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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024

OR

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

COMMISSION FILE NUMBER 001-39202

Annovis Bio, Inc.

(Exact name of registrant as specified in its charter)

Delaware

26-2540421

(State or other jurisdiction of
incorporation or organization)

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

101 Lindenwood Drive, Suite 225

Malvern, PA 19355

(Address of registrant’s principal executive offices)

(484875-3192

Registrant’s telephone number, including area code

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

Title of Each Class

    

Trading Symbol

    

Name of Each Exchange on Which Registered

Common Stock, par value $0.0001 per share

ANVS

New York Stock Exchange

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 Exchange Act).  Yes  No.

The number of outstanding shares of the registrant’s common stock as of November 6, 2024 was: 13,797,242

ANNOVIS BIO, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2024

PART I – FINANCIAL INFORMATION

   

Page

Item 1.

Financial Statements

3

Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023

3

Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023

4

Statements of Changes in Stockholders’ (Deficit) Equity (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023

5

Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2024 and 2023

6

Notes to Financial Statements (Unaudited)

7

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

29

Item 4.

Controls and Procedures

29

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

Signatures

32

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Annovis Bio, Inc.

Balance Sheets

    

September 30, 

    

2024

    

December 31, 

(Unaudited)

2023

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

12,636,630

$

5,754,720

Prepaid expenses and other current assets

 

1,724,946

 

4,453,544

Total assets

$

14,361,576

$

10,208,264

Liabilities and stockholders’ equity (deficit)

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

4,099,414

$

1,292,837

Accrued expenses

 

1,291,962

 

2,986,273

Total current liabilities

 

5,391,376

 

4,279,110

Non-current liabilities:

Warrant liability

1,464,000

13,680,000

Derivative liability

442,500

Total liabilities

 

7,297,876

 

17,959,110

Commitments and contingencies (Note 6)

 

  

 

  

Stockholders’ equity (deficit):

 

  

 

  

Preferred stock - $0.0001 par value, 2,000,000 shares authorized and 0 shares issued and outstanding

Common stock - $0.0001 par value, 70,000,000 shares authorized, 13,283,667 and 10,519,933 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

 

1,328

 

1,052

Additional paid-in capital

 

136,047,175

 

102,507,189

Accumulated deficit

 

(128,984,803)

 

(110,259,087)

Total stockholders’ equity (deficit)

 

7,063,700

 

(7,750,846)

Total liabilities and stockholders’ equity (deficit)

$

14,361,576

$

10,208,264

See accompanying notes to financial statements.

3

Annovis Bio, Inc.

Statements of Operations

(Unaudited)

    

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2024

    

2023

    

2024

    

2023

Operating expenses:

  

 

  

  

 

  

Research and development

$

2,689,561

$

13,837,650

$

14,996,868

$

29,885,874

General and administrative

 

1,698,050

 

1,025,621

 

4,963,188

 

4,706,813

Total operating expenses

 

4,387,611

 

14,863,271

 

19,960,056

 

34,592,687

Operating loss

(4,387,611)

(14,863,271)

(19,960,056)

(34,592,687)

Other income (expense):

 

  

 

  

 

  

 

  

Interest income

 

135,430

 

146,655

 

205,576

 

601,768

Other financing costs (Note 7)

(524,068)

(1,870,128)

Change in fair value of warrants (Note 7)

(7,862,108)

2,898,892

Total other income (expense), net

 

(8,250,746)

 

146,655

 

1,234,340

 

601,768

Loss before income taxes

 

(12,638,357)

 

(14,716,616)

 

(18,725,716)

 

(33,990,919)

Income taxes

 

 

 

 

Net loss

$

(12,638,357)

$

(14,716,616)

$

(18,725,716)

$

(33,990,919)

Net loss per share (Note 9)

Basic

$

(0.97)

$

(1.63)

$

(1.64)

$

(3.90)

Diluted

$

(0.97)

$

(1.63)

$

(1.89)

$

(3.90)

Weighted-average number of common shares used in computing net loss per share

Basic

12,975,808

9,012,273

11,394,729

8,722,518

Diluted

 

12,975,808

 

9,012,273

11,461,298

 

8,722,518

See accompanying notes to financial statements.

4

Annovis Bio, Inc.

Statements of Changes in Stockholders’ (Deficit) Equity

(Unaudited)

Additional

Total

Total

Common Stock

Paid-in

Accumulated

Stockholders' Equity

    

Shares

    

Amount

    

Capital

    

Deficit

    

(Deficit)

Three and Nine Months Ended September 30, 2024

Balance, December 31, 2023

 

10,519,933

$

1,052

$

102,507,189

$

(110,259,087)

$

(7,750,846)

Exercise of common stock warrants, inclusive of warrant reduction

 

60,000

6

1,223,994

 

 

1,224,000

Issuance of common stock under registered direct offering, net of issuance costs

431,366

43

3,874,957

3,875,000

Stock-based compensation expense

364,765

364,765

Net loss

 

 

 

(1,066,947)

 

(1,066,947)

Balance, March 31, 2024

11,011,299

$

1,101

$

107,970,905

$

(111,326,034)

