# Onconetix, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Onconetix, Inc.](/companies/onco.md) (CIK 1782107)
- Form: 10-Q
- Filed: 2024-08-29
- Accepted by EDGAR: Aug 29, 2024, 07:38 ET
- Period: 2024-06-30
- Accession: 0001213900-24-073545
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1782107/000121390024073545/ea0212631-10q_onconetix.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1782107/000121390024073545/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $704.8k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $1.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $604.1k | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $1.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $100.7k | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $289.7k | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $2.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-01-01 to 2024-06-30 | $6.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$13.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$24.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $50.8k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | −$70.8k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$14.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$25.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.64 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.15 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.64 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.15 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 22,196,265 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 22,171,931 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$8.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $22.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2024-06-30 | $2.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $59.5m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $20.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $24.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-30 | −$35.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,576 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Report and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC, on April 11, 2024. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Note Regarding Forward-Looking Statements.”*

### Overview

We are a commercial stage biotechnology company focused on the research, development, and commercialization of innovative solutions for men’s health and oncology. Through our recent acquisition of Proteomedix, which closed on December 15, 2023, we own Proclarix, an in vitro diagnostic test for prostate cancer originally developed by Proteomedix and approved for sale in the European Union under the In Vitro Diagnostic Regulation (“IVDR”), which we anticipate will be marketed in the U.S. as a lab developed test through our license agreement with LabCorp.

We also own ENTADFI, an FDA-approved, once daily pill that combines finasteride and tadalafil for the treatment of BPH, a disorder of the prostate. However, in light of (i) the time and resources needed to continue pursuing commercialization of ENTADFI, and (ii) the Company’s cash runway and indebtedness, the Company determined to pause its commercialization of ENTADFI during the first quarter of 2024, as it explores strategic alternatives to monetize ENTADFI, such as a potential sale of the ENTADFI assets. To that end, the Company engaged an investment advisor to assist with a potential sale or other transaction of the ENTADFI assets during the second quarter of 2024. There is currently no plan to resume commercialization of ENTADFI, and as such, if we are not able to consummate a sale or other transaction of the ENTADFI assets, we may abandon the assets and destroy our inventory of the product. In addition, as part of cost reduction efforts and in connection with our initial pause in commercializing ENTADFI, we terminated three employees involved with the ENTADFI program, effective April 30, 2024, with such individuals to continue assisting the Company on an as-needed, consulting basis. Based on the current circumstances surrounding ENTADFI, at June 30, 2024, the ENTADFI assets were fully impaired. Refer to Notes 4 and 5 in the accompanying condensed consolidated financial statements included elsewhere in this Report for further discussion. The Company continues to search for a new Chief Executive Officer.

We are currently focusing our efforts on commercializing Proclarix.

Proclarix is an easy-to-use next generation protein-based blood test that can be done with the same sample as a patient’s regular Prostate-Specific Antigen (“PSA”) test. The PSA test is a well-established prostate specific marker that measures the concentration of PSA molecules in a blood sample. A high level of PSA can be a sign of prostate cancer. However, PSA levels can also be elevated for many other reasons including infections, prostate stimulation, vigorous exercise or even certain medications. PSA results can be confusing for many patients and even physicians. It is estimated over 50% of biopsies with elevated PSA are negative or clinically insignificant resulting in an overdiagnosis and overtreatment that impacts the physician’s routine, our healthcare system, and the quality of patients’ lives. Approximately 10% of all men have elevated PSA levels, commonly referred to as the diagnostic “grey zone”, of which only 20 – 40% present clinically with cancer. Proclarix is intended for use in diagnosing these patients where it is difficult to decide if a biopsy is necessary to verify a potential clinically significant cancer diagnosis. Proclarix helps doctors and patients with unclear PSA test results through the use of our proprietary Proclarix Risk Score which delivers clear and immediate diagnostic support for further treatment decisions. No additional intervention is required, and results are available quickly. Local diagnostic laboratories can integrate this multiparametric test into their current workflow because Proclarix assays use the enzyme-linked immunosorbent assay (ELISA) standard, which most diagnostic laboratories are already equipped to process.

Since our inception in October 2018 until April 2023, when we acquired ENTADFI, we devoted substantially all of our resources to performing research and development, undertaking preclinical studies and enabling manufacturing activities in support of our product development efforts, hiring personnel, acquiring and developing our technology and now halted vaccine candidates, organizing and staffing our company, performing business planning, establishing our intellectual property portfolio and raising capital to support and expand such activities.

During the third quarter of 2023, we halted our vaccine discovery and development programs, and accordingly, we now operate in one segment: commercial. The commercial segment was new in the second quarter of 2023 and is currently dedicated to the commercialization of Proclarix in Europe.

Given Proclarix is CE-marked for sale in the European Union, we expect to generate revenue from sales of Proclarix by 2025. Although we anticipate these sales to offset some expenses relating to commercial scale up and development, we expect our expenses will increase substantially in connection with our ongoing activities, as we:

- commercialize Proclarix;
- hire additional personnel;
- operate as a public company, and;
- obtain, maintain, expand and protect our intellectual property portfolio.

We rely and will continue to rely on third parties for the manufacturing of Proclarix. We have no internal manufacturing capabilities, and we will continue to rely on third parties, of which the main suppliers are single-source suppliers, for commercial products.

We do not have any products approved for sale, aside from Proclarix in the European Union, and ENTADFI, from which we have not generated any revenue from product sales, and which we have now abandoned commercialization activities for. We are exploring strategic alternatives to monetize ENTADFI, such as a potential sale of the ENTADFI assets. However, if we are not able to consummate a sale or other transaction of the ENTADFI assets, we may abandon the assets and destroy our inventory of the product. To date, we have financed our operations primarily with proceeds from our sale of preferred securities to seed investors, the initial public offering, the private placements completed during 2022, the proceeds received from a warrant exercise in August 2023, the proceeds received from the issuance of debt in January 2024, and the proceeds received from a warrant exercise in July 2024. We will continue to require significant additional capital to commercialize Proclarix, and to fund operations for the foreseeable future. Accordingly, until such time as we can generate significant revenue, if ever, we expect to finance our cash needs through public or private equity or debt financings, third-party funding and to rely on third-party resources for marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches, to support our operations.

