.5 | %) |
Total G&A expenses were $5.4 million for the nine months ended September 30, 2023, a decrease of $0.5 million, or 8.5%, from the nine months ended September 30, 2022. This change was primarily the result of a decrease in insurance costs of $0.8 million related to a decline in the annual directors’ and officers’ insurance policy premium that was renewed in December 2021 with proceedsof 2022, offset by an increase in personnel expenses resulting from our IPO.the addition of clinical personnel and annual compensation increases.
Interest and other income (expense), net
The following table summarizes interest and other income (expense), net for the nine months ended September 30, 2023 and September 30, 2022:
Nine Months ended | % | |||||||||||||||
September 30, | Increase | Increase | ||||||||||||||
(in thousands) | 2023 | 2022 | (Decrease) | (Decrease) | ||||||||||||
Interest and other income (expense), net | $ | (638 | ) | $ | (44 | ) | $ | (594 | ) | NM |
Total interest and other income (expense), net in the nine months ended September 30, 2023 primarily related to interest on the initial $5.0 million of principal under the WFIA Note, dated August 2022, which was subsequently increased to $8.0 million in May 2023, and decreased by $5.0 million due to a conversion to equity in early September 2023, offset by interest earned on invested balances.
Total interest and other income (expense), net in the nine months ended September 30, 2022 primarily related to interest on the initial $5.0 million of principal under the WFIA Note, dated August 2022, offset by interest earned during the period.
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Cash Flows
Three months ended March 31, | Increase | Nine Months ended | ||||||||||||||||||
(in thousands) | 2022 | 2021 | (decrease) | |||||||||||||||||
September 30, | ||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||
Net cash (used in) operating activities | $ | (3,864 | ) | $ | (1,674 | ) | $ | 2,190 | $ | (12,472 | ) | $ | (11,676 | ) | ||||||
Net cash (used in) investing activities | (10 | ) | (66 | ) | (56 | ) | (37 | ) | (10 | ) | ||||||||||
Net cash (used in) provided by financing activities | (4 | ) | 1,351 | 1,355 | ||||||||||||||||
Net cash provided by financing activities | 9,139 | 4,989 | ||||||||||||||||||
Net decrease in cash and cash equivalents | $ | (3,878 | ) | $ | (389 | ) | $ | 3,489 | $ | (3,370 | ) | $ | (6,697 | ) |
Cash Flows from Operating Activities
Net cash used in operating activities was $3.9$12.5 million for the threenine months ended MarchSeptember 30, 2023. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $16.6 million, prior to the effects of two noncash items, stock-based compensation expense of $0.7 million and depreciation expense of $0.4 million. Changes in operating assets and liabilities included a decrease in miscellaneous receivables of $0.2 million primarily due to collection of an amount recoverable on an insurance claim which had been recorded as a receivable as of December 31, 2022, a decrease of prepaid expenses and other current assets of $1.4 million primarily due to the utilization of deposits made to our contract manufacturing organization and contract research organizations, an increase in trade accounts payable and accrued expenses of $1.5 million due to increased clinical and manufacturing expenses resulting from increased development activity, an increase in interest accrued for to the WFIA Note, and an increase in legal fees payable relating to legal activity incurred primarily in connection with capital raise activities.
Net cash used in operating activities was $11.7 million for the nine months ended September 30, 2022. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $5.0$12.8 million, prior to the effects of two noncash items, stock-based compensation expense of $0.2$0.6 million and depreciation of $0.1$0.3 million. Changes in operating assets and liabilities included a decrease in prepaid expensesmiscellaneous receivables resulting from the receipt in early 2022 of $0.4 million primarily due to a significant down payment made onportion of the directorspayroll and officers insurance policy in late 2021, which is being amortized over the policy period, as well asresearch and development tax credits owed to us, and an increase in accounts payableprepaid expenses and accrued expenses of $0.4 million dueother current assets relating to increasedprepaid amounts on clinical development activity on CTx-1301 resulting in increased billings and amounts owed as of March 31, 2022.
Net cash used in operating activities was $1.7 million for the three months ended March 31, 2021. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $1.3 million, offset by depreciation. Changes in operating assets and liabilities included a decrease in accounts payable and accrued expenses of $0.3 million mainly due to the timing of payments to our service providers.activity.
Cash Flows from Investing Activities
Net cash used in investing activities for both the three monthsnine-month periods ended March 31,September 30, 2023 and September 30, 2022 and March 31, 2021 was related to the purchase of equipment to support our research and development.