$

(3,354,028)

Issuance of common stock under ELOC, net of issuance costs

710,181

71

5,026,973

5,027,044

Stock-based compensation expense

 

1,596,512

1,596,512

Net loss

 

 

 

(5,020,412)

 

(5,020,412)

Balance, June 30, 2024

11,721,480

$

1,172

$

114,594,390

$

(116,346,446)

$

(1,750,884)

Exercise of common stock warrants, inclusive of warrant reduction

831,667

83

16,118,028

16,118,111

Issuance of common stock under ELOC, net of issuance costs

510,181

51

4,941,699

4,941,750

Cashless exercise of stock options

220,339

22

(22)

Stock-based compensation expense

 

 

393,080

393,080

Net loss

 

 

(12,638,357)

(12,638,357)

Balance, September 30, 2024

 

13,283,667

$

1,328

$

136,047,175

$

(128,984,803)

$

7,063,700

Three and Nine Months Ended September 30, 2023

Balance, December 31, 2022

 

8,163,923

$

816

$

82,377,488

$

(54,054,774)

$

28,323,530

Exercise of stock options

 

52,755

 

6

 

7,380

 

 

7,386

Stock-based compensation expense

 

1,542,338

1,542,338

Net loss

 

 

 

 

(9,737,181)

 

(9,737,181)

Balance, March 31, 2023

 

8,216,678

$

822

$

83,927,206

$

(63,791,955)

$

20,136,073

Issuance of common stock, net of issuance costs

788,453

 

79

8,571,112

8,571,191

Exercise of stock options

7,142

1

999

1,000

Stock-based compensation expense

1,571,493

1,571,493

Net loss

 

 

 

(9,537,122)

 

(9,537,122)

Balance, June 30, 2023

9,012,273

$

902

$

94,070,810

$

(73,329,077)

$

20,742,635

Stock-based compensation expense

 

632,191

632,191

Net loss

 

(14,716,616)

(14,716,616)

Balance, September 30, 2023

9,012,273

$

902

$

94,703,001

$

(88,045,693)

$

6,658,210

See accompanying notes to financial statements.

5

Annovis Bio, Inc.

Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30, 

2024

2023

Cash flows from operating activities:

  

 

  

Net loss

$

(18,725,716)

$

(33,990,919)

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

 

 

Stock-based compensation expense

 

2,354,357

 

3,746,022

Change in fair value of warrants

(2,898,892)

Non-cash other financing costs, including change in fair value of derivative

1,820,129

Changes in operating assets and liabilities:

 

 

Prepaid expenses and other current assets

 

2,728,598

 

3,776,212

Accounts payable

 

2,806,577

 

(2,034,857)

Accrued expenses

 

(1,694,311)

 

(2,098,786)

Net cash used in operating activities

 

(13,609,258)

 

(30,602,328)

Cash flows from financing activities:

 

  

 

  

Proceeds from issuance of common stock, net

12,466,165

8,571,191

Proceeds from exercise of warrants

8,025,003

Proceeds from exercise of stock options

 

 

8,386

Net cash provided by financing activities

 

20,491,168

 

8,579,577

Net increase (decrease) in cash and cash equivalents

 

6,881,910

 

(22,022,751)

Cash and cash equivalents, beginning of period

 

5,754,720

 

28,377,693

Cash and cash equivalents, end of period

$

12,636,630

$

6,354,942

Supplemental disclosure of cash flow information:

 

  

 

  

Other adjustment to value of warrants related to exercises

$

9,317,108

$

Cash paid for financing costs

$

50,000

$

See accompanying notes to financial statements.

6

Table of Contents

Annovis Bio, Inc.

Notes to Financial Statements

(Unaudited)

(1) Nature of Business, Going Concern and Management’s Plan

Annovis Bio, Inc. (the “Company” or “Annovis”) was incorporated on April 29, 2008, under the laws of the State of Delaware. Annovis is a late-stage clinical drug platform company addressing neurodegeneration, such as Alzheimer’s disease (“AD”) and Parkinson’s disease (“PD”). The toxic cascade in neurodegeneration begins with high levels of neurotoxic proteins, which lead to impaired axonal transport, inflammation, death of nerve cells and loss of cognition and motor function. The Company’s lead product candidate, Buntanetap, is a small molecule administered orally that is designed to attack neurodegeneration by entering the brain and inhibiting the translation of multiple neurotoxic proteins, thereby impeding the toxic cascade.  High levels of neurotoxic proteins lead to reduced axonal transport, which is responsible for the communication between and within nerve cells. When that communication is compromised, the immune system is activated and attacks the nerve cells, eventually killing them. The Company has shown in its clinical and pre-clinical studies that Buntanetap lowered neurotoxic protein levels, leading to improved axonal transport, reduced inflammation, lower nerve cell death and improved function.

Going Concern

Since its founding, the Company has been engaged in organizational activities, including raising capital, as well as research and development activities. The Company has not generated substantial revenues and has not yet achieved profitable operations, nor has it ever generated positive cash flows from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. The Company is subject to those risks associated with any clinical stage pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will become commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. Further, the Company’s future operations are dependent on the success of its efforts to raise additional capital.