Since March 31, 2024, some key developments affecting our business include the following:

#### Altos Amendment

On January 23, 2024, the Company issued a non-convertible debenture (the “Altos Debenture”) in the principal sum of $5.0 million, in connection with a Subscription Agreement, to Altos Ventures, a stockholder of the Company and related party (“Altos”). The Altos Debenture was originally payable in full upon the earlier of (i) the closing under the Subscription Agreement and (ii) June 30, 2024. On April 24, 2024, the Altos Debenture was amended to extend the maturity date to the earlier of (i) the closing under the Subscription Agreement and (ii) October 31, 2024 (the “Altos Amendment”).

#### Forbearance Agreement

On April 24, 2024, the Company entered into a forbearance agreement with Veru (the “Forbearance Agreement”). Pursuant to the Forbearance Agreement, Veru will forbear from exercising its rights and remedies under the April Veru Note until March 31, 2025 (the “Forbearance Period”). Interest will accrue on any unpaid principal balance of the April Veru Note at a rate of 10% per annum, commencing on April 20, 2024 through the date that the outstanding principal balance under the April Veru Note is paid in full. Any such accrued interest will become immediately due and payable upon the earlier of (i) certain events of default under the April Veru Note or September Veru Note, (ii) a payment default under the September Veru Note and (iii) the final payment of any principal amount payable under the September Veru Note. No interest will accrue under the September Veru Note during the Forbearance Period unless an Event of Default (as defined in the Forbearance Agreement) occurs, in which case interest will accrue from and after the date on which such default occurs.

In consideration for Veru’s entrance into the Forbearance Agreement, the Company agreed to pay Veru:

- $50,000 of the principal due under the April Veru Note and up to $10,000 of out-of-pocket expenses incurred by Very in connection with the Forbearance Agreement;
- 15% of (i) the monthly cash receipts of Proteomedix for the licensing or sale of any products or services, (ii) monthly cash receipts of the Company or any of its subsidiaries for the sales of Proclarix anywhere in the world, and (iii) monthly cash receipts of the Company or any of its subsidiaries for milestone payments or royalties from Labcorp; and
- 10% of the net proceeds from any financing or certain asset sale, transfer or licensing transactions that are consummated prior to March 31, 2025.

The Company also agreed to a general release of claims against Veru and its representatives arising out of or relating to any act or omission thereof prior to April 24, 2024.

The Company does not currently have the funds available to repay the $5.0 million that is due in September 2024 under the September Veru Note and is exploring options to restructure such note with Veru.

#### Warrant Inducement

On July 12, 2024, we closed a warrant inducement transaction (the “July 2024 Warrant Inducement”), pursuant to which certain investors agreed to exercise for cash their existing preferred investment options to purchase an aggregate of 7,458,642 of the Company’s common stock, at a reduced exercise price of $0.15 per share, in consideration for the Company’s agreement to issue new preferred investment options to purchase up to an aggregate of 22,375,926 shares of the Company’s common stock. The Company received aggregate net proceeds of approximately $0.9 million from this transaction.

We have incurred net losses since inception and expect to continue to incur net losses in the foreseeable future. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending in large part on the timing of our preclinical studies, clinical trials and manufacturing activities, our expenditures on other research and development activities and commercialization activities. As of June 30, 2024, the Company had a working capital deficit of approximately $18.6 million and an accumulated deficit of approximately $82.2 million. In addition, as of August 22, 2024, the Company’s cash balance was approximately $1.0 million. The Company believes that its current cash balance is only sufficient to fund its operations into September 2024, and as such, we will need to raise additional capital prior to this to sustain operations. In addition, if Stockholder Approval for certain transactions involving the Company’s Series B Preferred Stock is not obtained by January 1, 2025, the Company may be obligated to cash settle the Series B Preferred Stock. Based on the closing price of $0.155 for the Company’s common stock as of August 26, 2024, the Series B Preferred Stock would be redeemable for approximately $41.9 million.

Until we generate revenue sufficient to support self-sustaining cash flows, if ever, we will need to raise additional capital to fund our continued operations, including our product development and commercialization activities related to our current and future products. There can be no assurance that additional capital will be available to us on acceptable terms, or at all, or that we will ever generate revenue sufficient to provide self-sustaining cash flows. These circumstances raise substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements as of and for the six months ended June 30, 2024, included elsewhere in this Report do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

Because of the numerous risks and uncertainties associated with our business, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Additionally, even if we are able to generate revenue from Proclarix or our other assets, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce our operations.

### Warrant Inducement

On July 11, 2024, the Company, entered into common stock preferred investment options exercise inducement offer letters (the “Inducement Letter”) with certain holders of existing preferred investment options (“PIOs”) to purchase shares of the Company’s common stock at the original exercise prices of $2.546 and $1.09 per share, issued on August 11, 2022 and August 2, 2023, respectively (collectively, the “Existing PIOs”), pursuant to which the holders agreed to exercise for cash their Existing PIOs to purchase an aggregate of 7,458,642 of the Company’s common stock, at a reduced exercise price of $0.15 per share, in consideration for the Company’s agreement to issue new PIOs (the “Inducement PIOs”) to purchase up to an aggregate of 22,375,926 shares of the Company’s common stock. The transaction closed on July 12, 2024 and the Company received aggregate net proceeds of approximately $0.9 million from the exercise of the Existing PIOs by the holders and the sale of the Inducement PIOs, after deducting placement agent fees and other offering expenses payable by the Company.

