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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

 

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: 001-38634

 


 

Reviva Pharmaceuticals Holdings, Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

85-4306526

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

   
     

10080 N. Wolfe Road, Suite SW3-200

   

Cupertino, CA

 

95014

(Address of principal executive offices)

 

(Zip Code)

 

(408) 501-8881

(Registrants telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year,

if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

RVPH

The Nasdaq Capital Market

Warrants to purchase one share of Common Stock

RVPHW

The 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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 Act). Yes No ☒

 

As of August 12, 2024 the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 29,817,294.

 



 

  

 

REVIVA PHARMACEUTICALS HOLDINGS, INC.

FORM 10-Q TABLE OF CONTENTS

 

 

   

Page

Part I

Financial Information

 

Item 1.

Financial Statements (unaudited)

F-1

 

Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023

F-1

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023

F-2

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2024 and 2023

F-3

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023

F-4

  Notes to Condensed Consolidated Financial Statements

F-6

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

14

Item 4.

Controls and Procedures

14

     

Part II

Other Information

 

Item 1.

Legal Proceedings

16

Item 1A.

Risk Factors

16

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

16

Item 3.

Defaults Upon Senior Securities

16

Item 4.

Mine Safety Disclosures

16

Item 5.

Other Information

16

Item 6.

Exhibits

17

Signatures

18

 

 

  

 

EXPLANATORY NOTE

 

As previously reported by Reviva Pharmaceuticals Holdings, Inc. (together with its consolidated subsidiary, the “Company”, “we” or “us”), the audit committee (the “audit committee”) of the board of directors of the Company, after meeting with management, concluded that the Company’s previously issued financial statements for the fiscal year ended December 31, 2022 included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the interim financial statements for the quarterly period ended September 30, 2022 included in its Quarterly Report on Form 10-Q, and each of the interim financial statements for the quarterly periods in fiscal 2023 included in its Quarterly Reports on Form 10-Q (cumulatively, the “Restatement Periods”) should be restated to correct historical errors related principally to the timing of recognition of the Company’s estimated accrual of certain research and development expenses. Such restatement was reflected and included within the Company's annual financial statements for the fiscal year ended December 31, 2023 included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2024.

 

Please refer to the Explanatory Note to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on April 15, 2024, for more information regarding the restatement. For a more detailed discussion of the correction of historical errors in the Restatement Periods, including for the three and six months ended June 30, 2023, refer to Notes 2 and 10 to the consolidated financial statements of the Company included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on April 15, 2024.

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited).

 

REVIVA PHARMACEUTICALS HOLDINGS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, 2024 and December 31, 2023

 

   

June 30,

   

December 31,

 
   

2024

   

2023

 

Assets

               

Cash and cash equivalents

  $ 6,178,180     $ 23,367,456  

Prepaid clinical trial costs

    528,947       78,295  

Prepaid expenses and other current assets

    525,826       254,637  
Total current assets     7,232,953       23,700,388  
Non-current prepaid clinical trial costs     819,721        

Total Assets

  $ 8,052,674     $ 23,700,388  
                 

Liabilities and Stockholders' Equity (Deficit)

               
                 

Liabilities

               

Short-term debt

  $ 207,500     $  

Accounts payable

    4,693,360       3,849,108  

Accrued clinical expenses

    7,301,782       11,966,812  

Accrued compensation

    1,295,978       958,607  

Other accrued liabilities

    445,371       400,490  

Total current liabilities

    13,943,991       17,175,017  

Warrant liabilities

    150,205       806,655  

Total Liabilities

    14,094,196       17,981,672  
                 

Commitments and contingencies (Note 6)

               
                 

Stockholders' Equity (Deficit)

               

Common stock, par value of $0.0001; 115,000,000 shares authorized; 29,817,294 and 27,918,560 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

    2,982       2,792  

Preferred Stock, par value of $0.0001; 10,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023

           

Additional paid-in capital

    143,603,271       140,070,172  

Accumulated deficit

    (149,647,775 )     (134,354,248 )

Total stockholders' equity (deficit)

    (6,041,522 )     5,718,716  
                 

Total Liabilities and Stockholders' Equity (Deficit)

  $ 8,052,674     $ 23,700,388  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-1

 

 

REVIVA PHARMACEUTICALS HOLDINGS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Three and Six Months Ended June 30, 2024 and 2023

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2024

   

2023

   

2024

   

2023

 
            (as restated)             (as restated)  

Operating expenses

                               

Research and development

  $ 5,584,347     $ 8,256,336     $ 11,368,212     $ 13,740,481  

General and administrative

    2,545,296       3,079,301       4,683,537       4,579,855  

Total operating expenses

    8,129,643       11,335,637       16,051,749       18,320,336  

Loss from operations

    (8,129,643 )     (11,335,637 )     (16,051,749 )     (18,320,336 )

Other income (expense)

                               

Gain (loss) on remeasurement of warrant liabilities

    200,273       (456,177 )     656,450       (445,051 )

Interest expense

    (5,153 )     (12,759 )     (8,640 )     (20,414 )

Interest income

    87,610       103,080       260,708       250,091  
Other expense, net     (5,621 )     (19 )     (135,515 )     (14,513 )

Total other income (expense), net

    277,109       (365,875 )     773,003       (229,887 )

Loss before provision for income taxes

    (7,852,534 )     (11,701,512 )     (15,278,746 )     (18,550,223 )

Provision for income taxes

    7,385       6,436       14,781       9,414  

Net loss

  $ (7,859,919 )   $ (11,707,948 )   $ (15,293,527 )   $ (18,559,637 )
                                 

Net loss per share:

                               

Basic and diluted

  $ (0.26 )   $ (0.52 )   $ (0.51 )   $ (0.84 )
                                 

Weighted average shares outstanding

                               

Basic and diluted

    30,555,012       22,434,781       30,221,168       22,135,850  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-2

 

 

REVIVA PHARMACEUTICALS HOLDINGS, INC.

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT) (UNAUDITED)

 

For the Three and Six Months Ended June 30, 2024

 

   

Common Stock

   

Additional

Paid-In

   

Accumulated

   

Total

Stockholders'
 

Three Months Ended June 30, 2024

 

Shares

   

Amount

     Capital       Deficit     Deficit  

Balance at March 31, 2024

    27,918,560     $ 2,792     $ 140,439,247     $ (141,787,856 )   $ (1,345,817 )

Issuance of common stock in offering, net of transaction costs

    1,898,734       190       1,494,292             1,494,482  
Issuance of warrants in offering, net of transaction costs                 1,081,689             1,081,689  

Modification of existing warrants, net of transaction costs

                229,050             229,050  

Stock-based compensation expense

                358,993             358,993  

Net loss

                      (7,859,919 )     (7,859,919 )

Balance at June 30, 2024

    29,817,294     $ 2,982     $ 143,603,271     $ (149,647,775 )   $ (6,041,522 )

 

   

Common Stock

   

Additional

Paid-In

   

Accumulated

   

Total

Stockholders'

 

Six Months Ended June 30, 2024

 

Shares

   

Amount

      Capital       Deficit       Equity (Deficit)  

Balance at December 31, 2023

    27,918,560     $ 2,792     $ 140,070,172     $ (134,354,248 )   $ 5,718,716  

Issuance of common stock in offering, net of transaction costs

    1,898,734       190       1,494,292             1,494,482  
Issuance of warrants in offering, net of transaction costs                 1,081,689             1,081,689  
Modification of existing warrants, net of transaction costs                 229,050             229,050  

Stock-based compensation expense

                728,068             728,068  

Net loss

                      (15,293,527 )     (15,293,527 )

Balance at June 30, 2024

    29,817,294     $ 2,982     $ 143,603,271     $ (149,647,775 )   $ (6,041,522 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-3

 

REVIVA PHARMACEUTICALS HOLDINGS, INC.