Cash Flows from Financing Activities
Net cash used inprovided by financing activities infor the threenine months ended March 31, 2022September 30, 2023 was primarily related to principal payments on finance lease obligations.gross proceeds of approximately $4.0 million from the September 2023 Offering, gross proceeds of approximately $1.0 million from the WFIA Private Placement and proceeds from the issuance of shares of common stock pursuant to the Lincoln Park Agreement and the ATM Agreement. In addition, we received $3.0 million from the 2023 WFIA Debt Financing.
Net cash provided by financing activities in the threenine months ended March 31, 2021September 30, 2022 was primarily related to the proceeds ofon the issuance of $1.4$5.0 million of equity units of CTx.
WFIA Note received in August 2022.
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Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2012 through March 31, 2022,September 30, 2023, we have not generated any revenue and have incurred significant operating losses and negative cash flow from our operations. Based on our current operating plan, we expect our cash and cash equivalents of $12.6 million as of March 31, 2022 will be sufficient to fund our development and operating expenditures through mid-November 2023.
During the three months ended September 30, 2023, we sold 1,538,855 shares of common stock pursuant to the ATM Agreement, for net proceeds of $1,595,429 after deducting $49,502 of compensation to HCW and other administration fees. During the nine months ended September 30, 2023, we sold 1,648,208 shares of common stock pursuant to the ATM Agreement, for net proceeds of $1,696,407 after deducting $59,898 of compensation to HCW and other administration fees. Subsequent to September 30, 2023, we did not sell any shares of common stock pursuant to the ATM Agreement.
During the three months ended September 30, 2023, we sold 240,000 shares of common stock pursuant to the Lincoln Park Agreement, for net proceeds of $196,167. During the nine months ended September 30, 2023, we sold 510,000 shares of common stock pursuant to the Lincoln Park Agreement, for net proceeds of $450,427. Subsequent to September 30, 2023, we did not sell any shares of common stock pursuant to the Lincoln Park Agreement.
On August 11, 2023, we received gross proceeds of approximately $1.0 million pursuant to the WFIA Private Placement.
On September 13, 2023, we received gross proceeds of approximately $4.0 million, before deducting the placement agent’s fees and other offering expenses, andpursuant to the September 2023 Offering.
Management is also evaluating additional strategies to obtain funding, which may include additional offerings of equity, issuance of debt, or other capital expenditure requirements through late 2022. sources, including potential collaborations with other companies or other strategic transactions.
In addition, in order to achieve the filing of our NDA for CTx-1301 in late 2023the second half of 2024 for potential FDA approval, we believe that we will need approximately $21.5$30 million of additional capital, which amount has increased approximately $6.5 million from the original estimate due primarily to an estimated six months of additional operating expenses resulting from the manufacturing delay described above. Inflation and additional clinical site expenses and manufacturing costs are also expected.capital. We will also need additional capital to advance our other programs.programs and commercialization efforts. However, it is difficult to predict our spending for our product candidates prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.
Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity while producing a modest return on investment. Accordingly, our cash equivalents are invested primarily in money market funds which are currently providing only a minimal return given the current interest rate environment.
We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for our product candidates, we will incur significant sales, marketing and outsourced manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public company.
Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:
● | the cost and timing of manufacturing the clinical supply of our product candidates; | |
● | the initiation, progress, timing, costs and results of clinical trials for our product candidates; | |
● | the clinical development plans we establish for each product candidate; |
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● | the number and characteristics of product candidates that we develop or may in-license; | |
● | the terms of any collaboration or license agreements we may choose to execute; | |
● | the outcome, timing and cost of meeting regulatory requirements established by the FDA or other comparable foreign regulatory authorities; | |
● | the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; | |
● | the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us; | |
● | the cost and timing of the implementation of commercial scale manufacturing activities; and | |
● | the cost and timing of |
To continue to grow our business over the longer term, we plan to commit substantial resources to research and development, including clinical trials of our product candidates, and other operations and potential product acquisitions and in-licensing. We have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in-license and develop additional products and product candidates to augment our internal development pipeline. Strategic transaction opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. In addition, we may pursue development, acquisition or in-licensing of approved or development products in new or existing therapeutic areas or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes. Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in-licensinglicensing or similar strategic business transaction. In addition,March 2023, we continue to evaluate commercial collaborations and strategic relationshipsentered into a Joint Commercialization Agreement with established pharmaceutical companies,Indegene, Inc., which wouldwill provide us with more immediate access tocommercialization services for CTx-1301, upon approval from the FDA, including marketing, sales, market access and distribution, infrastructure.on a fee for service basis.
If we raise additional funds by issuing equity securities or if our debt is converted to equity, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our existing stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.