The Company has a history of incurring net losses and anticipates incurring additional losses until such time, if ever, that it can generate significant revenue from its product candidates currently in development. The Company’s primary source of capital has historically been the issuance of common stock and warrants to purchase common stock.

Since the Company’s inception, the Company has incurred losses and negative cash flows from operations. At September 30, 2024, the Company had cash and cash equivalents of $12.6 million and an accumulated deficit of $129.0 million. The Company’s net loss was $18.7 million and $34.0 million for the nine months ended September 30, 2024 and 2023, respectively. In addition, the Company’s operating loss was $20.0 million and $34.6 million for the nine months ended September 30, 2024 and 2023, respectively. The Company follows the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 205-40, Presentation of Financial Statements-Going Concern, or ASC 205-40, which requires Management to assess the Company’s ability to continue as a going concern for one year after the date its financial statements are issued. The Company expects that its existing balance of cash and cash equivalents as of September 30, 2024 is not sufficient to fund operations for the period through one year after the date of this filing and therefore Management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s plans to mitigate this risk include raising additional capital through equity financings, debt or other potential alternatives. Management’s plans may also include the deferral of certain operating expenses unless and until additional capital is received. However, there can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company, or that the Company will be successful in deferring certain operating expenses. As such, Management has concluded that such plans do not alleviate the aforementioned substantial doubt. If the Company is unable to raise sufficient additional capital or defer sufficient operating expenses, the Company may be compelled to reduce the scope of its operations.

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The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern.

(2) Summary of Significant Accounting Policies

(a) Basis of Presentation of Interim Unaudited Financial Statements

The accompanying interim financial statements of Annovis Bio, Inc. should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024. The interim financial statements included herein are unaudited. In the opinion of Management, these statements include all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of the financial position of Annovis at September 30, 2024, its results of operations for the three and nine months ended September 30, 2024 and 2023 and its cash flows for the nine months ended September 30, 2024 and 2023. These interim results of operations are not necessarily indicative of the results to be expected for a full year or any future period. The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the SEC. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations relating to interim financial statements.

(b) Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the financial statements, actual results may materially vary from these estimates.

Significant items subject to such estimates and assumptions include the accounting and fair value of equity instruments, common stock warrant liabilities, derivative liabilities, as well as accounting for research and development contracts, including clinical trial accruals. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. Accounting estimates used in the preparation of these financial statements change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes.

(c) Basic and Diluted Net Loss per Share

Basic net loss per share is determined using the weighted average number of shares of common stock outstanding during each period. Diluted net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as warrants and stock options, which would result in the issuance of incremental shares of common stock. The computation of diluted net loss per shares does not include the conversion of securities that would have an anti-dilutive effect.

(d) Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. The Company has cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds, could have a significant adverse effect on the Company’s financial condition, results of operations and cash flows.

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(e)  Issuance Costs Associated with Equity Issuances

Issuance costs incurred in connection with the Company’s equity issuances, which primarily consist of direct incremental legal, printing, listing and accounting fees, are offset against proceeds received in the issuances and charged to additional paid-in capital in the period the equity issuance is completed. Issuance costs related to the Equity Line of Credit (“ELOC”) Purchase Agreement are expensed as incurred as prescribed by ASC 815.

(f) Derivative Liability

The Company evaluates all features contained in financing agreements to determine if there are any embedded derivatives that require separate accounting from the underlying agreement under ASC 815 – Derivatives and Hedging. An embedded derivative that requires separation is accounted for as a separate liability or asset from the host agreement. The separated embedded derivative is accounted for at fair market value, with changes in fair value recognized in the statements of operations within the other financing costs line item. The Company determined that certain features under the ELOC Purchase Agreement (See Note 7 — Stockholders’ (Deficit) Equity) collectively qualified as an embedded derivative. The derivative was accounted for separately from the underlying ELOC Purchase Agreement and is accounted for at fair value.

(g) Common Stock Warrants

On October 31, 2023, the Company completed an underwritten offering whereby the Company sold (i) 1,250,000 shares of common stock and (ii) warrants to purchase an aggregate of 1,250,000 shares of common stock at an exercise price of $9.00 per share (“Canaccord Warrants”). The warrants are liability classified as they contain certain cash settlement adjustment features that are outside of the Company’s control or not deemed to be indexed to the Company’s stock. The warrant liabilities are recorded at fair value regardless of the timing of the redemption feature, the redemption price, or the likelihood of redemption. These warrants are subject to re-measurement at each balance sheet date and any change in fair value is recognized as a component of change in fair value of warrant liability in the statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise, expiration, or other settlement of the warrants. The warrants are classified as Level 3 liabilities.

(h) Fair Value of Financial Instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurements,” equals or approximates the carrying amounts represented in the balance sheets, primarily due to their short-term nature, except for the derivative liabilities and warrant liabilities (see Note 3 — Fair Value Measurements).