The Company engaged H.C. Wainwright & Co., LLC (“Wainwright”) to act as its exclusive placement agent in connection with the transactions summarized herein and will pay Wainwright a cash fee equal to 7.5% of the gross proceeds received from the exercise of the Existing PIOs as well as a management fee equal to 1.0% of the gross proceeds from the exercise of the Existing PIOs. The Company also agreed to reimburse Wainwright for its expenses in connection with the exercise of the Existing PIOs and the issuance of the Inducement PIOs, up to $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses and agreed to pay Wainwright for non-accountable expenses in the amount of $35,000 for non-accountable expenses. The Company also agreed to issue to Wainwright or its designees warrants (the “Placement Agent Warrants,” and such shares of common stock issuable thereunder, to purchase (i) 522,105 shares of common stock which will have the same terms as the Inducement PIOs except for an exercise price equal to $0.1875 per share and a term of five years following the date of stockholder approval and (ii) upon any exercise for cash of the Inducement PIOs, 7.5% of the aggregate exercise price and that number of shares of common stock equal to 7.0% of the aggregate number of such shares of common stock underlying the Inducement PIOs that have been exercised, which will have substantially the same terms as the Placement Agent Warrants.

In addition, per the terms of the Inducement Letter, the Company agreed not to issue any shares of common stock or common stock equivalents or to file any other registration statement with the SEC (in each case, subject to certain exceptions) until the later of (i) the filing of a definitive proxy statement on Schedule 14A for the purpose of obtaining the requisite stockholder approval and (ii) 30 days after the Closing Date. The Company also agreed not to effect or agree to effect any variable rate transaction (as defined in the Inducement Letter) until six months after the Closing Date (subject to certain exceptions).

### Certain Significant Relationships

We have entered into license and other arrangements with various third parties as summarized below. For further details regarding these and other agreements, see Notes 6 and 9 to each of our audited financial statements included in the Form 10-K and unaudited financial statements included elsewhere in this Report.

#### Laboratory Corporation of America

On March 23, 2023, Proteomedix entered into a license agreement Laboratory Corporation of America (“Labcorp”) pursuant to which Labcorp has the exclusive right to develop and commercialize Proclarix, and other products developed by Labcorp using Proteomedix’s intellectual property covered by the license, in the United States (“Licensed Products”). In consideration for granting Labcorp an exclusive license, Proteomedix received an initial license fee in the mid-six figures upon signing of the contract. Additionally, Proteomedix is entitled to royalty payments between 5% and 10% on the net sales recognized by Labcorp of any Licensed Products plus milestone payments as follows:

- after the first sale of Proclarix as a laboratory developed test, Labcorp will pay an amount in the mid-six figures;
- After Labcorp achieves a certain amount in the low seven figures in net sales of Licensed Products, Labcorp will pay Proteomedix an amount in the low seven figures; and
- after a certain amount in the mid-seven figures in net sales of Licensed Products, Labcorp will pay Proteomedix an amount in the low seven figures.

The total available milestone payments available under the terms of this contract is $2.5 million of which $0.5 million has been paid to Proteomedix.

Labcorp is wholly responsible for the cost, if any, of research, development and commercialization of Licensed Products in the United States but has the right to offset a portion of those costs against future royalty and milestone payments. Additionally, Labcorp may deduct royalties or other payments made to third parties related to the manufacture or sale of Licensed Products up to a maximum amount of any royalty payments due to Proteomedix.

The license agreement and related royalty payment provisions expire during 2038, which approximates the expiration of the last patent covered by the license agreement. Labcorp has the right to terminate the license agreement for any reason by providing 90 days written notice to Proteomedix. Either party may terminate the license agreement due to a material breach of the terms of the license agreement with 30 days’ notice, provided such breach is not cured within the foregoing 30 day period. Finally, Proteomedix may terminate the license agreement with 60 days’ notice in the event Labcorp fails to make any undisputed payment due, provided that Labcorp does not remit the payment within the foregoing 60 day period.

#### Services Agreement

On July 21, 2023, the Company, entered into a Licensing and Services Master Agreement (“Master Services Agreement”) and a related statement of work with IQVIA, pursuant to which IQVIA was to provide to the Company commercialization services for the Company’s products, including recruiting, managing, supervising and evaluating sales personnel and providing sales-related services for such products, for fees totaling up to $29.1 million over the term of the statement of work. The statement of work had a term through September 6, 2026, unless earlier terminated in accordance with the Master Services Agreement and the statement of work. On July 29, 2023, a second statement of work was entered into with the IQVIA for certain subscription services providing prescription market data access to the Company. The fees under the second statement of work totaled approximately $800,000, and the term was through July 14, 2025. On October 12, 2023, the Company terminated the Master Services Agreement and the statements of work. The Company recorded net credits of approximately $0.1 million and $0.4 million related to this contract during the three and six months ended June 30, 2024, respectively, which is included in selling, general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss. The Company had approximately $1.1 million and $1.8 million recorded in related accounts payable as of June 30, 2024 and December 31, 2023, respectively, which includes amounts due for early termination of the contract. See Note 6 to our consolidated financial statements included elsewhere in this Report.

### Components of Results of Operations

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses consist principally of commercialization activities, payroll, and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and tax services, information technology costs, costs incurred with respect to acquisitions and potential acquisitions, and other general operating expenses.

We anticipate that our selling, general and administrative expenses related to Proteomedix will increase when compared to historical levels as a result of efforts to commercialize Proclarix, and costs associated with integration of Proteomedix’s operations.

#### Research and Development Expenses

Historically, substantially all of our research and development expenses consist of expenses incurred in connection with the development of our product candidates. These expenses historically have included fees paid to third parties to conduct certain research and development activities on our behalf, consulting costs, costs for laboratory supplies, product acquisition and license costs, certain payroll, and personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees. We expense both internal and external research and development expenses as they are incurred.