Contractual Obligations
The following summarizes our contractual obligations as of March 31, 2022September 30, 2023 that will affect our future liquidity. Based on our current operating plan, we plan to satisfy the obligations identified below with cash and cash equivalents as of March 31, 2022.
We entered into a patent and know-how licensing agreement with BDD Pharma Limited in August 2018. See the “Business“Item 1. Business – Material Agreements” section of our Annual Report on Form 10-Kfor10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 10, 2023 for a description of this agreement. We may beare required to pay BDD Pharma certain amounts in connection with clinical trial and regulatory milestones. The first milestone payment of $250,000 will likely become duewas paid in the next twelve months based on theFebruary 2023 upon dosing of the first patient in the Phase 3 fixed-dose pediatricadult onset and adolescent safety and efficacyduration study for CTx-1301. This payment is accruedAdditional payments will become due upon completion of certain milestones as defined in our March 31, 2022 financial statements.the agreement.
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We have entered into an agreementagreements with a CROCROs for the pivotal Phase 3 fixed-dose pediatric and adolescent safety and efficacy study for CTx-1301, which commenced in late July 2023, and the Phase 3 pediatric dose-optimization, onset and duration study, which we plan to dose the first patientcommenced in the second half of 2022.early August 2023. We alsohave entered into agreements with a CMOCDMO and other third parties for manufacture of the Phase 3 clinical supplyregistration batches for CTx-1301 which will be needed for submission of CTx-1301. the NDA. We have also entered into a joint commercialization agreement with Indegene, Inc., pursuant to which Indegene will provide commercialization services for CTx-1301, upon approval from the FDA, including marketing, sales, market access and distribution, on a fee for service basis. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation and in some cases, wind-down costs and restoration costs. The exact amount of such obligations is dependent on the timing of termination and the terms of the related agreement and are not known.
Going Concern
Since inception we have been engaged in organizational activities, including raising capital and research and development activities. We have not generated revenues and have not yet achieved profitable operations, nor have we ever generated positive cash flow from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. We are subject to those risks associated with any pre-clinical stage pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that our research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, we operate in an environment of rapid technological change andthat is largely dependent on the services of our employees and consultants. Further, our future operations are dependent on the success of our efforts to raise additional capital. These uncertainties raise substantial doubt about our ability to continue as a going concern for one year after the issuance date of our financial statements. The accompanying consolidated financial statements have been prepared on a going concern basis. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Companycompany to continue as a going concern, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business. We have incurred a net loss for the three months ended March 31,and nine-month periods ending September 30, 2023 and 2022 and March 31, 2021 and had accumulated losses of $56.7$86.0 million since inception to March 31, 2022.September 30, 2023. We anticipate incurring additional losses until such time, if ever, that we can generate significant revenue from our product candidates currently in development. Our sources of capital have included private capital raises in various classes of units of CTx prior to the Reorganization Merger, and the issuance of equity securities in connection with our IPO.initial public offering, the ATM Agreement, the Lincoln Park Agreement, the WFIA debt financings, the WFIA Private Placement and the September 2023 Offering. Additional financings will be needed by us to fund our operations and to complete development of and to commercially developcommercialize our product candidates. See “Liquidity and Capital Resources” above for details relating to these agreements which we have entered into in 2023 as potential sources of additional capital. There is no assurance that such financing will be available when needed or on acceptable terms.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life, instead of when incurred. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments–Credit Losses, which amends Subtopic 326-20 (created by ASU 2016-13) to explicitly state that operating lease receivables are not in the scope of Subtopic 326-20. Additionally, in April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments; in May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief; in November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses; and in March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, to provide further clarifications on certain aspects of ASU 2016-13. The changes (as amended) are effective for the Company for annual and interim periods in fiscal years beginning after December 15, 2022. The Company does not expect the adoption of ASU 2016-13 to have a material effect on its consolidated financial statements.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company”.company.” As an “emerging growth company,” we are electing to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for emerging growth companies.
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Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply until the fifth anniversary of the completion of our IPO or until we no longer meet the requirements for being an “emerging growth company,” whichever occurs first.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4.Controls and Procedures.
Evaluation of Our Disclosure Controls
We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2022,September 30, 2023, have concluded that our disclosure controls and procedures were effective as of March 31, 2022.September 30, 2023.
Evaluation of Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2022September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a partySee Part I, Item 1, Notes to any material pending legal proceedings. From time to time, we may be subject to legal proceedings and claims arising in the ordinary courseConsolidated Financial Statements, Note 6 – Contingencies, of business.this report.
Item 1A. Risk Factors.