(i) Research and Development

Research and development costs are either expensed as incurred, or recorded separately as a prepaid asset where expense is recognized when the service is performed. These costs are primarily comprised of personnel-related expenses and external research and development expenses incurred under arrangements with third parties, such as contract research organizations and consultants. At the end of each reporting period, the Company compares the payments made to each service provider to the estimated progress towards completion of the related project. Factors that the Company considers in preparing these estimates include the number of patients enrolled in studies, milestones achieved, and other criteria related to the efforts of its vendors. These estimates will be subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, the Company will record net prepaid or accrued expenses related to these costs. Prepaid clinical expenses represent valid future economic benefits based on the Company’s contracts with its vendors and are realized in the ordinary course of business.

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(j) Stock-Based Compensation

The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). The Company has issued stock-based compensation awards, including stock options. ASC 718 requires all stock-based payments, including grants of stock options, to be recognized in the financial statements based on their grant date fair values. The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options granted. The Company recognizes forfeitures as they occur.

Expense related to stock-based compensation awards granted with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Stock options have a contractual term of 10 years. Expense for stock-based compensation awards with performance-based vesting conditions is only recognized when the performance-based vesting condition is deemed probable to occur. Expense related to stock-based compensation awards are recorded in research and development expense or general and administrative expense based on the underlying function of the individual that was granted the stock-based compensation award.

Estimating the fair value of stock options requires the input of subjective assumptions, including the expected term of the stock option, stock price volatility, the risk-free interest rate, and expected dividends. The assumptions used in the Company’s Black-Scholes option-pricing model represent Management’s best estimates and involve a number of variables, uncertainties, assumptions, and the application of Management’s judgment, as they are inherently subjective. If any assumptions change, the Company’s stock-based compensation expense could be materially different in the future.

The assumptions used in the Company’s Black-Scholes option-pricing model for stock options are as follows:

Expected Term. As Annovis does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term, the expected term of employee stock options subject to service-based vesting conditions is determined using the “simplified” method, as prescribed in SEC’s Staff Accounting Bulletin No. 107, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock option.

Expected Volatility. The expected volatility is based on historical volatilities of Annovis and similar entities within the Company’s industry for periods commensurate with the assumed expected term.

Risk-Free Interest Rate. The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term.

Expected Dividends. The expected dividend yield is 0% because Annovis has not historically paid, and does not expect for the foreseeable future to pay, a dividend on its common stock.

(k) Income Taxes

The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of September 30, 2024 and December 31, 2023, the Company had a full valuation allowance against its deferred tax assets.

The Company is subject to the provisions of ASC 740, Income Taxes, which prescribes a more likely-than-not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. There are currently no open federal or state tax audits. The Company has not recorded any liability for uncertain tax positions at September 30, 2024 or December 31, 2023.

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(l) Recent Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07 "Segment Reporting - Improvements to Reportable Segment Disclosures" (“ASU 2023-07”), which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The guidance is effective for all public companies for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company has not yet determined the full impact ASU 2023-09 may have on its financial statement disclosures, but does not expect any material impact.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves income tax disclosures by requiring: (1) consistent categories and greater disaggregation of information in the rate reconciliation, and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The ASU indicates that all entities will apply the guidance prospectively with an option for retroactive application to each period presented in the financial statements. The Company has not yet determined the full impact ASU 2023-09 may have on its financial statement disclosures, but does not expect any material impact.

(3) Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy that serves to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3—Valuations based on unobservable inputs and models that are supported by little or no market activity.

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The following table provides the carrying value and fair value of certain financial assets and liabilities of the Company measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:

    

    

Fair Value Measurement at

September 30, 2024

Carrying Value

Level 1

Level 2

Level 3

Assets:

Cash equivalents

$

485,308

$

485,308

$

$

Total assets measured and recorded at fair value

$

485,308

$

485,308

$

$

Liabilities:

Derivative liability

$

442,500

$

$

$

442,500

Warrant liability

1,464,000

1,464,000

Total liabilities measured and recorded at fair value

$

1,906,500

$

$

$

1,906,500

    

    

Fair Value Measurement at

December 31, 2023

Carrying Value

Level 1

Level 2

Level 3

Assets:

Cash equivalents

$

5,136,677

$

5,136,677

$

$

Total assets measured and recorded at fair value

$

5,136,677

$

5,136,677

$

$

Liabilities:

Warrant liability

$

13,680,000

$

$

$

13,680,000

Total liabilities measured and recorded at fair value

$

13,680,000

$

$

$

13,680,000

The Company did not transfer any financial instruments into or out of Level 3 classification, during the three or nine months ended September 30, 2024 and 2023.

(a) Canaccord Warrants

The common stock warrants issued in connection with the Company’s equity raise in November 2023 (“Canaccord Warrants”) were classified as liabilities at the time of issuance due to certain cash settlement adjustment features that are outside of the Company’s control or not deemed to be indexed to the Company’s stock. The Canaccord Warrant liability is remeasured each reporting period with the change in fair value recorded to other income (expense) in the statements of operations until the warrants are exercised, expired, reclassified, or otherwise settled. From their date of issuance until the period ended June 30, 2024, the fair value of the Canaccord Warrants was estimated using a Monte Carlo simulation model, given the performance conditions outlined further below. However, during the period ended September 30, 2024, the Company determined that certain performance conditions could not be met and that going forward, their use as inputs for determining fair value was no longer appropriate. As such, after the period ended June 30, 2024, the fair value of the Canaccord Warrants is to be estimated using a Black-Scholes option-pricing model.