We do not allocate our costs by product candidate, as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, laboratory supplies, and external costs, such as fees paid to third parties to conduct research and development activities on our behalf, that are not tracked by product candidate.

As discussed above, we have terminated the vaccine programs that substantially all of our research and development historically related to. We do not anticipate incurring significant research and development expenses in the near future, unless we are able to resume such activities. Predicting the timing or cost to complete our clinical programs for future product candidates, or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control, such as regulatory approvals. Furthermore, we are unable to predict when or if our future product candidates will receive regulatory approval with any certainty.

#### Other Income (Expense)

Other income (expense) is comprised of interest expense on notes payable, the change in fair value of financial instruments that are recorded as liabilities, which includes the related party subscription agreement liability and the contingent warrant liability, and other financing-related costs.

### Results of Operations

### Comparison of the Three Months Ended June 30, 2024 and 2023

The following table summarizes our statements of operations for the periods indicated:

|  | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $704,848 | $- | $704,848 | 100.0% |
| Cost of revenue | 604,132 | - | 604,132 | 100.0% |
| Gross profit | 100,716 | - | 100,716 | 100.0% |
| Operating expenses |  |  |  |  |
| Selling, general and administrative | $2,221,275 | $2,302,747 | (81,472) | (3.5)% |
| Research and development | (3,680) | 846,853 | (850,533) | (100.4)% |
| Impairment of goodwill | 10,261,000 | - | 10,261,000 | 100.0% |
| Impairment of ENTADFI assets | 1,237,140 | - | 1,237,140 | 100.0% |
| Impairment of deposit on asset purchase agreement | - | 3,500,000 | (3,500,000) | (100.0)% |
| Total operating expenses | 13,715,735 | 6,649,600 | 7,066,135 | (106.3)% |
| Loss from operations | (13,615,019) | (6,649,600) | (6,965,419) | (104.7)% |
| Other income (expense) |  |  |  |  |
| Interest expense – related party | (156,169) | - | (156,169) | (100.0)% |
| Interest expense | (205,146) | (213,996) | 8,850 | 4.1% |
| Change in fair value of subscription agreement liability – related party | (248,000) | - | (248,000) | (100.0)% |
| Change in fair value of contingent warrant liability | - | (1,674) | 1,674 | 100.0% |
| Other expense | (31,602) | - | (31,602) | (100.0)% |
| Total other expense | (640,917) | (215,670) | (425,247) | (197.2)% |
| Loss before income taxes | (14,255,936) | (6,865,270) | (7,390,666) | (107.7)% |
| Income tax expense | (50,768) | - | (50,768) | (100.0)% |
| Net loss | $(14,306,704) | $(6,865,270) | (7,441,434) | (108.4)% |

### Revenue, Cost of Revenue, and Gross Margin

For the three months ended June 30, 2024, the Company had approximately $0.7 million of revenue, which was attributable to development services generated by Proteomedix. Cost of revenue of approximately $0.6 million was attributable to costs incurred on Proteomedix revenue including amortization of the product rights intangible asset of approximately $0.2 million, in addition to approximately $0.4 million related to the full impairment of ENTADFI inventory. The Company did not have any revenue during the three months ended June 30, 2023.

### Selling, General and Administrative Expenses

For the three months ended June 30, 2024, selling, general and administrative expenses decreased by $0.1 million compared to the same period in 2023. Selling, general and administrative expenses at Onconetix decreased by approximately $0.7 million during the three months ended June 30, 2024, compared to the same period in 2023, which decrease was almost wholly offset by Proteomedix’s selling, general and administrative expenses. The decrease at Onconetix was due to the halt in commercialization activities of approximately $0.7 million, including a reduction in fees due to IQVIA of approximately $0.5 million, a decrease in stock-based compensation expense of approximately $0.2 million, in addition to the Company controlling other business expenses due to cash constraints, resulting in a decrease of $0.4 million. These decreases were offset by an increase in accounting and legal fees of approximately $0.4 million and an increase in employee compensation costs of $0.2 million due to severances incurred during the period. In addition, Proteomedix’s selling, general, and administrative expenses totaled approximately $0.6 million, of which approximately $0.4 million was related to audit and legal fees, and employee compensation.

### Research and Development Expenses

For the three months ended June 30, 2024, research and development expenses decreased by approximately $0.9 million compared to the same period in 2023. The decrease was primarily attributable to the Company’s decision to halt its vaccine programs and focus on commercialization activities, which occurred during the third quarter of 2023. This change in business strategy led to a halt in the Company’s clinical and other research activities. The decrease was only slightly offset by minimal research and development activities still ongoing at Proteomedix.

### Impairments

During the three months ended June 30, 2024, the Company recorded an impairment loss of approximately $10.3 million related to goodwill recorded in connection with the PMX acquisition, and an impairment loss of approximately $1.2 million on the assets acquired as part of the ENTADFI asset acquisition.

During the three months ended June 30, 2023, a $3.5 million impairment loss was recorded on the deposit for the WraSer APA.

### Other Income (Expense)

Other expense incurred during the three months ended June 30, 2024, increased by approximately $0.4 million compared to the same period in 2023. The increase was primarily due to $0.2 million of interest expense related to the Altos Debenture issued in January 2024, in addition to an increase of $0.2 million in the change in fair value of the subscription liability.

### Income Tax Expense

The Company recorded an income tax expense of approximately $51,000 during the three months ended June 30, 2024, related to foreign deferred income taxes recorded in connection with Proteomedix. There was no income tax benefit or expense recorded during the same period in 2023.