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT) (UNAUDITED)

 

For the Three and Six Months Ended June 30, 2023

 

                   

Additional

   

Accumulated

   

Total

Stockholders'

 
   

Common Stock

    Paid-In     Deficit    

Equity (Deficit)

 

Three Months Ended June 30, 2023

 

Shares

   

Amount

    Capital     (as restated)     (as restated)  

Balance at March 31, 2023 (as restated)

    20,452,121     $ 2,045     $ 103,556,732     $ (101,945,100 )   $ 1,613,677  

Common stock issued in connection with warrant exercises

    2,198,145       220       5,658,037             5,658,257  

Stock-based compensation expense

                2,620,819             2,620,819  

Net loss (as restated)

                      (11,707,948 )     (11,707,948 )

Balance at June 30, 2023 (as restated)

  $ 22,650,266     $ 2,265     $ 111,835,588     $ (113,653,048 )   $ (1,815,195 )

 

                   

Additional

   

Accumulated

   

Total Stockholders'

 
   

Common Stock

    Paid-In    

Deficit

   

Equity (Deficit)

 

Six Months Ended June 30, 2023

 

Shares

   

Amount

    Capital     (as restated)     (as restated)  

Balance at December 31, 2022 (as restated)

    20,447,371     $ 2,045     $ 103,485,612     $ (95,093,411 )   $ 8,394,246  

Common stock issued in connection with warrant exercises

    2,202,895       220       5,677,630             5,677,850  

Stock-based compensation expense

                2,672,346             2,672,346  

Net loss (as restated)

                      (18,559,637 )     (18,559,637 )

Balance at June 30, 2023 (as restated)

  $ 22,650,266     $ 2,265     $ 111,835,588     $ (113,653,048 )   $ (1,815,195 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-4

 

 

REVIVA PHARMACEUTICALS HOLDINGS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

For the Six Months Ended June 30, 2024 and 2023

 

   

Six Months Ended June 30,

 
   

2024

   

2023

 

Cash flows from operating activities

         

(as restated)

 

Net loss

  $ (15,293,527 )   $ (18,559,637 )

Adjustments to reconcile net loss to net cash used in operating activities

               

Change in fair value of warrant liabilities

    (656,450 )     445,051  

Stock-based compensation expense

    728,068       2,672,346  

Changes in operating assets and liabilities:

               

Prepaid clinical trial costs (current and non-current)

    (1,270,373 )      

Prepaid expenses and other current assets

    (271,189 )     (286,621 )

Accounts payable

    844,252       (871,984 )

Accrued expenses and other current liabilities

    (4,282,778 )     3,332,221  

Net cash used in operating activities

    (20,201,997 )     (13,268,624 )

Cash flows from financing activities

               

Proceeds from issuance of short-term debt

    415,000       667,500  

Repayment of short-term debt

    (207,500 )     (445,000 )
Proceeds from issuance of common stock and warrants and from modification of existing warrants, in offering, net of issuance costs     2,805,221        

Proceeds from exercise of warrants

          5,677,850  

Net cash provided by financing activities

    3,012,721       5,900,350  

Net decrease in cash and cash equivalents

    (17,189,276 )     (7,368,274 )

Cash and cash equivalents, beginning of period

    23,367,456       18,519,856  

Cash and cash equivalents, end of period

  $ 6,178,180     $ 11,151,582  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for taxes

  $ 3,417     $ 3,941  

Cash paid for interest

  $ 8,640     $ 20,414  
                 

Noncash Investing and Financing Activities:

               

Warrant modification recorded in stockholders' deficit

  $ 229,050     $  

Issuance of common stock warrants

  $ 1,081,689     $  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-5

 

REVIVA PHARMACEUTICALS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

1.  ORGANIZATION AND NATURE OF OPERATIONS

 

On December 14, 2020, Reviva Pharmaceuticals Holdings, Inc. (the “Company”), a Delaware corporation and the successor by re-domiciliation to Tenzing Acquisition Corp. (“Tenzing”), a British Virgin Islands exempted company, Tenzing Merger Subsidiary Inc., a Delaware corporation and wholly-owned subsidiary of Tenzing (“Merger Sub”), and Reviva Pharmaceuticals, Inc., a Delaware corporation (together with its consolidated subsidiary), consummated a business combination (the “Business Combination”) through the merger of Merger Sub with and into Reviva Pharmaceuticals, Inc. (the "Merger"), in accordance with the Agreement and Plan of Merger, dated as of July 20, 2020 (the “Merger Agreement”), by and among Tenzing, Merger Sub, Reviva Pharmaceuticals, Inc., and the other parties thereto. Pursuant to the Merger Agreement, at the effective time of the Merger, Merger Sub merged with and into Reviva Pharmaceuticals, Inc., with Reviva Pharmaceuticals, Inc. as the surviving company in the Merger and, after giving effect to such Merger, Reviva Pharmaceuticals, Inc. becoming a wholly-owned subsidiary of Reviva Pharmaceuticals Holdings, Inc. In these notes to the unaudited condensed consolidated financial statements, unless otherwise specified or the context indicates otherwise, references to the “Company,” “Reviva,” “we,” “us” and “our” refer to Reviva Pharmaceuticals Holdings, Inc. and its consolidated subsidiary.

 

Reviva Pharmaceuticals, Inc. was originally incorporated in the state of Delaware and commenced operations on May 1, 2006 and its Indian subsidiary, Reviva Pharmaceuticals India Pvt. Ltd. was incorporated in 2014. The Company is a late-stage pharmaceutical company developing new therapies that seek to address unmet medical needs in the areas of central nervous system (CNS), inflammatory and cardiometabolic diseases.

 

 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain footnotes and other financial information normally required by accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations. In management’s opinion, these unaudited condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and notes thereto and include all adjustments, consisting of normal recurring items, considered necessary for the fair presentation. The operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024.

 

The unaudited condensed consolidated balance sheet as of December 31, 2023, has been derived from our audited financial statements at that date but does not include all disclosures and financial information required by GAAP for complete financial statements. The information included in the quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2023, which were included in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on April 15, 2024.

 

Reclassifications

 

Certain amounts in the prior year’s consolidated financial statements, as of December 31, 2023 have been reclassified to conform to the current period's presentation. This involved disclosing separately, prepaid clinical trial costs from the prepaid expenses and other current assets balance, which were previously disclosed in the aggregate. This reclassification had no effect on the Company’s loss from operations, net loss, or net loss per share.

 

F-6

 

Principles of consolidation

 

The accompanying condensed consolidated financial statements include the accounts of the Reviva Pharmaceuticals Holdings, Inc. and its wholly owned subsidiary Reviva Pharmaceuticals, India Pvt Ltd. The Company’s subsidiary’s functional currency is the U.S. dollar. The Company recognizes a foreign currency gain or loss each reporting period, on translation of its foreign subsidiary's financial information on consolidation. Any such foreign currency gain or loss is recognized as part of other expense, net, on the condensed consolidated statement of operations. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All transactions and balances between the parent and its subsidiary have been eliminated in consolidation.

 

Previously-disclosed restatement of previously reported interim condensed consolidated quarterly financial statements

 

The interim consolidated financial statements include corrections to the three and six months ended June 30, 2023, which corrections were previously presented in the audited consolidated financial statements and notes thereto, including specifically Note 10, “Quarterly Financial Data (Unaudited and Restated)”, for the fiscal year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on April 15, 2024 (sometimes hereinafter referred to as the “2023 Form 10-K”).

 

As previously reported in Item 4.02(a) of the Company’s Current Report on Form 8-K as filed with the SEC on April 15, 2024, and in the Company’s 2023 Form 10-K, on April 12, 2024, the audit committee (the “audit committee”) of the board of directors of the Company, after meeting with management, concluded that the Company’s previously issued financial statements for the fiscal year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the interim financial statements for the quarterly period ended September 30, 2022 included in its Quarterly Report on Form 10-Q, and each of the interim financial statements for the quarterly periods in fiscal 2023 included in its Quarterly Reports on Form 10-Q (cumulatively, the “Restatement Periods”) should be restated to correct historical errors related principally to the timing of recognition of the Company’s estimated accrual of certain research and development expenses.

 

The need for the restatement arose out of the results of certain financial analysis the Company performed in the course of preparing its fiscal year-end 2023 consolidated financial statements. Principally, the Company completed a detailed lookback analysis to compare certain estimated accrued clinical trial expenses, specifically investigator fees, from one contract research organization to its actual clinical trial expenses that were incurred for the respective periods for that contract research organization during the Restatement Periods based on review of historical invoices. In the course of its analysis of the actual information gathered through the lookback process, the Company detected differences between the estimated accrued amounts of those clinical trial expenses and the actual expenses recorded due primarily to the Company’s failure to properly review and evaluate expenses incurred in those clinical trial contracts resulting in the Company not properly accruing for clinical trial expenses that were incurred but for which invoices were not yet received. In addition, the Company determined that an effective process for evaluating the completeness of the research and development expense accrual for investigator fees and related costs, for that contract research organization, was necessary. This included estimated patient site visits not yet reported, average site visit costs and average delay in site invoicing. This provides the Company with an effective estimate of the costs incurred as there can be a lag between receiving an invoice for the services provided from that contract research organization. Management and the audit committee of the Company’s board of directors concluded that, in the ordinary course of closing its financial books and records, the Company previously excluded certain clinical trial expenses and associated accruals from the appropriate periods as required under applicable accounting guidelines. Therefore, the Company misstated research and development expenses, and accrued clinical expenses for the three and six months ended June 30, 2023.

 

F-7

 

As previously disclosed, the Company misstated research and development expenses and associated accrued liabilities during the Restatement Periods. Also as previously disclosed, the Company principally attributes the errors to a material weakness in its internal control activities due to a failure in the design and implementation of its controls to review clinical trial expenses, including the evaluation of the terms of clinical trial contracts. Specifically, the Company failed to properly review and evaluate progress of expenses incurred in clinical trial contracts resulting in the Company not properly accruing for clinical trial expenses that were incurred but for which invoices were not yet received. These material weaknesses were previously disclosed in Item II, Part 9A of the Company’s 2023 Form 10-K, and are disclosed in Part I, Item 4 of this Quarterly Report on Form 10-Q. The Company has commenced procedures to remediate the material weaknesses. However, these material weaknesses will not be considered remediated until the applicable remedial actions have been fully implemented and the Company has concluded that these controls are operating effectively for a sufficient period of time.