The estimated fair value of the Canaccord Warrants is determined using Level 3 inputs. Inherent in both a Monte Carlo simulation model and a Black-Scholes option-pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and other inputs. The Company estimates the volatility of its warrants based on implied volatility from the Company’s traded warrants. The risk-free interest rate is based on the market yield of U.S. Treasuries over a term commensurate with the remaining term to expiration. Any changes in these assumptions can change the associated valuation significantly.

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The following tables provide quantitative information regarding Level 3 fair value measurements inputs as of their respective measurement dates. The table for the period ending September 30, 2024 presents inputs used under a Black-Scholes option-pricing model. The table for the period ending December 31, 2023 presents inputs used under a Monte Carlo simulation model:

    

September 30, 2024

    

Exercise price

$

9.00

 

Closing stock price

$

8.06

 

Number of warrants

 

308,333

 

Volatility

 

80

%  

Term (time to expiration in years)

 

4.09

 

Risk-free rate

 

3.6

%  

December 31, 2023

Exercise price

$

9.00

Closing stock price

$

18.70

Number of warrants

 

1,200,000

Phase 3 data probability of success

 

60

%

Volatility

 

55

%

Term (time to expiration in years)

 

4.84

Redemption hurdle price

$

14.25

Risk-free rate

 

3.9

%

The Canaccord Warrants have an exercise price of $9.00 per unit, and are redeemable at the Company’s option, in whole or in part, at a redemption price equal to $0.001 per Warrant upon 30 days’ prior written notice, at any time after:

the Company’s public announcement of Positive Topline Data (as defined in the Warrant Agreement) from its Phase 3 study in patients with Parkinson’s Disease; and
the date on which (a) the closing price of the Company’s common stock on the principal exchange or trading facility on which it is then traded has equaled or exceeded $14.25 and (b) the average daily trading value (“ADTV”) of the Company’s common stock is equal to or exceeds $2,000,000, for two consecutive Trading Days.

During the quarter ended September 30, 2024, the Company released topline data from its Phase 3 study in patients with Parkinson’s Disease. It was determined that based on the data, both criteria above required for redemption of the Canaccord Warrants were not met.

The common stock warrants are exercisable immediately and will expire on November 2, 2028, five years from the date of issuance. See Note 7 – Stockholders’ (Deficit) Equity for additional background.

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(b) ELOC Purchase Agreement

The Company entered into a Common Stock Purchase Agreement (the “ELOC Purchase Agreement”) on April 25, 2024 with an Equity Line investor (“ELOC Purchaser”). Due to certain pricing and settlement provisions, the ELOC Purchase Agreement qualifies as a standby equity purchase agreement and includes an embedded put option. The put option derivative liability (“ELOC derivative liability”) is recognized at inception and is accounted for on a fair value basis under the provisions of ASC 815 - Derivatives and Hedging. The fair value of the ELOC Purchase Agreement contemplated future purchase decisions based on economic considerations and relevant stock issuance rules/limitations and was initially determined using a Monte Carlo simulation.

The following table provides quantitative information regarding fair value measurements inputs used with respect to the ELOC derivative liability, as of their respective measurement dates:

    

September 30, 2024

    

April 25, 2024

 

Closing stock price

$

8.06

 

$

13.60

Volatility

 

125

%  

110

%

Term (time to expiration in years)

 

2.40

 

2.80

Risk-free rate

 

3.6

%  

4.8

%

The change in fair value of the ELOC derivative liability was recorded within other financing costs within the statements of operations during the three and nine month periods ended September 30, 2024.

(4) Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

    

September 30, 

December 31, 

2024

2023

Prepaid clinical expenses

$

1,462,672

$

4,391,219

Prepaid other

189,178

23,455

Prepaid insurance

65,601

18,074

Security deposits

 

7,495

 

20,796

$

1,724,946

$

4,453,544

(5) Accrued Expenses

Accrued expenses consisted of the following:

    

September 30, 

December 31, 

2024

2023

Payroll and related benefits

$

553,710

$

96,848

Accrued professional and clinical fees

 

738,252

 

2,889,425

$

1,291,962

$

2,986,273

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(6) Commitments and Contingencies

(a) Research & Development

The Company has entered into contracts with contract research organizations (“CROs”) and contract manufacturers (“CMOs”) related to the Company’s clinical trials. These contracts generally require upfront payments, milestone payments, and pass through cost reimbursements, to be made. While the contracts are generally cancellable with (written) notice, the Company is obligated to make payments for services rendered through the termination date of the project with any applicable CRO/CMO.

(b) Leases

The Company maintains one short-term lease associated with occupying its corporate headquarters. Total rental expense was $24,344 and $23,891 for the three months ended September 30, 2024 and 2023, respectively and $82,457 and $59,165 for the nine months ended September 30, 2024 and 2023, respectively.