### Comparison of the Six Months Ended June 30, 2024 and 2023

The following table summarizes our statements of operations for the periods indicated:

|  | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $1,405,281 | $- | $1,405,281 | 100.0% |
| Cost of revenue | 1,115,565 | - | 1,115,565 | 100.0% |
| Gross profit | 289,716 | - | 289,716 | 100.0% |
| Operating expenses |  |  |  |  |
| Selling, general and administrative | $5,957,725 | $4,068,770 | 1,888,955 | 46.4% |
| Research and development | 45,284 | 1,929,089 | (1,883,805) | (97.7)% |
| Impairment of goodwill | 15,453,000 | - | 15,453,000 | 100.0% |
| Impairment of ENTADFI assets | 3,530,716 | - | 3,530,716 | 100.0% |
| Impairment of deposit on asset purchase agreement | - | 3,500,000 | (3,500,000) | (100.0)% |
| Total operating expenses | 24,986,725 | 9,497,859 | 15,488,866 | 163.1% |
| Loss from operations | (24,697,009) | (9,497,859) | (15,199,150) | (160.0)% |
| Other income (expense) |  |  |  |  |
| Interest expense – related party | (380,943) | - | (380,943) | (100.0)% |
| Interest expense | (393,429) | (213,996) | (179,433) | (83.8)% |
| Change in fair value of subscription agreement liability – related party | (21,600) | - | (21,600) | (100.0)% |
| Change in fair value of contingent warrant liability | - | (59) | 59 | 100.0% |
| Other expense | (3,094) | - | (3,094) | (100.0)% |
| Total other expense | (799,066) | (214,055) | (585,011) | (273.3)% |
| Loss before income taxes | (25,496,075) | (9,711,914) | (15,784,161) | (162.5)% |
| Income tax benefit | 70,799 | - | 70,799 | 100.0% |
| Net loss | $(25,425,276) | $(9,711,914) | (15,713,362) | (161.8)% |

40

### Revenue, Cost of Revenue, and Gross Margin

For the six months ended June 30, 2024, the Company had approximately $1.4 million of revenue, which was attributable to product sales of approximately $0.1 million and development services of approximately $1.3 million generated by Proteomedix. Cost of revenue of approximately $1.1 million was attributable to costs incurred on Proteomedix revenue including amortization of the product rights intangible asset of approximately $0.3 million, in addition to approximately $0.4 million related to the full impairment of ENTADFI inventory. The Company did not have any revenue during the six months ended June 30, 2023.

### Selling, General and Administrative Expenses

For the six months ended June 30, 2024, selling, general and administrative expenses increased by approximately $1.9 million compared to the same period in 2023, of which approximately $0.4 million of the increase relates to Onconetix. This increase at Onconetix was mainly due to an increase in accounting and legal fees of approximately $1.4 million, offset by decreases due to the halt in commercialization activities of approximately $0.7 million, including a reduction in fees due to IQVIA of approximately $0.5 million, and a decrease in stock-based compensation expense of approximately $0.3 million. In addition, Proteomedix’s selling, general, and administrative expenses totaled approximately $1.5 million, of which approximately $1.2 million was related to audit and legal fees, and salaries and benefits.

### Research and Development Expenses

For the six months ended June 30, 2024, research and development expenses decreased by approximately $1.9 million compared to the same period in 2023. The decrease was primarily attributable to the Company’s decision to halt its vaccine programs and focus on commercialization activities, which occurred during the third quarter of 2023. This change in business strategy led to a halt in the Company’s clinical and other research activities. The decrease was only slightly offset by minimal research and development activities still ongoing at Proteomedix.

### Impairments

During the six months ended June 30, 2024, the Company recorded an impairment loss of approximately $15.5 million related to goodwill recorded in connection with the PMX acquisition, and an impairment loss of approximately $3.5 million on the assets acquired as part of the ENTADFI asset acquisition.

During the six months ended June 30, 2023, a $3.5 million impairment loss was recorded on the deposit for the WraSer APA.

### Other Income (Expense)

Other expense incurred during the six months ended June 30, 2024, increased by approximately $0.6 million compared to the same period in 2023. The increase was primarily due to approximately $0.4 million of interest expense related to the Altos Debenture issued in January 2024, in addition to an increase of $0.2 million related to the April Veru Note, which was amended in April 2024.

### Income Tax Benefit

The Company recorded an income tax benefit of approximately $71,000 during the six months ended June 30, 2024, related to foreign deferred income taxes recorded in connection with Proteomedix. There was no income tax benefit or expense recorded during the same period in 2023.

### Liquidity and Capital Resources

The Company’s operating activities to date have been devoted to seeking licenses, engaging in research and development activities, potential asset and business acquisitions, and expenditures associated with the previously planned commercial launch of ENTADFI and the commercialization of Proclarix.

The Company has incurred substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future. As of June 30, 2024, the Company had cash of approximately $0.9 million, a working capital deficit of approximately $18.6 million and an accumulated deficit of approximately $82.2 million. In addition, as of August 22, 2024, the Company’s cash balance was approximately $1.0 million. The Company believes that its current cash balance is only sufficient to fund its operations into September 2024 and this raises substantial doubt about the Company’s ability to continue as a going concern within one year from the date of the issuance of these consolidated financial statements, and indicates that the Company is unable to meet its contractual commitments and obligations as they come due in the ordinary course of business. The Company will require significant additional capital in the short-term to fund its continuing operations, satisfy existing and future obligations and liabilities, including the remaining payments due for the acquisition of the ENTADFI assets, payment due on the Debenture, in addition to funds needed to support the Company’s working capital needs and business activities. These business activities include the commercialization of Proclarix, and the development and commercialization of the Company’s future product candidates. In addition, as discussed more fully in Note 5, if stockholder approval is not obtained by January 1, 2025 with respect to the conversion of the Series B Convertible Redeemable Preferred Stock issued in connection with the acquisition of Proteomedix, these shares become redeemable for cash at the option of the holders, and the Company currently does not have sufficient cash to redeem such shares. Based on the closing price of $0.155 for the Company’s common stock as of August 26, 2024, the Series B Convertible Redeemable Preferred Stock would be redeemable for approximately $41.9 million.