 

These condensed consolidated financial statements and the corresponding discussion included in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, are reflective of the restatement adjustments for the three and six months ended June 30, 2023, as previously presented in Note 10 to the Company’s consolidated financial statements included in the 2023 Form 10-K.

 

As previously disclosed in Note 10, “Quarterly Financial Data (Unaudited and Restated)”, to the Consolidated Financial Statements included in the Company’s 2023 Form 10-K, the restated line items of the consolidated statement operations for three and six months ended June 30, 2023 are as follows:

 

   

Originally Reported

   

Adjustment

   

Restated

 
   

Three Months Ended

June 30, 2023

   

Three Months Ended

June 30, 2023

   

Three Months Ended

June 30, 2023

 

Research and development

  $ 8,991,250     $ (734,914 )   $ 8,256,336  

Total operating expenses

    12,070,551       (734,914 )     11,335,637  

Loss from operations

    (12,070,551 )     734,914       (11,335,637 )

Net loss

    (12,442,862 )     734,914       (11,707,948 )

Basic and diluted

  $ (0.55 )   $ 0.03     $ (0.52 )

 

   

Originally Reported

   

Adjustment

   

Restated

 
   

Six Months Ended

June 30, 2023

   

Six Months Ended

June 30, 2023

   

Six Months Ended

June 30, 2023

 

Research and development

  $ 14,226,249     $ (485,768 )   $ 13,740,481  

Total operating expenses

    18,806,104       (485,768 )     18,320,336  

Loss from operations

    (18,806,104 )     485,768       (18,320,336 )

Net loss

    (19,045,405 )     485,768       (18,559,637 )

Basic and diluted

  $ (0.86 )   $ 0.02     $ (0.84 )

 

While the adjustments changed net loss, and accrued expenses and other current liabilities line items in the condensed consolidated cash flow statement, they did not have an impact on total net cash used in operating activities. Further, there was no impact on cash flows from investing or cash flows from financing activities.

 

F-8

 

As previously disclosed in Note 10, “Quarterly Financial Data (Unaudited and Restated)”, to the Consolidated Financial Statements included in the Company’s 2023 Form 10-K, the restated line items of the consolidated cash flow statement for the six months ended June 30, 2023 are as follows:

 

   

Originally Reported

   

Adjustment

   

Restated

 
   

Six Months Ended

June 30, 2023

   

Six Months Ended

June 30, 2023

   

Six Months Ended

June 30, 2023

 

Cash flows from operating activities

                       

Net loss

  $ (19,045,405 )   $ 485,768     $ (18,559,637 )

Adjustments to reconcile net loss to net cash used in operating activities

                       

Changes in operating assets and liabilities

                       

Accrued expenses and other current liabilities

    3,817,989       (485,768 )     3,332,221  

Net cash used in operating activities

  $ (13,268,624 )   $     $ (13,268,624 )

 

Liquidity and going concern

 

The Company has incurred losses since inception and as of June 30, 2024 the Company had a working capital deficit of approximately $6.7 million, an accumulated deficit of $149.6 million and cash and cash equivalents on hand of approximately $6.2 million. The Company’s net loss for the three months ended June 30, 2024 and 2023, was approximately $7.9 million and $11.7 million, respectively. The Company's net loss for the for the six months ended June 30, 2024 and 2023, was approximately $15.3 million and $18.6 million, respectively. The Company expects to incur significant expenses and increased operating losses for the next several years. The Company expects its expenses to increase in connection with its ongoing activities to research, develop and commercialize its product candidates. The Company will need to generate significant revenues to achieve profitability, and it may never do so.

 

The Company’s current cash on hand is not sufficient to satisfy its operating cash needs for the 12 months from the filing of this Quarterly Report on Form 10-Q. The Company believes that it has adequate cash on hand to cover anticipated outlays into the third quarter of fiscal year 2024, but will need additional fundraising activities and cash on hand during the third quarter of fiscal year 2024. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. The Company will seek to fund its operations through public or private equity or debt financings or other sources, which may include collaborations with third parties. In May 2024 the Company raised capital through a registered financial offering (Note 4). Adequate additional financing may not be available to the Company on acceptable terms, or at all. Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain clinical activities. These circumstances raise 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.

 

Use of estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting periods covered by the financial statements and accompanying notes. Significant areas requiring the use of management estimates include, but are not limited to, accounting for clinical trial costs, assumptions used to calculate the fair value of stock-based compensation, assumptions used to calculate the fair value of warrants, deferred taxes, and related valuation allowances. Actual results could differ materially from such estimates under different assumptions or circumstances.

 

F-9

 

Concentration of credit risk and other risks and uncertainties

 

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. Substantially, all the Company’s cash and cash equivalents are held in demand deposit and money market funds at three financial institutions. Deposits in financial institutions may, from time to time, exceed federally insured limits. Amounts held in demand deposit in excess of federally insured limits, totaled $915,028 and $786,971 as of June 30, 2024 and December 31, 2023, respectively. The Company has not experienced any losses on its deposits of cash.

 

The Company is subject to all of the risks inherent in an early-stage company developing new pharmaceutical products. These risks include, but are not limited to, limited management resources, dependence upon medical acceptance of the product in development, regulatory approvals, successful clinical trials, availability and willingness of patients to participate in human trials, and competition in the pharmaceutical industry. The Company’s operating results may be materially affected by the foregoing factors.

 

Cash and cash equivalents

 

As of June 30, 2024, and December 31, 2023, the Company’s cash was maintained in demand deposit forms at three financial institutions. The Company considers any highly liquid investments, such as money market funds, with an original maturity of three months or less to be cash and cash equivalents.

 

The components of cash and cash equivalents were as follows:

 

   

As of June 30,

2024

   

As of December 31,

2023

 

Cash on deposit

  $ 1,251,654     $ 1,155,636  

Money market funds (cash equivalents)

    4,926,526       22,211,820  

Cash and cash equivalents

  $ 6,178,180     $ 23,367,456  

 

Fair Value Measurements

 

Accounting Standards Codification ("ASC") 820, Fair Value Measurements ("ASC 820"), defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

 

The three levels of the fair value hierarchy under ASC 820 are described below:

 

 

Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

 

Level 2 - Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

 

 

Level 3 - Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

 

In determining the fair value of all warrants, excluding the private-placement warrants (see Note 7), the Company utilizes the Black-Scholes model using assumptions regarding volatility of the Company's common share price, expected term of the warrants, expected divided rate, and risk-free interest rates. In determining the fair value of the private placement warrants, the Company utilizes a Lattice model using assumptions regarding volatility implied by public warrant market price, expected term of the warrants, expected dividend rate, and risk-free interest rates. Due to their short maturities, the carrying amounts for cash and cash equivalents, prepaid clinical trial costs, prepaid expenses and other current assets, accounts payable, accrued clinical expenses, accrued compensation, short-term debt, and other accrued liabilities approximate their fair value.

 

F-10

 

Short-term debt

 

In January 2024, the Company obtained financing for certain Director and Officer liability insurance policy premiums. The governing agreement assigns the lender a first priority lien on and security interest in the financed policies and any additional premium required in the financed policies.

 

The total premiums, taxes, and fees financed was $518,750, of which of which a principal of $415,000 was financed after accounting for the up-front payment made. The financing arrangement has an annual percentage interest rate of 7.99% and a term of 12 months, with payments, inclusive of interest, payable on a monthly basis.

 

New accounting pronouncements not yet adopted

 

In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. This Update improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this Update are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption of the amendments is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. This Update enhances the transparency and usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The guidance also eliminates certain existing requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The amendments in this Update are effective for annual periods beginning after December 15, 2024. Early adoption of the amendments is permitted for annual financial statements that have not yet been issued. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.

 

 

3.   LOSS PER SHARE

 

Basic and diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common stock outstanding during the period. Diluted loss per share includes potentially dilutive securities such as stock options, warrants to purchase common stock (excluding warrants that are exercisable for $0.0001 per warrant), and shares contingently issuable for earnout unless the result of inclusion would be anti-dilutive. These securities have been excluded from the calculation of diluted net loss per shares for the three and six months ended June 30, 2024 and 2023, because all such securities are anti-dilutive for all periods presented.

 

The components of basic and diluted net loss per share were as follows:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2024

   

2023

(as restated)

   

2024

   

2023

(as restated)

 

Numerator:

                               

Net loss

  $ (7,859,919 )   $ (11,707,948 )   $ (15,293,527 )   $ (18,559,637 )

Denominator:

                               

Weighted-average common shares outstanding – basic and diluted

    30,555,012       22,434,781       30,221,168       22,135,850  

Net loss per share – basic and diluted

  $ (0.26 )   $ (0.52 )   $ (0.51 )   $ (0.84 )

 

F-11

 

The following table summarizes the Company’s potentially dilutive securities, in common share equivalents, which have been excluded from the calculation of dilutive loss per share as their effect would be anti-dilutive:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2024

   

2023

   

2024

   

2023

 

Shares issuable upon exercise of stock options

    1,505,572       1,547,774       1,505,572       1,547,774  
Shares issuable upon exercise of warrants to purchase common stock (excluding warrants that are exercisable for $0.0001 per warrant)     22,782,603       15,030,209       22,782,603       15,030,209  

Shares contingently issuable for earnout

          1,000,000             1,000,000  
      24,288,175       17,577,983       24,288,175       17,577,983  

 

The diluted loss per share computation equals basic loss per share for the three and six months ended June 30, 2024 and 2023 because the Company had a net loss and the impact of the assumed exercise of stock options, certain warrants, and shares contingently issuable for earnout would have been anti-dilutive.