There have beenOur business is subject to substantial risks and uncertainties. Investing in our securities involves a high degree of risk. You should carefully consider the risk factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 10, 2023, together with the information contained elsewhere in this report, including Part I, Item 1 “Financial Statements” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our other SEC filings in evaluating our business. These risks and uncertainties could materially and adversely affect our business, financial condition, results of operations, prospects for growth, and the value of an investment in our securities.
Except as set forth below, there were no material changes to the risk factors describedpreviously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, filed with the SEC on March 10, 2023.
If we fail to regain compliance with the continued listing requirements of Nasdaq, our common stock and/or warrants may be delisted and the price of our common stock and/or warrants and our ability to access the capital markets could be negatively impacted.
Our common stock and warrants are currently listed for trading on Nasdaq. On May 16, 2023, we received a notice from Nasdaq stating that we no longer comply with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing. We submitted a plan of compliance to Nasdaq on June 30, 2023. On July 28, 2022.2023, Nasdaq notified us that that it granted an extension until November 13, 2023 to regain compliance with the minimum stockholders’ equity requirement, conditioned upon achievement of certain milestones included in the plan of compliance previously submitted to Nasdaq, including a plan to raise additional capital. If we fail to evidence compliance upon filing our periodic report for the quarter ending September 30, 2023 by November 13, 2023, we may be subject to delisting. If Nasdaq determines to delist our securities, we will have the right to appeal to a Nasdaq hearings panel. There can be no assurance that we will be able to regain compliance with the applicable Nasdaq listing requirements.
In addition, on July 28, 2023, we received notice from Nasdaq indicating that we are not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq. We were provided a compliance period of 180 calendar days from the date of the notice, or until January 24, 2024, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). We may be eligible for an additional 180 calendar day compliance period. There can be no assurance that we will regain compliance with the minimum closing bid requirement during the 180-day compliance period, secure a second period of 180 days to regain compliance or maintain compliance with the other Nasdaq listing requirements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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On December 7, 2021, our registration statement on Form S-1 (Registration No. 333-259408) was declared effective byWe will continue to monitor the SEC for our IPO pursuant to which we issued (i) an aggregate of 4,166,666 sharesclosing bid price of our common stock and accompanying warrants to purchase 4,166,666 sharesmay, if appropriate, consider available options, including implementation of a reverse stock split of our common stock, atto regain compliance with the minimum closing bid requirement. If we seek to implement a combined purchasereverse stock split in order to remain listed on Nasdaq, the announcement or implementation of such a reverse stock split could negatively affect the price of $6.00our common stock and/or warrants.
We must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum stockholders’ equity of $2.5 million and a minimum closing bid price of $1.00 per share ofor risk delisting, which could have a material adverse effect on our business. If our common stock and accompanying warrant and (ii) warrants to purchase an additional 624,999 sharesare delisted from Nasdaq, it could materially reduce the liquidity of our common stock at an purchaseand warrants and result in a corresponding material reduction in the price of $0.001 per warrant pursuantour common stock and warrants as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws. In addition, delisting could harm our ability to an over-allotment option, resulting in aggregate net proceedsraise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of approximately $20.4 million after deducting underwriting discountsconfidence by investors, suppliers, customers and commissionsemployees and other offering expensesfewer business development opportunities. If our common stock and warrants are delisted, it could be more difficult to buy or sell our common stock and warrants or to obtain accurate quotations, and the price of approximately $4.6 million.our common stock and warrants could suffer a material decline. Delisting could also impair our ability to raise capital on acceptable terms, if at all.
Future sales of our common stock, warrants, or securities convertible into our common stock may depress our stock price.
The remainder of the information required by this item regarding the useprice of our IPO proceeds has been omitted pursuantcommon stock or warrants could decline as a result of sales of a large number of shares of our common stock or warrants or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to SEC rules because such information has not changed since our last periodic report was filed.sell equity securities in the future at a time and at a price that we deem appropriate.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5.Other Information.
None.In addition, in the future, we may issue additional shares of common stock, warrants or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. We may also issue additional shares of common stock to satisfy our outstanding promissory note in favor of Werth Family Investment Associates LLC, an entity controlled by Peter Werth, a member of our Board of Directors. Any such issuances could result in substantial dilution to our existing stockholders and could cause the price of our common stock or warrants to decline.
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Item 6. Exhibits
* Filed Herewith
** Furnished Herewith
+ Indicates a management contract or compensatory arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CINGULATE INC. | ||
Date: | By: | /s/ Shane J. Schaffer |
Shane J. Schaffer | ||
Chairman and Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: | By: | /s/ Louis G. Van Horn |
Louis G. Van Horn | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
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