Management’s plans for funding the Company’s operations include generating product revenue from sales of Proclarix, which is still subject to further successful commercialization activities within certain jurisdictions. In addition, as discussed above, the Company paused commercialization activities for ENTADFI during the first quarter of 2024, as it explores strategic alternatives for its monetization, such as a potential sale of the ENTADFI assets for which the Company engaged a financial advisor to assist with during the second quarter of 2024. There is currently no plan to resume commercialization of ENTADFI, and as such, if we are not able to consummate a sale or other transaction of the ENTADFI assets, we may abandon the assets and destroy our inventory of the product. Management’s plans also include attempting to secure additional required funding through equity or debt financings if available. However, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to the Company on favorable terms, if at all. This creates significant uncertainty that the Company will have the funds available to be able to sustain its operations and expand commercialization of Proclarix. If the Company is unable to secure additional capital, it may be required to curtail any future clinical trials, development and/or commercialization of future product candidates, and it may take additional measures to reduce expenses in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations, or, if it is required to, file for bankruptcy.

Because of historical and expected operating losses, net operating cash flow deficits, and debts due within one year, there is substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the condensed consolidated financial statements, which is not alleviated by management’s plans. The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. These condensed consolidated financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

### Future Funding Requirements

We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to commercialize Proclarix and expand our corporate infrastructure.

We will require significant amounts of additional capital in the short-term, to continue to fund our continuing operations, satisfy existing and future obligations and liabilities, including the remaining payments due under the Veru APA and other contracts entered into in support of the Company’s commercialization plans, in addition to funds needed to support our working capital needs and business activities, including the commercialization of Proclarix, and the development and commercialization of our future product candidates. Until we can generate a sufficient amount of revenue from sales of Proclarix, we expect to finance our future cash needs through public or private equity or debt financings, third-party funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. The future sale of equity or convertible debt securities may result in dilution to our stockholders, and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. Debt financing may subject us to covenant limitations or restrictions on our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us. If we are unable to obtain adequate financing when needed or on terms favorable or acceptable to us, we may be forced to delay, reduce the scope of our business activities.

Our future capital requirements will depend on many factors, including:

- the costs of future commercialization activities, including product manufacturing, marketing, sales, royalties, and distribution, for Proclarix, and other products for which we may receive marketing approval;
- the cost of redeeming our Series B Convertible Redeemable Preferred Stock, if stockholder approval is not obtained by January 1, 2025;
- the timing, scope, progress, results and costs of research and development, testing, screening, manufacturing, preclinical and non-clinical studies and clinical trials;
- the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform field efficacy studies, require more studies than those that we currently expect or change their requirements regarding the data required to support a marketing application;
- our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
- any product liability or other lawsuits related to our products;
- the expenses needed to attract, hire and retain skilled personnel;
- the revenue, if any, received from commercial sales of Proclarix, or other products for which we may have received or will receive marketing approval;
- the costs to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing our patents or other intellectual property rights; and
- the costs of operating as a public company.

A change in the outcome of any of these or other variables could significantly change the costs and timing associated with our business activities. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such change.

### Cash Flows

The following table summarizes our cash flows for the periods indicated:

|  | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(8,431,591) | $(6,228,769) |
| Net cash used in investing activities | (22,284) | (10,037,628) |
| Net cash provided by (used in) financing activities | 4,861,667 | (263,615) |
| Effect of exchange rate changes on cash | (31,586) | - |
| Net decrease in cash | $(3,623,794) | $(16,530,012) |

### Cash Flows from Operating Activities

Net cash used in operating activities for the six months ended June 30, 2024 was approximately $8.4 million, which primarily resulted from a net loss of approximately $25.4 million and a net change in our operating assets and liabilities of approximately $3.5 million, adjusted for the non-cash impairments of goodwill and ENTADFI of approximately $15.5 million and $3.5 million, respectively, depreciation and amortization expense of approximately $0.4 million, loss on impairment of ENTADFI inventory of approximately $0.4 million, in addition to noncash interest expense of approximately $0.8 million.

Net cash used in operating activities for the six months ended June 30, 2023 was approximately $6.2 million, which primarily resulted from a net loss of $9.7 million, and a net change in our operating assets and liabilities of $0.9 million. These changes were adjusted by an impairment loss of $3.5 million related to the deposit on the WraSer APA, noncash stock-based compensation of approximately $0.5 million, the loss on related party receivable of approximately $0.2 million, and noncash interest expense of approximately $0.2 million.

### Cash Flows from Investing Activities

Net cash used in investing activities for the six months ended June 30, 2024 of approximately $22,000 resulted from purchases of property and equipment.

Net cash used in investing activities for the six months ended June 30, 2023 was approximately $10.0 million, of which approximately $6.1 million was used for the acquisition of ENTADFI, $3.5 million was used for the deposit in connection with the WraSer APA, and approximately $0.4 million is the net change in the receivable from related parties.

### Cash Flows from Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2024 was approximately $4.9 million, and resulted primarily from the issuance of an aggregate of approximately $5.7 million in notes payable, consisting of a $5.0 million debenture and approximately $0.7 million for the financing of director and officer liability insurance policy premiums, offset by approximately $0.4 million in payments on the notes payable and $0.4 million in the payment of financing costs.

Net cash used in financing activities for the six months ended June 30, 2023 was approximately $0.3 million, and resulted from approximately $0.1 million in purchases of treasury shares and approximately $0.2 million of payment in deferred offering costs.

### Legal Contingencies

From time to time, we may become involved in legal proceedings arising from the ordinary course of business. We record a liability for such matters when it is probable that future losses will be incurred and that such losses can be reasonably estimated.

### Off-Balance Sheet Arrangements

During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

### Recent Accounting Pronouncements Not Yet Adopted

See Note 3 to our condensed consolidated financial statements included elsewhere in this Report for more information.

### Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

As of June 30, 2024, there have been no material changes to our critical accounting policies and estimates from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates,” included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 11, 2024.