 

 

4.   WARRANTS

 

Warrant activity during the six months ended June 30, 2024, was as follows:

 

   

Number of

Warrants

   

Weighted Average

Exercise Price

   

Total Intrinsic

Value

   

Weighted Average

Remaining

Contractual Life

(in years)

 

Outstanding as of December 31, 2023

    25,067,643     $ 6.03     $ 29,686,123       3.1  

Issued

    1,898,734       1.46             5.0  

Outstanding as of June 30, 2024

    26,966,377     $ 5.52     $ 2,519,822       2.8  

 

May 2024 Registered Direct Offering

 

On May 28, 2024, the Company entered into a securities purchase agreement (the "Purchase Agreement") pursuant to which the Company sold, in a registered direct offering (the “Offering”) priced at the market under Nasdaq rules which closed on May 29, 2024, an aggregate of (i) 1,898,734 shares of its common stock, and (ii) warrants (the “Warrants”) exercisable for an aggregate of up to 1,898,734 shares of its common stock. The public offering price for each share of common stock and accompanying Warrant to purchase one share of common stock was $1.58. The Warrants have a term of 5 years and expire on May 29, 2029. The net proceeds to the Company from the Offering were $2.8 million, after deducting placement offering costs, agent fees and expenses and other offering expenses payable by the Company, of $0.4 million.

 

The Company evaluated the Warrants in accordance with the guidance at ASC 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging, and determined that they should be classified as equity instruments, with no recurring fair value measurement required. The Warrants are indexed to the Company’s common stock and are required to be settled through physical settlement or net share settlement, if exercised. Accordingly, the Warrants were recorded at their grant date fair value with no subsequent remeasurement.

 

The fair value of the Warrants was determined utilizing a Black-Scholes model, considering all relevant assumptions current at the date of issuance (i.e., Company stock price of $1.34, exercise price of $1.46, expected term of 5 years, volatility of 93%, risk-free interest rate of 4.6%, and expected dividend rate of 0%). Refer to Note 2 for further detail regarding how assumptions were determined. The grant date relative fair value of the Warrants was estimated to be approximately $1.1 million to additional paid-in capital in the condensed consolidated balance sheet as the warrants were determined to be equity classified, with the corresponding debit as an issuance cost of the related equity offering.

 

 

F-12

 

Accounting for Warrant Modification

 

In connection with the Offering, on May 28, 2024, the Company entered into a warrant amendment agreement with the purchaser party to the Purchase Agreement, pursuant to which the Company agreed to amend the purchaser’s existing warrants to purchase 1,365,854 shares of common stock at an exercise price of $5.00 per share issued in November 2023 (the “Existing Warrants”) in consideration for such purchaser party’s participation and purchase of approximately $3.0 million of securities in the Offering and the payment of $0.2 million to (i) lower the exercise price of the Existing Warrants to $1.455 per share and (ii) amend the expiration date of the Existing Warrants to five years following the closing of the Offering, effective upon the closing of the Offering on May 29, 2024.

 

ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging ("ASC 815") require issuers to account for modifications or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Pursuant to ASC 480 and ASC 815, the Company accounts for modifications of equity-classified warrant agreements by recording any increase in fair value of the modified equity-classified warrant as an equity issuance cost that reduces additional paid-in capital.

 

The following assumptions were used to value the modification of the warrants immediately before the modification and immediately after the modification:

 

   

Immediately

before the

modification

   

Immediately

after the

modification

 

Risk-free interest rate

    4.70 %     4.60 %

Remaining expected term

    4.5       5.0  

Expected volatility

    97.00 %     93.00 %

Stock price on valuation date

  $ 1.34     $ 1.34  

Exercise price

  $ 5.00     $ 1.46  

Expected dividend rate

    %     %

 

 

5. STOCKHOLDERS' EQUITY (DEFICIT), STOCK OPTION PLANS, AND STOCK-BASED COMPENSATION

 

Our authorized capital stock consists of:

 

 

115,000,000 shares of common stock, par value $0.0001 per share; and

 

 

10,000,000 shares of preferred stock, par value $0.0001 per share.

 

As of June 30, 2024 there were 29,817,294 shares of our common stock outstanding, and no shares of preferred stock outstanding.

 

On May 28, 2024, the Company entered into the Purchase Agreement for the sale of shares of common stock and the warrants. Refer to Note 4, Warrants, for additional details.

 

As of June 30, 2024, the Company has shares of common stock reserved for future issuance as follows:

 

Shares underlying outstanding warrants

    24,751,368  

Shares reserved for future issuance under the 2020 Equity Incentive Plan

    3,871,121  

Stock options outstanding

    1,505,572  

Total common stock reserved for future issuance

    30,128,061  

 

2006 and 2020 Equity Incentive Plans

 

As of December 31, 2023, there were an aggregate of 1,004,263 shares of common stock available for issuance under the 2020 Equity Incentive Plan, subject to equitable adjustment in the event of stock splits and other capital changes (the “Share Reserve”). Following the December 31, 2023 balance sheet date, in accordance with the “evergreen” provision in our 2020 Equity Incentive Plan (the "Evergreen Provision"), an additional 2,791,856 shares were automatically made available for issuance on the first day of 2024, which represents 10% of the number of shares of the Company’s common stock outstanding on December 31, 2023. As a result, as of June 30, 2024, the Share Reserve available for future awards under the 2020 Equity Incentive Plan stood at 3,871,121 shares, after accounting for the above described 2024 Evergreen Increase and options forfeited in the first and second quarters of 2024.

 

F-13

 

As of June 30, 2024, the Share Reserve related to previously issued and outstanding awards under the 2006 Equity Incentive Plan stood at 16,747. No new grants of awards are permitted under the 2006 Equity Incentive Plan.

 

Stock-Based Compensation Expense

 

The Company records stock-based compensation expense based on the fair value of stock options granted to employees, non-employee consultants and non-employee directors. During the three months ended June 30, 2024 and 2023, the Company recorded stock-based compensation expense of approximately $0.4 million and $2.6 million, respectively. During the six months ended June 30, 2024 and 2023, the Company recorded stock-based compensation expense of approximately $0.7 million and $2.7 million, respectively. As of June 30, 2024 the Company had unrecognized stock-based compensation expense of $2.4 million, which is expected to be recognized over a weighted-average period of 2.0 years.

 

There were no options granted during the six months ended June 30, 2024.

 

Activity under the stock plans for the six months ended June 30, 2024 is as follows:

 

   

Shares

Available

for Grant

   

Number of

Options

Outstanding

   

Weighted

Average

Exercise

price per

share

   

Weighted

Average

Remaining

Contractual

Term in

Years

   

Aggregate

Intrinsic

Value

 

Balance, December 31, 2023

    1,004,263       1,580,574     $ 6.51       9.11     $ 300,969  

Expired

    75,002       (75,002 )     6.74                  

Evergreen plan increase

    2,791,856                                  

Balance, June 30, 2024

    3,871,121       1,505,572     $ 6.49       8.61     $ 2,850  

Options exercisable at June 30, 2024

            915,196     $ 6.80       8.42     $ 2,492  

 

For the three months ended June 30, 2024 and 2023, the amount of stock-based compensation expense included within research and development and general and administrative expenses was as follows:

 

   

Three months ended, June 30,

 
   

2024

   

2023

 

Research and development

  $ 184,883     $ 992,473  

General and administrative

    174,110       1,628,346  

Total stock-based compensation expense

  $ 358,993     $ 2,620,819  

 

For the six months ended June 30, 2024 and 2023, the amount of stock-based compensation expense included within research and development and general and administrative expenses was as follows:

 

    Six months ended, June 30,  
   

2024

   

2023

 

Research and development

  $ 379,779     $ 1,033,867  

General and administrative

    348,289       1,638,479  

Total stock-based compensation expense

  $ 728,068     $ 2,672,346  

  

 

6.   COMMITMENTS AND CONTINGENCIES

 

Clinical trials

 

Since 2010, the Company has entered into multiple clinical trial agreements with medical institutions in the United States, Europe and Asia for the purpose of enrolling patients into various clinical trials. The agreements are substantially similar by trial and include a detailed listing of the clinical trial services for which the Company will pay, how much will be paid for each service, a set-up charge (if any), Investigational Review Board fees, contractual term, and other provisions. The clinical trial services provided by each site generally include the screening of prospective patients and, for those patients to be enrolled in the study, administration of the Company’s investigation drug according to the trial protocol, any required hospitalization, ancillary medical supplies, and 2-week patient follow-up. Further, each agreement requires the Company to indemnify each respective clinical site against any and all liability, loss, or damage it may suffer as a result of third-party claims; the Company maintains product liability insurance in conjunction with this indemnification. The agreements may be terminated upon 30 days’ written notice, subject to conditions of paying all liabilities incurred through the date of termination. Additionally, with each screened patient, the Company incurs expense with other entities engaged to provide independent review of patient medical records.