(c) Employment Agreements

The Company has agreements with its executive officers that provide for severance payments to the employee upon termination of the agreement by the Company for any reason other than for cause, death, or disability or by the employee for good reason. The maximum aggregate severance payments under the agreements were estimated to be $1,114,104 at September 30, 2024.

(d) Litigation

The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows.

(7) Stockholders’ (Deficit) Equity

(a) Overview

The Company’s Amended and Restated Certificate of Incorporation was adopted on January 31, 2020, in conjunction with the closing of the Company’s initial public offering (the “IPO”) and amended on June 15, 2023 to increase the authorized number of shares. Currently, there are two classes of stock authorized which are designated, respectively, common stock and preferred stock. The total number of shares which the Company is authorized to issue is 72,000,000, each with a par value of $0.0001 per share. Of these shares, 70,000,000 is designated as common stock and 2,000,000 is preferred stock.

(b) Common Stock

Dividends

Subject to the rights of holders of all classes of Company stock outstanding having rights that are senior to or equivalent to holders of common stock, the holders of the common stock are entitled to receive dividends when and as declared by the Board.

Liquidation

Subject to the rights of holders of all classes of stock outstanding having rights that are senior to or equivalent to holders of common stock as to liquidation, upon the liquidation, dissolution or winding up of the Company, the assets of the Company will be distributed to the holders of common stock.

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Voting

The holders of common stock are entitled to one vote for each share of common stock held. There is no cumulative voting.

(c) Preferred Stock

Preferred stock may be issued from time to time by the Board in one or more series. There was no preferred stock issued or outstanding as of September 30, 2024 or December 31, 2023.

(d) IPO Warrants

In conjunction with the closing of the Company’s Initial Public Offering (“IPO”), the Company granted its underwriters 100,000 warrants to purchase shares of Company common stock (“IPO Warrants”) at an exercise price of $7.50 per share, which was 125% of the IPO price. The IPO Warrants have a five-year term and were exercisable as of January 29, 2021 and have been classified by the Company as a component of stockholders’ equity. As of September 30, 2024 and December 31, 2023, 2,400 of the IPO Warrants were outstanding. No IPO Warrants were exercised during the three or nine months ended September 30, 2024 or 2023.

(e) November 2023 Equity Offering and Warrant Issuance

On October 31, 2023, the Company entered into an underwritten offering with a Canaccord Genuity LLC whereby the Company sold (i) 1,250,000 shares of common stock and (ii) warrants (“Canaccord Warrants”) to purchase an aggregate of 1,250,000 shares of common stock at an exercise price of $9.00 per share. The warrants are exercisable immediately on the date of issuance and will expire five years after the date of issuance. The Company received $6.83 million in net cash proceeds after deducting underwriter discount and fees, as well as other third-party costs. The Canaccord Warrants are liability classified as they contain certain cash settlement adjustment features that are outside of the Company’s control or not deemed to be indexed to the Company’s stock.

The following is a roll-forward of the Common Stock Warrant Liability from December 31, 2023 to September 30, 2024:

Warrant liability at December 31, 2023

    

13,680,000

Change in fair value of warrant liabilities

 

(6,698,692)

Exercise of 60,000 warrants – January 2, 2024

 

(684,000)

Warrant liability at March 31, 2024

 

6,297,308

Change in fair value of warrant liabilities

(4,062,308)

Warrant liability at June 30, 2024

 

2,235,000

Change in fair value of warrant liabilities

7,862,108

Exercise of 831,667 warrants – July 2-11, 2024

(8,633,108)

Warrant liability at September 30, 2024

1,464,000

(f) Warrant Summary

As of September 30, 2024, the Company had the following common stock warrants outstanding:

    

    

Outstanding

    

    

    

    

Outstanding

    

Exercise

    

December 31,

Exercised or

September 30,

price per

Expiration

Classification

2023

Granted

Expired

2024

share

date

IPO Warrants

 

Equity

 

2,400

 

 

 

2,400

$

7.50

January 29, 2026

Canaccord Warrants

 

Liability

 

1,200,000

 

 

(891,667)

 

308,333

$

9.00

November 2, 2028

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(g) March 15th Registered Direct Offering (“March RDO Round 1”)

On March 15, 2024, the Company entered into a Securities Purchase Agreement with an institutional investor. Pursuant to the terms of the purchase agreement, the Company agreed to issue and sell an aggregate of 114,911 shares of Common Stock at $8.92 per share for aggregate gross proceeds of $1,025,000. Net of offering costs, proceeds from this offering were $925,000.

(h) March 21st Registered Direct Offering (“March RDO Round 2”)

On March 21, 2024, the Company entered into a Securities Purchase Agreement with an institutional investor. Pursuant to the terms of the purchase agreement, the Company agreed to issue and sell an aggregate of 316,455 shares of Common Stock at $9.48 per share for aggregate gross proceeds of $3,000,000. Net of offering costs, proceeds from this offering were $2,950,000.