### JOBS Act

Section 107 of the Jumpstart Our Business Startups Act (“JOBS”) Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period.

For as long as we remain an “emerging growth company” under the JOBS Act, we will, among other things:

- be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;
- be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and instead provide a reduced level of disclosure concerning executive compensation; and
- be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.

We currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company,” including the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. As a result, investor confidence in our company and the market price of our common stock may be materially and adversely affected.

### Related Party Transactions

#### Consulting Agreement

On February 6, 2024, the Company appointed Thomas Meier, PhD, as a member of the Company’s board of directors. Dr. Meier provides consulting services to Proteomedix, through a consulting agreement that was effective January 4, 2024.

#### Debenture

On January 23, 2024, the Company issued a non-convertible debenture (the “Debenture”) in the principal sum of $5.0 million, in connection with a Subscription Agreement, to Altos Ventures, a stockholder of the Company. The Debenture has an interest rate of 4.0% per annum, and the principal and accrued interest are payable in full upon the earlier of (i) the closing under the Subscription Agreement and (ii) June 30, 2024. Additionally, the $5.0 million subscription amount under the Subscription Agreement shall be increased by the amount of interest payable under the Debenture. On April 24, 2024, the maturity date of the Debenture was extended to October 31, 2024 through the execution of an extension agreement between the Company and the investor. No other terms of the Debenture were modified in connection with the extension agreement.

## Controls and procedures

As filed, 9,260 characters.

#### Evaluation of Disclosure Controls and Procedures

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2024, as a result of the material weaknesses described below.

#### Material Weaknesses in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

During 2023, after a review completed by the Audit Committee, it was determined that our former CEO and an accounting employee charged certain personal expenses on their corporate credit cards that were not recorded as related party receivables. These unauthorized charges, in addition to personal charges that were identified as such in previous reporting periods, may have constituted personal loans that are not permissible under Section 402 of the Sarbanes-Oxley Act of 2002. We determined that this credit card misuse arose from the following control deficiencies, which we have determined to be material weaknesses as of June 30, 2024:

- We did not maintain an effective control environment as there was an inadequate segregation of duties with respect to certain cash disbursements. The processing and the approval for payment of credit card transactions and certain bank wires were being handled by the CEO and an accounting employee, and the accounting employee was responsible for the reconciliation of credit card statements and bank statements. This allowed these individuals to submit unauthorized payments to unauthorized third parties.
- We do not have an effective risk assessment process and effective monitoring of compliance with established accounting policies and procedures, and do not demonstrate a sufficient level of precision in the application of our controls, including the maintenance of board committee minutes and unanimous written consents.
- Our controls over the approval and reporting of expenses paid with the Company’s credit cards and certain bank wires were not designed and maintained to achieve the Company’s objectives.
- We have insufficient accounting resources to maintain adequate segregation of duties, maintain adequate controls over the approval and posting of journal entries, and to provide optimal levels of oversight in order to process financial information in a timely manner, analyze and account for complex, non-routine transactions, and prepare financial statements.
- We do not yet have adequate internal controls in place for the timely identification, approval or reporting of related party transactions.
- The Company did not design, implement and maintain effective controls to ensure information technology (“IT”) policies and procedures set the tone at the top, to mitigate the risks to the achievement of IT objectives and ITGCs in the change management, logical security and computer operations domains. Specifically, the design and implementation of user authentication, user access privileges, data backup and data recovery controls as well as the monitoring controls of excessive user access and elevated privileged access to financial applications and data were not appropriately designed and maintained. In addition, these inadequate ITGC controls combined with the use of personal devices to conduct business, can lead to an IT control environment vulnerable to breaches and social engineering persuasion.

The above material weaknesses did not result in a material misstatement of our previously issued financial statements but could have resulted in material misstatements of our account balances or disclosures of our annual or interim financial statements that would not be prevented or detected. We have developed a remediation plan for these material weaknesses which is described below in *Remediation of Material Weaknesses.*

#### Remediation of Material Weaknesses

We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that the material weaknesses are remediated as soon as possible. We believe we have made progress towards remediation and continue to implement our remediation plan for the material weaknesses, which includes steps to increase dedicated qualified personnel including financial consultants, improve reporting processes, and design and implement new controls. Further, following the credit card misuse discussed above, management has designed and begun to implement the following remediation plan:

- Terminated the accounting employee involved in the misuse and reassigned such employee’s roles and responsibilities regarding impacted control activities.
- Implemented a travel, entertainment, and gift policy, which our Board approved on August 31, 2023.
- Implement a formal information security policy.
- Review and update, as necessary, the design and operation of our process level and transaction level controls for cash disbursements, credit card transactions, and journal entries. Implement enhanced approval policies.

We will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

The process of designing and implementing an effective accounting and financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain an accounting and financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may determine to take additional actions to address control deficiencies or determine to modify certain of the remediation measures described above. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses.

#### Inherent Limitation on the Effectiveness of Internal Control Processes

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

#### Changes in Internal Control over Financial Reporting

During the fiscal quarter ended June 30, 2024, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 16,707 characters.

In addition to the following risk factors, you should carefully consider the risk factors included in our Annual Report on Form 10-K, filed with the SEC on April 11, 2024. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

### Risks Related to our Financial Position and Need for Capital

***We have incurred significant net losses since inception, have only generated minimal revenue, and anticipate that we will continue to incur substantial net losses for the foreseeable future and may never achieve profitability. Our stock is a highly speculative investment.***

We are a commercial-stage biotechnology company that was incorporated in October 2018. Our net loss was $14.3 million and $25.4 million for the three and six months ended June 30, 2024. As of June 30, 2024, we had an accumulated deficit of $82.2 million. We also generated negative operating cash flows of $8.4 million for the six months ended June 30, 2024.