 

F-14

 

As part of the Company's agreement with one of its clinical research organizations, the Company is required to maintain a 7% upfront float for fees related to expenses incurred in clinical studies. When the float has depleted to 15% (i.e. 85% of the float has been used) the Company will receive an invoice to replenish the float up to 7% of the remaining estimated budget for the studies. As of December 31, 2023 and June 30, 2024, the Company had no remaining prepaid float balance.

 

Indemnification

 

From time to time, in its normal course of business, the Company may indemnify other parties, with whom it enters into contractual relationships, including lessors and parties to other transactions with the Company. The Company may agree to hold other parties harmless against specific losses, such as those that could arise from a breach of representation, covenant or third-party infringement claims. It may not be possible to determine the maximum potential amount of liability under such indemnification obligations due to the unique facts and circumstances that are likely to be involved in each particular claim and indemnification provision. Historically, there have been no such indemnification claims. The Company has also indemnified its directors and executive officers, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or executive officer.

 

Operating Leases

 

During the period covered by these condensed consolidated financial statements, the Company had two leases. The first was a twelve-month lease on its former corporate office located at 19925 Stevens Creek Blvd., Suite 100, Cupertino, CA 95014. The monthly lease payment was approximately $1,447 and the lease was renewed in February 2022 and again on February 1, 2023, for another 12-month term. This lease terminated on January 31, 2024. The second lease was for a new corporate office located at 10080 N. Wolfe Road, Suite SW3-200, Cupertino, CA 95014. The monthly lease payment was approximately $4,300 and the lease was entered into beginning December 1, 2023 for a 12-month term. The operating lease cost on these leases for the three months ended June 30, 2024 and 2023 was approximately $13,100 and $5,200, respectively. The operating lease cost on these leases for the six months ended June 30, 2024 and 2023 was approximately $24,300 and $10,200, respectively.

 

Litigation

 

The Company is not currently a party to any material legal proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.

 

F-15

  

 

7. FAIR VALUE MEASUREMENTS

 

The following tables provide a summary of the assets and liabilities that are required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as of June 30, 2024 and December 31, 2023:

 

   

June 30, 2024

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 
Assets:                                
Money market funds (cash equivalents)   $ 4,929,526     $     $     $ 4,929,526  
Total assets measured and recorded at fair value   $ 4,929,526     $     $     $ 4,929,526  

Liabilities:

                               

Warrant liabilities

  $     $     $ 150,205     $ 150,205  
Total liabilities measured and recorded at fair value   $     $     $ 150,205     $ 150,205  

 

   

December 31, 2023

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 
Assets:                                
Money market funds (cash equivalents)   $ 22,211,820     $     $     $ 22,211,820  
Total assets measured and recorded at fair value   $ 22,211,820     $     $     $ 22,211,820  

Liabilities:

                               

Warrant liabilities

  $     $     $ 806,655     $ 806,655  
Total liabilities measured and recorded at fair value   $     $     $ 806,655     $ 806,655  

 

The following table summarizes the changes in the fair value of the warrant liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2024

   

2023

   

2024

   

2023

 

Balance, beginning of period

  $ 350,478     $ 556,313     $ 806,655     $ 567,439  

Change in fair value of warrant liabilities

    (200,273 )     456,177       (656,450 )     445,051  

Balance, end of period

  $ 150,205     $ 1,012,490     $ 150,205     $ 1,012,490  

 

In prior years, the Company issued warrants to purchase 556,313 shares of common stock in a private placement (the "Private Warrants") and classified the warrants as derivative liabilites, pursuant to ASC 815, as the warrants have an exercise price that is subject to potential adjustment, with subsequent changes in their fair values to be recognized in the condensed consolidated statement of operations at each reporting date. The Company calculated the fair value of the Private Warrants as of June 30, 2024 and December 31, 2023 as $150,205 and $806,655, respectively, using a Lattice model. The key inputs used in the Lattice calculation were the following:

 

   

June 30,

2024

   

December 31,

2023

 

Risk-free interest rate

    4.92 %     4.25 %

Remaining expected term of Private warrants

    1.46       1.96  

Expected volatility (1)

    144.50 %     89.00 %

Stock price on valuation date

  $ 1.28     $ 5.15  

Exercise price

  $ 11.50     $ 11.50  
Expected dividend rate     %     %

(1) Based on volatility implied by guideline company publicly traded warrant market prices.

 

F-16

 

 
 
 

ITEM 2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The information in this Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the Companys condensed consolidated financial statements and the related notes set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in Item 7 of Part II of the our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and the Companys consolidated financial statements and related notes set forth in Item 8 of Part II of such Annual Report on Form 10-K. See Part II, Item 1A, Risk Factors, below and Cautionary Note Regarding Forward-Looking Statements, below, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. All amounts and percentages are approximate due to rounding and all dollars in the text are in millions, except per share amounts or where otherwise noted. When we cross-reference to a Note, we are referring to our Notes to Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1, of this Quarterly Report on Form 10-Q, unless the context indicates otherwise.

 

All statements other than statements of historical fact included in this section regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this section, words such as anticipate, believe, estimate, expect, intend and similar expressions, as they relate to our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward- looking statements as a result of certain factors detailed herein. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.

 

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

 

the success of our current or planned clinical trials through all phases of clinical development, including our ability to conduct and complete clinical trials in accordance with projected timelines, our ability to achieve the desired results, and our ability to successfully complete requisite regulatory review and approval processes;

 

1

 

our ability to obtain the necessary financing to continue to conduct our business operations as planned, and to conduct our ongoing and planned trials, and continue and complete the planned development and commercialization of our product candidates;

 

expectations regarding our ability to continue as a going concern;

 

our ability to grow and manage growth economically;

 

our ability to retain key executives and medical and science personnel;

         

the possibility that our products in development succeed in or fail clinical trials or are not approved by the FDA or other applicable authorities;

        

the possibility that we could be forced to delay, reduce or eliminate our planned clinical trials or development programs;

         

our ability to obtain approval from regulatory agents in different jurisdictions for our current or future product candidates;

        

changes in applicable laws or regulations;

         

changes to our relationships within the pharmaceutical ecosystem;

 

the performance of third-party suppliers and manufacturers and our ability to find additional suppliers and manufacturers and obtain alternative sources of raw materials;

         

our current and future capital requirements to support our development and commercialization efforts and our ability to satisfy our capital needs;

 

our ability to access capital on acceptable terms in a rising interest rate and tighter credit environment;

         

the accuracy of our estimates regarding expenses and capital requirements, including estimated costs of our clinical studies;

 

our limited operating history;

 

our history of operating losses in each year since inception and expectation that we will continue to incur operating losses for the foreseeable future;

         

the valuation of our private common warrants could increase the volatility in our net income (loss);

         

changes in the markets that we target;

         

our ability to maintain or protect the validity of our patents and other intellectual property;

 

our exposure to any liability, protracted and costly litigation or reputational damage relating to data security;

 

2

 

the sufficiency of our existing capital resources to fund our future operating expenses and capital expenditure requirements;

 

the commercial, reputational and regulatory risks to our business that may arise as a consequence of our previously-disclosed restatement of our financial statements;

 

any disruption to our business that may occur on a longer-term basis should we be unable to remediate the material weaknesses we have identified in our internal controls over financial reporting and clinical trial expenses;

 

our ability to maintain the listing of our common stock and listed warrants on Nasdaq;

 

the possibility that we may be adversely affected by other economic, business, and/or competitive factors.

 

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in such forward-looking statements. Please see “Part II-Item 1A-Risk Factors” for additional risks which could adversely impact our business and financial performance.

 

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaims any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

 

Company Overview

 

We are a late-stage pharmaceutical company that discovers, develops, and seeks to commercialize next-generation therapeutics for diseases representing significant unmet medical needs and burdens to society, patients, and their families. Our current pipeline focuses on the central nervous system, inflammatory, and cardiometabolic diseases. We use a chemical genomics driven technology platform and proprietary chemistry to develop new medicines. Our pipeline currently has two drug candidates, brilaroxazine (RP5063) and RP1208. Both are new chemical entities discovered in-house. We have been granted composition of matter patents for both brilaroxazine and RP1208 in the United States (U.S.), Europe, and several other countries.

 

Our lead drug candidate, brilaroxazine, is in clinical development and is intended to treat multiple neuropsychiatric indications. These include schizophrenia, bipolar disorder (“BD”), major depressive disorder (“MDD”), attention-deficit/hyperactivity disorder (“ADHD”), behavioral and psychotic symptoms of dementia and Alzheimer’s disease (“BPSD”), and Parkinson’s disease psychosis (“PDP”). Furthermore, brilaroxazine is also ready for clinical development for two respiratory indications - pulmonary arterial hypertension (“PAH”) and idiopathic pulmonary fibrosis (“IPF”). The U.S. Food and Drug Administration (the "FDA") granted Orphan Drug Designation to brilaroxazine for the treatment of PAH in November 2016 and IPF in April 2018. Brilaroxazine also is in preclinical development for the treatment of psoriasis.