(i) ELOC Purchase Agreement

As described in Note 3, on April 25, 2024, the Company entered into an ELOC Purchase Agreement with an ELOC Purchaser, whereby the Company may offer and sell, from time to time at its sole discretion, and whereby the ELOC Purchaser has committed to purchase, up to 2,051,428 shares of shares of the Company’s common stock. The term of the agreement runs until the expiration of the Company’s active S-3 Registration Statement, if not earlier terminated or exhausted. Due to certain pricing and settlement provisions, the ELOC Purchase Agreement qualifies as a standby equity purchase agreement and includes an embedded put option and embedded forward option. The Company will therefore account for the ELOC Purchase Agreement as a derivative measured at fair value, with changes in the fair value recognized in the statements of operations within other financing costs. The Company initially recognized a derivative liability of $1.7 million related to the purchased put option at inception of the ELOC Purchase Agreement. The Company will expense the difference between the discounted purchase price of the settled forward and the fair value of shares on the date of settlement as a noncash financing issuance cost. The Company recognized $0.6 million and $0.9 million of noncash financing costs during the three and nine months ended September 30, 2024 related to the discounted purchase price of the settled forward and the underlying fair value of the shares issued.

Upon execution of the ELOC Purchase Agreement, the Company agreed to issue to the ELOC Purchaser 33,937 shares of Common Stock as commitment shares (the “Commitment Shares”). The fair value of the Commitment Shares was $0.5 million, which was expensed within other financing costs in the statements of operations during the second quarter of 2024. The Company also incurred issuance costs of $50,000, consisting of legal costs incurred in connection with the ELOC Purchase Agreement, which were expensed within other financing costs in the statements of operations during the second quarter of 2024. The ELOC Purchaser has agreed that during the term of the Purchase Agreement, neither it nor any of its affiliates will engage in any short sales or hedging transactions involving the Company’s common stock.

In addition to the commitment shares referenced above, a total of 500,000 and 1,200,000 shares of the Company’s common stock were issued under the ELOC Purchase Agreement during the three and nine months ended September 30, 2024, for net proceeds of $4.4 million and $8.6 million, respectively.

17

Under the ELOC Purchase Agreement, on any business day (the “Purchase Date”), if the Company’s stock price is greater than or equal to $5.00 per share, the Company may direct the ELOC Purchaser to purchase common stock. The ELOC Purchaser’s committed obligation under any single Fixed Purchase shall not exceed the lower of 25,000 shares of Common Stock or $250,000 (“Fixed Purchases”).

In addition, the Company may also direct the ELOC Purchaser, on any trading day in which the Company has submitted a Fixed Purchase notice for the maximum amount allowed for such Fixed Purchase, to purchase an additional amount of the Company’s common stock (a “VWAP Purchase”). The ELOC Purchaser’s committed obligation under any single VWAP Purchase shall not exceed a number of shares of Common Stock equal to the lesser of (i) 300% of the number of Shares directed by the Company to be purchased by the Investor pursuant to the corresponding Fixed Purchase Notice and (ii) 30% of the trading volume in the Company’s Common Stock on the NYSE during the applicable VWAP Purchase Period on the applicable VWAP Purchase Date (“VWAP Purchase Maximum Amount”).

The Company may also direct the ELOC Purchaser, on any trading day for which a VWAP Purchase has been completed and all of the shares have been placed, to purchase an additional amount of the Company’s common stock (an “Additional VWAP Purchase”). The ELOC Purchaser’s committed obligation under any single Additional VWAP Purchase shall be the lesser of (i) 300% of the number of Shares directed by the Company to be purchased by the Investor pursuant to the corresponding Fixed Purchase Notice and (ii) a number of Shares equal to (A) the Additional VWAP Purchase Share Percentage multiplied by (B) the trading volume of shares of Common Stock traded during the applicable Additional VWAP Purchase Period on the applicable Additional VWAP Purchase Date for such Additional VWAP Purchase (“Additional VWAP Purchase Maximum Amount”) and collectively the (“Maximum Amounts”). The applicable pricing structure for each purchase type is outlined below:

The purchase price per share for Fixed Purchases (“Fixed Purchase Price”) equals 95% of the lesser of:

the daily volume weighted average price (“VWAP”) of the Company’s Common Stock on the NYSE for the five (5) Trading Days immediately preceding the applicable Fixed Purchase Date for such Fixed Purchase; and
the Closing Sale Price of a share of Common Stock on the applicable Fixed Purchase Date.

The purchase price per share for VWAP Purchases (“VWAP Purchase Price”) equals 95% of the lesser of:

the VWAP during the applicable VWAP Purchase Period during the applicable VWAP Purchase Date.
the Closing Sale Price of the Common Stock on the applicable VWAP Purchase Date.

The purchase price per share for Additional VWAP Purchases (“Additional VWAP Purchase Price”) equals 95% of the lesser of:

the VWAP for the applicable Additional VWAP Purchase Period during the applicable Additional VWAP Purchase Date; and
the Closing Sale Price of the Common Stock on such applicable Additional VWAP Purchase Date.