 

Our primary focus is to complete the clinical development of brilaroxazine for the treatment of acute and maintenance schizophrenia.

 

3

 

On October 30, 2023, we announced positive topline results from our Phase 3 RECOVER 1 trial (the “RECOVER-1 Trial”), which is a global Phase 3, randomized, double-blind, placebo-controlled, multicenter study designed to assess the safety and efficacy of brilaroxazine in approximately 400 patients with acute schizophrenia compared to placebo. See “Recent Developments” below for more details on brilaroxazine development.

 

Subject to the receipt of additional financing, we may also continue the clinical development of brilaroxazine for the treatment of BD, MDD, ADHD, BPSD, PDP, PAH and IPF. Moreover, subject to the receipt of additional financing, we may also advance the development of our second drug candidate, RP1208, for the treatment of depression and obesity.

 

Recent Developments

 

On October 30, 2023, we announced positive topline results and successful completion of our pivotal RECOVER-1 Trial evaluating the efficacy, safety and tolerability of once-daily brilaroxazine, a serotonin dopamine signaling modulator in adults with schizophrenia. The trial successfully met its primary endpoint at the 50 mg dose, with brilaroxazine at that dose achieving a statistically significant and clinically meaningful 10.1-point reduction in Positive and Negative Syndrome Scale (PANSS) total score compared to placebo (-23.9 brilaroxazine 50 mg vs. -13.8 placebo, p<0.001) at week 4. Brilaroxazine also achieved statistically significant and clinically meaningful reductions in all major symptom domains and secondary endpoints at week 4 with the 50 mg dose vs. placebo. The 15 mg dose of brilaroxazine was numerically superior to placebo on the primary endpoint and most secondary endpoints, and reached statistical significance on two key secondary endpoints.

 

Key statistically significant and clinically meaningful improvements with brilaroxazine vs. placebo in patients with schizophrenia and a mean PANSS total score of 97-99 at baseline include:

 

Primary and Secondary Endpoints

 

Point Reduction/

Improvement for

Brilaroxazine 50 mg

vs. Placebo at Week 4

   

Cohen's d Effect Size

   

P Value

 

PANSS Total Score

    10.1       0.6       <0.001  

Positive Symptoms

    2.8       0.5       <0.001  

Negative Symptoms ("NS")

    2.0       0.4       0.003  

NS Marder Factor

    2.1       0.4       0.002  

PANSS Social Cognition

    1.6       0.5       <0.001  

PANSS Excitement/Agitation

    2.1       0.5       <0.001  

Personal and Social Performance

    6.3       0.5       <0.001  

CGI-S score

    1       0.5       <0.001  

 

Key clinical safety and tolerability findings of brilaroxazine support a well-tolerated safety profile

 

 

No drug related serious adverse events (SAEs) or treatment-emergent SAEs (TESAEs) observed or major safety concerns reported for brilaroxazine after 4 weeks of treatment;

 

No incidence of suicidal ideation;

 

No significant change in bodyweight and blood glucose levels;

 

Significant decrease in cholesterol, LDL and increase in HDL compared to placebo;

 

Significant decrease in prolactin and no change in thyroid levels compared to placebo;

 

Akathisia and extrapyramidal symptoms <1% reported for brilaroxazine 50 mg and none for 15 mg;

 

Common brilaroxazine treatment-emergent adverse events (TEAEs) were headache (<6%) and somnolence (7.5%) generally transient in nature; and

 

Low discontinuation rates with brilaroxazine that were less than placebo (16% in brilaroxazine 50mg and 19% in brilaroxazine 15mg vs. 22% placebo).

 

4

 

The clinical development plan for brilaroxazine also includes the completed positive Phase 2 REFRESH trial, an ongoing 1-year open label extension (OLE) trial evaluating long-term safety and tolerability, and a soon to be initiated registrational global, randomized 4-week Phase 3 RECOVER-2 trial (the “RECOVER-2 Trial”). We expect to report topline data from the OLE trial in Q4-2024, and we expect to initiate the registrational RECOVER-2 Trial in the third quarter of 2024, with completion anticipated in the fourth quarter of 2025. RECOVER-2 was originally designed as a 6-week study, but after discussion between Reviva and the FDA, the agency has agreed that it can be conducted as a 4-week study. In addition, the FDA indicated that it will require a long-term randomized withdrawal study post-approval to support maintenance of effect. Data from these brilaroxazine clinical trials will potentially support the planned NDA submission to the FDA in the first quarter of 2026.

 

Open Label Extension (OLE) Trial Enrollment Update

 

In August 2024, we provided the following enrollment update on our ongoing 1-year open-label extension (OLE) study evaluating the long-term safety and tolerability of brilaroxazine in patients with schizophrenia.

 

Trial progressing as expected in the United States, Europe (Bulgaria) and Asia (India)

 

424 patients enrolled in the study; 230 patients currently on treatment in the study

 

65 patients have completed 12 months of treatment

 

53 patients who completed 9 months treatment currently in the study

  About 200 patients completed 6 months of treatment
 

Long-term safety data from 100 patients who have completed 12 months of treatment is a requirement for brilaroxazine’s NDA submission to the FDA

 

We are on track to complete the 12 months long-term safety study in Q4 2024

 

May 2024 Registered Direct Offering

 

On May 29, 2024, we closed our registered direct Offering, pursuant to which we issued and sold an aggregate of 1,898,734 shares of our common stock and the Warrants to purchase up to 1,898,734 shares of our common stock at a combined offering price of $1.58 per share of common stock and accompanying Warrant. The Warrants have an exercise price of $1.455 per share, are immediately exercisable and expire five years following the date of issuance.

 

In connection with the Offering, we also agreed to amend certain existing warrants held by the investor in the Offering to purchase up to an aggregate of 1,365,854 shares of our common stock that were previously issued to the investor in November 2023, with an exercise price of $5.00 per share, for $0.125 per amended warrant, so that the amended warrants have a reduced exercise price of $1.455 per share and expire five years following the closing of the Offering.

 

Financial Overview

 

We have incurred losses since inception and as of June 30, 2024 we have a working capital deficit of approximately $6.7 million, an accumulated deficit of $149.6 million and cash and cash equivalents on hand of approximately $6.2 million. Our net loss for the three months ended June 30, 2024 and 2023, was approximately $7.9 million and $11.7 million, respectively. Our net loss for the for the six months ended June 30, 2024 and 2023, was approximately $15.3 million and $18.6 million, respectively. We expect to incur significant expenses and increased operating losses for the next several years. We expect our expenses to increase in connection with our ongoing activities to research, develop and commercialize our potential product candidates. We will need to generate significant revenues to achieve profitability, and we may never do so.

 

We expect our expenses will increase substantially in connection with our ongoing activities, as we:

 

invest significantly to further research and develop, through clinical trials for brilaroxazine including the OLE trial and the registrational RECOVER-2 Trial, and pre-clinical research for RP1208, and seek regulatory approval for our product candidates brilaroxazine and RP1208;

 

identify and develop additional product candidates;

 

hire additional clinical, scientific and management personnel;

 

seek regulatory and marketing approvals for any product candidates that we may develop;

 

5

 

ultimately establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval;

 

maintain, expand and protect our intellectual property portfolio;

 

acquire or in-license other drugs and technologies; and

 

add operational, financial and management information systems and personnel, including personnel to support our product candidate development, and any future commercialization efforts, and our ongoing compliance with and maintenance of public company controls, procedures and regulatory requirements and standards.

 

Research and Development Expenses

 

We focus our resources on research and development activities, including the conduct of preclinical and clinical studies and product development and expense such costs as they are incurred. We have not historically tracked or recorded research and development expenses on a project-by-project basis, primarily because we use our employee and infrastructure resources across multiple research and development projects, and it is not practical for us to allocate such costs on a project-by-project basis. Our research and development expenses primarily consist of clinical trial expenses and employee-related expenses, including deferred salaries, salaries, benefits and taxes for personnel in research and development functions.

 

The largest recurring component of our total operating expenses has historically been research and development activities. we expect our research and development expenses will increase for the next several years as we advance our development programs, pursue regulatory approval of our product candidates in the U.S. and other jurisdictions and prepare for potential commercialization, which would require a significant investment in costs related to contract manufacturing, inventory buildup and sales and marketing activities.

 

6

 

Our primary product candidates and their current status is as follows:

 

Drug Candidate

Indication

Status

Brilaroxazine (RP5063)

Schizophrenia

Conducted pivotal Phase 3 RECOVER-1 and long-term safety studies. Topline data for the pivotal Phase 3 RECOVER-1 study announced October 30, 2023

Brilaroxazine

Bipolar Disorder

Phase 1 complete**

Brilaroxazine

Depression-MDD

Phase 1 complete**

Brilaroxazine

Alzheimer’s (AD-Psychosis/Behavior)

Phase 1 complete**

Brilaroxazine

Parkinson’s

Phase 1 complete**

Brilaroxazine

ADHD/ADD

Phase 1 complete**

Brilaroxazine

PAH

Phase 1 complete**

Brilaroxazine

IPF

Phase 1 complete**

Brilaroxazine

Psoriasis

In pre-clinical development

RP1208

Depression

Completed pre-clinical development studies, including in vitro receptor binding studies, animal efficacy studies, and PK studies. Compound ready for IND enabling studies.

RP1208

Obesity

Completed pre-clinical development studies, including in vitro receptor binding studies and PK studies. Compound ready for animal efficacy studies.

 

** We completed the Phase 1 clinical study for brilaroxazine prior to starting the Phase 2 study in schizophrenia and schizoaffective disorder, and completed our RECOVER-1 Trial for which we announced topline data in October 2023. In these three studies, we collected safety data for brilaroxazine in over 800 patients, including healthy subjects and patients with stable schizophrenia, acute schizophrenia and schizoaffective disorder. Generally, no separate Phase 1 study is required for conducting a Phase 2 study for an additional indication, provided the treatment doses in the Phase 2 study for an additional indication are within the range of doses tested in the previously completed Phase 1 study.

 

7

 

The successful development of our platform and product candidates is highly uncertain, and we may never succeed in achieving marketing approval for our product candidates brilaroxazine (RP5063), RP1208, or any future product candidates. In connection with the activities required to complete the development of brilaroxazine for schizophrenia, including our ongoing OLE trial and our planned registrational RECOVER-2 Trial, we expect to incur substantial additional costs over the 2024-2026 period to take us through the submission of the planned NDA for brilaroxazine, together with additional costs post-NDA submission in preparation of potential commercialization if approved. We expect our clinical costs in connection with the development of brilaroxazine for schizophrenia may total approximately $70 million over the next approximately three years, consisting of our estimated costs for (i) completion of our OLE Trial, (ii) our RECOVER-2 Trial through the planned NDA submission, and (iii) additional Research & Development costs (primarily associated with consulting, scientific, research and other expenses in support of the OLE and RECOVER-2 Trials through the planned NDA as well as certain activities in preparation of potential commercialization if the product attains approval). The foregoing forecasted amount of expenses is an estimate based on numerous factors and information available to management as of today, and is subject to change. The actual amount of such expenses could be materially higher or lower than the forecasted amount. The foregoing statements regarding estimates of forecasted future costs and expenses represent forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” At this time, other than providing reasonable estimates and forecasts based on information available to us of what we expect future costs may be in connection with the RECOVER-2 and OLE trials and certain associated expenses and other future activities needed to continue to develop brilaroxazine, we cannot reasonably estimate the nature, timing, or costs of the efforts necessary to finish developing any of our product candidates or the period in which material net cash, if any, from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing therapeutics, including the uncertainty of:

 

 

the scope, rate of progress, expense, and results of clinical trials;

 

 

the scope, rate of progress, and expense of process development and manufacturing;

 

 

preclinical and other research activities; and

 

 

the timing of regulatory approvals.

 

General Administrative Expenses

 

General and administrative expenses primarily consist of payroll and related costs for employees in executive, business development, finance, and administrative functions. Other significant general and administrative expenses include professional fees for accounting and legal services.

 

We expect general and administrative expenses to increase as we expand infrastructure and continue the development of our clinical programs. Other increases could potentially include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel, and increased fees for directors, outside consultants, lawyers, and accountants. We expect to incur significant costs to comply with corporate governance, internal controls, and similar requirements applicable to public companies.

 

Critical Accounting Estimates

 

Our critical accounting estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 15, 2024. Since the date of the Annual Report, there have been no material changes in our critical accounting estimates.

 

Previously-Disclosed Restatement of Previously Reported Interim Condensed Consolidated Quarterly Financial Statements

 

The interim consolidated financial statements include corrections to the three and six months ended June 30, 2023, which corrections were previously presented in the audited consolidated financial statements and notes thereto, including specifically Note 10, “Quarterly Financial Data (Unaudited and Restated)”, for the fiscal year ended December 31, 2023, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on April 15, 2024 (sometimes hereinafter referred to as the “2023 Form 10-K”).

 

8

 

As previously reported in Item 4.02(a) of our Current Report on Form 8-K as filed with the SEC on April 15, 2024, and in our 2023 Form 10-K, on April 12, 2024, we concluded that our previously issued financial statements for the Restatement Periods should be restated to correct historical errors related principally to the timing of recognition of our estimated accrual of certain research and development ("R&D") expenses from a contract research organization, specifically investigator fees, were recorded as R&D expenses during the year ended December 31, 2022 and throughout the year ended December 31, 2023 when the underlying invoices were received, rather than when the services (i.e. patient visit and enrollment (“Patient Visit Date”)) were provided. In addition, we determined that an effective process for evaluating the completeness of the R&D accrual for the investigator fees was necessary. This included determining an estimate for accruals based on estimated patient site visits not yet reported, average site visits costs and average delay in site invoicing. This provides us with an accurate estimate of the costs incurred as there can be a lag between receiving an invoice for the services provided.

 

Therefore, as previously disclosed, we misstated R&D expenses and associated accrued liabilities for the fiscal year ended December 31, 2022 included in its Annual Report on Form 10-K, the interim financial statements for the quarterly period ended September 30, 2022 included in its Quarterly Report on Form 10-Q, and each of the interim financial statements for the quarterly periods in fiscal 2023 included in its Quarterly Reports on Form 10-Q (cumulatively, the “Restatement Periods”). Also as previously disclosed, we principally attribute the errors to (i) a material weakness in internal control activities due to a failure in the design and implementation of our controls to review clinical trial expenses, including the evaluation of the terms of clinical trial contracts, specifically, we failed to properly review and evaluate progress of expenses incurred in clinical trial contracts resulting in us not properly accruing for clinical trial expenses that were incurred but for which invoices were not yet received, and (ii) a material weakness in internal controls due to insufficient resources including in relation to our financial close and reporting process with appropriate knowledge and expertise to design, implement, document and operate effective internal controls over financial reporting. This material weakness has a pervasive impact and consequently, impacts control activities over all financial statement account balances, classes of transactions, and disclosure. These material weaknesses were previously disclosed in Item II, Part 9A of our 2023 Form 10-K, and are disclosed in Part I, Item 4 of this Quarterly Report on Form 10-Q. We have commenced procedures to remediate the material weaknesses. However, these material weaknesses will not be considered remediated until the applicable remedial actions have been fully implemented and we have concluded that these controls are operating effectively for a sufficient period of time.

 

The discussion of financial results presented here is reflective of the foregoing adjustments.

 

9

 

Results of Operations

 

Comparison of the three months ended June 30, 2024 and 2023:

 

The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023:

 

   

Three Months Ended June 30,

   

Change

   

Change

 
   

2024

   

2023

(as restated)

   

Amount

   

Percentage

 

Operating expenses

                               

Research and development

  $ 5,584,347     $ 8,256,336     $ (2,671,989 )     (32.4 )%

General and administrative

    2,545,296       3,079,301       (534,005 )     (17.3 )%

Total operating expenses

    8,129,643       11,335,637                  

Loss from operations

    (8,129,643 )     (11,335,637 )                

Gain (loss) on remeasurement of warrant liabilities

    200,273       (456,177 )     656,450       (143.9 )%

Interest expense

    (5,153 )     (12,759 )     7,606       (59.6 )%

Interest income

    87,610       103,080       (15,470 )     (15.0 )%

Other expense, net

    (5,621 )     (19 )     (5,602 )     29,484.2 %

Total other income (expense), net

    277,109       (365,875 )                

Loss before provision for income taxes

    (7,852,534 )     (11,701,512 )                

Provision for income taxes

    7,385       6,436       949       14.7 %

Net loss

  $ (7,859,919 )   $ (11,707,948 )                

 

Research and Development Expenses

 

Research and development costs are expensed as incurred. These expenses represent both internal and external costs.

 

For the three months ended June 30, 2024 and 2023, research and development expenses were approximately $5.6 million and $8.3 million, respectively. Specifically, during the three months ended June 30, 2024 and 2023, our research and development costs consisted primarily of the following costs associated with our key research and development project for advancing the clinical development of brilaroxazine during the reporting periods, namely our RECOVER-1 Trial for our Phase 3 clinical study for brilaroxazine: (i) internal salaries, wages and other payroll related costs for employees involved in research and development activities, of approximately $0.7 million and $0.8 million, respectively; (ii) internal share-based compensation expenses with respect to employees involved in research and development activities, of approximately $0.2 million and $1.0 million, respectively; (iii) other research and development related costs, of an insignificant amount and approximately $0.1 million, respectively; and (iv) external research and development expenses, of approximately $4.7 million and $6.4 million, respectively, (which includes clinical (including clinical consulting) research and development costs of approximately $3.6 million and $5.4 million, respectively, non-clinical safety related costs of approximately $0.2 million and $0.6 million, respectively, non-clinical manufacturing related costs of approximately $0.9 million and $0.3 million, respectively, and non-clinical consulting and other related costs of an insignificant amount and approximately $0.1 million, respectively).