The following is a roll-forward of the ELOC derivative liability from date of execution to September 30, 2024:

Fair value at April 25, 2024

    

1,697,500

Settlements and changes in fair value of ELOC derivative liability

 

(1,192,500)

Fair value at June 30, 2024

 

505,000

Settlements and changes in fair value of ELOC derivative liability

 

(62,500)

Fair value at September 30, 2024

 

442,500

18

(8) Stock-Based Compensation

The Company’s 2019 Equity Incentive Plan (the “2019 Plan”) became effective on January 31, 2020, succeeding the Company’s previous equity incentive plan. No new options may be issued under the previous plan, although shares subject to grants which are cancelled or forfeited will again be available under the 2019 Plan.

Effective June 1, 2021, the 2019 Plan was amended to increase the number of shares authorized to be issued from 1,000,000 to 2,000,000. Effective June 12, 2024, the 2019 Plan was amended to increase the number of shares authorized from 2,000,000 to 3,000,000. As of September 30, 2024, 812,568 shares were available for future grants.

Stock-based compensation expense was as follows:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2024

    

2023

2024

    

2023

General and administrative

$

203,785

$

379,364

$

1,437,305

$

1,792,819

Research and development

 

189,295

252,827

 

917,052

1,953,203

$

393,080

$

632,191

$

2,354,357

$

3,746,022

During the three and nine months ended September 30, 2024, the Company granted 50,000 and 411,600 stock options to various executives, employees, consultants and Board Members at a weighted-average exercise price of $5.27 and $5.97 per share, respectively. The weighted-average grant date fair value of options issued by the Company during the three and nine months ended September 30, 2024 was $4.47 and $5.04 per share, respectively. The options generally have service-based vesting conditions, vest in substantially equal installments over two years and have a 10 year term.

During the three months ended September 30, 2024, the Company granted an award of 20,000 stock options to a Board Member, in consideration for services to be performed under a consulting agreement. The exercise price for the options was $5.27 per share. The awards will vest in quarterly increments during the term of the agreement, which terminates on December 31, 2024. Vesting is dependent on continued service over that period.

There were 300,000 stock options exercised during the three and nine months ended September 30, 2024. Stock options exercised during the three and nine months ended September 30, 2023 were 0 and 59,897, respectively.

There were 126,996 and 188,623 stock options that expired during the three and nine months ended September 30, 2024. There were no stock options that expired during the three and nine months ended September 30, 2023.

As of September 30, 2024, there were 1,877,751 options outstanding, of which 1,572,275 were vested and exercisable. As of December 31, 2023, there were 1,954,774 options outstanding, of which 1,600,577 were vested and exercisable.

(9) Net Loss Per Share

The Company analyzes the potential dilutive effect of stock options and warrants under the treasury stock method (as applicable),during periods of income, or during periods in which income is recognized related to changes in fair value of its liability-classified securities.

19

The following table sets forth the computation of basic and diluted net loss per common share:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2024

    

2023

    

2024

    

2023

Net loss per share – Basic:

 

 

  

  

 

  

Numerator

Net loss

$

(12,638,357)

$

(14,716,616)

$

(18,725,716)

$

(33,990,919)

Denominator

 

Weighted-average common shares outstanding, basic

12,975,808

9,012,273

11,394,729

8,722,518

Basic net loss per common share

$

(0.97)

$

(1.63)

$

(1.64)

$

(3.90)

Net loss per share – Diluted:

Numerator

Net loss

$

(12,638,357)

$

(14,716,616)

$

(18,725,716)

$

(33,990,919)

Less: gain from change in fair value applicable to dilutive liability-classified warrants

(2,898,892)

Numerator for diluted net loss per share

$

(12,638,357)

$

(14,716,616)

$

(21,624,608)

$

(33,990,919)

Denominator

Denominator for basic net loss per share

12,975,808

9,012,273

11,394,729

8,722,518

Plus: incremental shares underlying “in the money” liability-classified warrants outstanding

66,569

Denominator for diluted net loss per share

12,975,808

9,012,273

11,461,298

8,722,518

Diluted net loss per common share

$

(0.97)

$

(1.63)

$

(1.89)

$

(3.90)

Potentially dilutive securities, whose effect would have been antidilutive, were excluded from the computation of diluted earnings per share for each of the three and nine months ended September 30, 2024 and 2023. Total antidilutive securities that were excluded from the computation of diluted weighted-average shares outstanding were as follows:

September 30, 

    

2024

    

2023

Stock options

1,877,751

1,724,328

ELOC shares remaining

817,491

Warrants

 

2,400

2,400

(10) Income Taxes

The Company’s income tax benefit (expense) was $0 for the three and nine months ended September 30, 2024 and 2023. The Company has recorded a valuation allowance to reduce its net deferred tax asset to an amount that is more likely than not to be realized in future years. Accordingly, the benefit of the net operating loss (“NOL”) that would have been recognized in the three and nine months ended September 30, 2024 and 2023 was offset by changes in the valuation allowance.

Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code as well as similar state provisions. The Company has completed financings since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code or could result in a change in control in the future.