 

The decrease in research and development expenses for the three months ended June 30, 2024 was primarily due to:

 

 

The transition from the RECOVER-1 Study to the OLE Study. RECOVER-1 was an inpatient study whereas OLE is an outpatient study.

 

We expect our research and development activities to increase as we develop our existing product candidates and potentially acquire new product candidates, reflecting increasing costs associated with our ongoing operations, including expenses associated with activities required to complete the development of brilaroxazine in schizophrenia including our planned registrational RECOVER-2 Trial, to take us through the submission of the planned NDA for brilaroxazine, together with additional costs post-NDA submission in preparation of potential commercialization if approved. For additional information, please see the discussion appearing above in the introductory section of this Part I-Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q, under the caption “Financial OverviewResearch and Development Expenses”.

 

General and Administrative Expenses

 

For the three months ended June 30, 2024 and 2023, general and administrative expenses were approximately $2.5 million and $3.1 million, respectively. Specifically, during the three months ended June 30, 2024 and 2023, our general and administrative expenses consisted primarily of: (i) stock-based compensation expense of approximately $0.2 million and $1.6 million, respectively; (ii) consultant and professional expenses of approximately $1.1 million and $0.3 million, respectively; (iii) legal expenses of approximately $0.5 million and $0.4 million, respectively; (iv) employee related expenses of approximately $0.5 million and $0.4 million, respectively; and (v) other general and administrative expenses of approximately $0.2 million and $0.4 million, respectively.

 

Gain (Loss) on Remeasurement of Warrant Liabilities 

 

We recognized a remeasurement of warrant liabilities gain of approximately $0.2 million and a loss of approximately $0.5 million for the three months ended June 30, 2024 and 2023, respectively. The approximate $0.2 million gain on remeasurement of warrant liabilities for the three months ended June 30, 2024 resulted from the decrease in the calculated fair value of the warrants, principally as a result of the decrease in our stock price during the three months ended June 30, 2024. The approximate $0.5 million loss on remeasurement of warrant liabilities for the three months ended June 30, 2023 resulted from the increase in calculated fair value of the warrant liabilities, principally as a result of the increase in stock price during the three months ended June 30, 2023.

 

10

 

Interest Expense

 

We incurred interest expense of approximately $5.2 thousand and $12.8 thousand for the three months ended June 30, 2024 and 2023, respectively. The approximate $7.6 thousand decrease in interest expense was primarily caused by a decrease in the corresponding short-term debt balance for the period.

 

Interest Income

 

Interest income was approximately $87.6 thousand and $103.1 thousand for the three months ended June 30, 2024 and 2023, respectively. While there has been an increase in market interest rates in 2024 compared to 2023, interest income decreased approximately $15.5 thousand primarily due to the Company maintaining a lower cash balance throughout the current period, as compared to the prior period.

 

Other Expense, net

 

Other expense incurred was approximately $5.6 thousand and $0.02 thousand for the three months ended June 30, 2024 and 2023, respectively. The approximate $5.6 thousand decrease was primarily attributable to an unrealized foreign currency translation loss from negative foreign currency fluctuations related to the consolidation of the Company's Indian subsidiary.

 

Comparison of the six months ended June 30, 2024 and 2023:

 

The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023:

 

   

Six Months Ended June 30,

   

Change

   

Change

 
   

2024

   

2023

(as restated)

   

Amount

   

Percentage

 

Operating expenses

                               

Research and development

  $ 11,368,212     $ 13,740,481     $ (2,372,369 )     (17.3 )%

General and administrative

    4,683,537       4,579,855       103,682       2.3 %

Total operating expenses

    16,051,749       18,320,336                  

Loss from operations

    (16,051,749 )     (18,320,336 )                

Gain (loss) on remeasurement of warrant liabilities

    656,450       (445,051 )     1,101,501       (247.5 )%

Interest expense

    (8,640 )     (20,414 )     11,774       (57.7 )%

Interest income

    260,708       250,091       10,617       4.2 %

Other expense, net

    (135,515 )     (14,513 )     (121,002 )     833.7 %

Total other income (expense), net

    773,003       (229,887 )                

Loss before provision for income taxes

    (15,278,746 )     (18,550,223 )                

Provision for income taxes

    14,781       9,414       5,367       57.0 %

Net loss

  $ (15,293,527 )   $ (18,559,637 )                

 

Research and Development Expenses

 

Research and development costs are expensed as incurred. These expenses represent both internal and external costs.

 

For the six months ended June 30, 2024 and 2023, research and development expenses were approximately $11.4 million and $13.7 million, respectively. Specifically, during the six months ended June 30, 2024 and 2023, our research and development costs consisted primarily of the following costs associated with our key research and development project for advancing the clinical development of brilaroxazine during the reporting periods, namely our RECOVER-1 Trial for our Phase 3 clinical study for brilaroxazine: (i) internal salaries, wages and other payroll related costs for employees involved in research and development activities, of approximately $1.5 million and $1.4 million, respectively; (ii) internal share-based compensation expenses with respect to employees involved in research and development activities, of approximately $0.4 million and $1.0 million, respectively; (iii) other research and development related costs, of an insignificant amount and approximately $0.2 million, respectively; and (iv) external research and development expenses, of approximately $9.5 million and $11.1 million, respectively (which includes clinical (including clinical consulting) research and development costs of approximately $6.9 million and $9.1 million, respectively, non-clinical safety related costs of approximately $0.5 million and $1.3 million, respectively, non-clinical manufacturing related costs of approximately $1.8 million and $0.5 million, respectively, and non-clinical consulting and other related costs of approximately $0.3 million and $0.2 million, respectively).

 

The decrease in research and development expenses for the six months ended June 30, 2024 was primarily due to:

 

 

The transition from the RECOVER-1 Study to the OLE Study. RECOVER-1 was an inpatient study whereas OLE is an outpatient study.

 

We expect our research and development activities to increase as we develop our existing product candidates and potentially acquire new product candidates, reflecting increasing costs associated with our ongoing operations, including expenses associated with activities required to complete the development of brilaroxazine in schizophrenia including our planned registrational RECOVER-2 Trial, to take us through the submission of the planned NDA for brilaroxazine, together with additional costs post-NDA submission in preparation of potential commercialization if approved. For additional information, please see the discussion appearing above in the introductory section of this Part I-Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q, under the caption “Financial OverviewResearch and Development Expenses”.

 

11

 

General and Administrative Expenses

 

For the six months ended June 30, 2024 and 2023, general and administrative expenses were approximately $4.7 million and $4.6 million, respectively. Specifically, during the six months ended June 30, 2024 and 2023, our general and administrative expenses consisted primarily of: (i) stock-based compensation expense of approximately $0.3 million and $1.6 million, respectively; (ii) consultant and professional expenses of approximately $2.1 million and $0.8 million, respectively; (iii) legal expenses of approximately $0.8 million and $0.6 million, respectively; (iv) employee related expenses of approximately $1.0 million and $0.9 million, respectively; and (v) other general and administrative expenses of approximately $0.4 million and $0.7 million, respectively.

 

Gain (Loss) on Remeasurement of Warrant Liabilities 

 

We recognized a remeasurement of warrant liabilities gain of approximately $0.7 million and a loss of $0.4 million for the six months ended June 30, 2024 and 2023, respectively. The approximate $0.7 million gain on remeasurement of warrant liabilities for the six months ended June 30, 2024 resulted from the decrease in the calculated fair value of the warrants, principally as a result of the decrease in our stock price during the six months ended June 30, 2024. The approximate $0.4 million loss on remeasurement of warrant liabilities for the six months ended June 30, 2023 resulted from the increase in the calculated fair value of the warrants, principally as a result of the increase in stock price during the six months ended June 30, 2023.

 

Interest Expense

 

We incurred interest expense of approximately $8.6 thousand and $20.4 thousand for the six months ended June 30, 2024 and 2023, respectively. The approximate $11.8 thousand decrease in interest expense was primarily caused by a decrease in the corresponding short-term debt balance for the period.

 

Interest Income

 

Interest income was approximately $260.7 thousand and $250.1 thousand for the six months ended June 30, 2024 and 2023, respectively. Interest income slightly increased by approximately $10.6 thousand primarily due to the increase in market interest rates in 2024 as compared to 2023, offset partially by the Company maintaining a lower cash balance at the end of the six month period compared to the prior period.

 

Other Expense, net

 

Other expense incurred was approximately $135.5 thousand and $14.5 thousand for the six months ended June 30, 2024 and 2023, respectively. The approximate $121.0 thousand increase in other expense was primarily attributable to an unrealized foreign currency translation loss from negative foreign currency fluctuations related to the consolidation of the Company's Indian subsidiary.

 

Liquidity and Capital Resources

 

            December 31,    

Change

 
    June 30, 2024     2023    

Amount

   

Percentage

 

Balance Sheet Data:

                               

Cash and cash equivalents

  $ 6,178,180     $ 23,367,456     $ (17,189,276 )     (73.6 )%

Working capital (deficit)

    (6,711,038 )     6,525,371       (13,236,409 )     (202.8 )%

Total assets