We expect to continue to spend significant resources to commercialize our product. We expect to incur substantial and increasing operating losses over the next several years. As a result, our accumulated deficit will also increase significantly. Additionally, there can be no assurance that our current products or those that may be under development by us in the future will be commercially viable. If we are unable to achieve profitability or raise sufficient working capital, we may be unable to continue our operations.

***There is substantial doubt about our ability to continue as a “going concern,” and we will require substantial additional funding to finance our long-term operations. If we are unable to raise additional capital when needed, we could be forced to delay, reduce or terminate some or all of our products and operations.***

The Company has incurred substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future. As of June 30, 2024, the Company had cash of approximately $0.9 million, a working capital deficit of approximately $18.6 million and an accumulated deficit of approximately $82.2 million. In addition, as of August 22, 2024, the Company’s cash balance was approximately $1.0 million and the Company has $5.0 million of debt due in September 2024.

On January 23, 2024, the Company issued the Debenture in exchange for $4.6 million in net cash proceeds. The Debenture, as amended on April 24, 2024, is repayable in full upon the earlier of (i) the closing under the Subscription Agreement and (ii) October 31, 2024. On July 12, 2024, the Company closed on the July 2024 Warrant Inducement and received net cash proceeds of $0.9 million.

We estimate, as of the date of this Report, that our current cash balance is only sufficient to fund our operations into September 2024. We believe that we will need to raise substantial additional capital to fund our continuing operations, satisfy existing and future obligations and liabilities, and otherwise support the Company’s working capital needs and business activities, including making the remaining payments to Veru and the commercialization of Proclarix. In addition, if Stockholder Approval is not obtained by January 1, 2025, the Company may be obligated to cash settle the Series B Preferred Stock. The Company does not currently have sufficient cash to redeem the shares of Series B Preferred Stock. Based on the closing price of $0.155 for the Company’s common stock as of August 26, 2024, the Series B Preferred Stock would be redeemable for approximately $41.9 million. Management’s plans include generating product revenue from sales of Proclarix, which is still subject to further successful commercialization activities within certain jurisdictions. In addition, the Company has now abandoned commercialization activities for ENTADFI and it is exploring strategic alternatives for its monetization, such as a potential sale of the ENTADFI assets. If we are not able to consummate a sale or other transaction of the ENTADFI assets, we may abandon the assets and destroy our inventory of the product. Management’s plans also include attempting to secure additional required funding through equity or debt financings if available. However, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to the Company on favorable terms, if at all. If the Company is unable to secure additional capital, it may be required to delay or curtail any future commercialization of products, and it may take additional measures to reduce expenses in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations, or, if it is required to, file for bankruptcy. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of time within one year from the issuance of the condensed consolidated financial statements. Our future capital requirements will depend on many factors, including:

- the costs of future commercialization activities, including product manufacturing, marketing, sales, royalties and distribution, for Proclarix and other products for which we have received or will receive marketing approval;
- the cost of redeeming our Series B Convertible Redeemable Preferred Stock, if stockholder approval is not obtained by January 1, 2025;
- our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty, or other payments due under any such agreement;
- any product liability or other lawsuits related to our products;
- the expenses needed to attract, hire, and retain skilled personnel;
- the revenue, if any, received from commercial sales of Proclarix or other products for which we may receive marketing approval;
- the costs to establish, maintain, expand, enforce, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending, and enforcing our patents or other intellectual property rights; and
- the costs of operating as a public company.

Our ability to raise additional funds will depend on financial, economic, and other factors, many of which are beyond our control. We cannot be certain that additional funding will be available on acceptable terms, or at all. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be forced to delay, reduce or terminate our business activities.

***We owe a significant amount of money to Veru, which funds we do not have. Veru may take action against us to enforce its rights to payment in the future, which could have a material adverse effect on us and our operations.***

Due to recent financial constraints, the Company may be unable to timely pay amounts due to Veru, from whom we purchased ENTADFI in April 2023. We may not have sufficient funds to pay amounts due to Veru in the near term, if at all, including but not limited to $10 million, $5 million of which was due on April 19, 2024 and is subject to certain forbearance terms, and $5 million of which is due on September 30, 2024. On April 24, 2024, Veru agreed to forbear its rights and remedies until March 31, 2025 with respect to, among other things, our inability to pay amounts due as of April 19, 2024. However, Veru may take future action against us, including filing legal proceedings against us seeking amounts due and interest accrued or attempting to terminate its relationship with us. If Veru were to take legal action against us, we may be forced to scale back our business plan and/or seek bankruptcy protection. We may be subject to litigation and damages for our failure to pay amounts due to Veru, and may be forced to pay interest and penalties, which funds we do not currently have. We are currently considering strategic options for ENTADFI, including a potential sale or abandonment, and plan to seek funding to support our operations, and to pay amounts due to Veru, through a combination of equity offerings, debt financing or other capital sources, including potential collaborations, licenses, sales, and other similar arrangements, which may not be available on favorable terms, if at all. The sale of additional equity or debt securities, if accomplished, may result in dilution to our stockholders. Furthermore, any revenue or financing proceeds that we are required to pay to Veru will detract from our ability to use such funds to support our operations.

***Our current liabilities are significant, and if those to whom we owe accounts payable, such as Veru, IQVIA or other creditors or vendors, were to demand payment, we would be unable to pay.***

As of June 30, 2024, we had total current liabilities of approximately $20.6 million, including accounts payable of approximately $3.2 million, accrued expenses of approximately $1.4 million, the related party subscription liability of $0.9 million, and approximately $15.0 million (net of discounts) related to notes payable, primarily due to Veru and the debenture due to the PMX Investor. As of the same date, we had cash of only $0.9 million. We are currently considering strategic options for ENTADFI, including a potential sale or abandonment, and plan to seek funding to support our operations. However, the level of our current liabilities may make it more difficult for us to obtain adequate financing on favorable terms, if at all. If those to whom these payments are due were to demand immediate payment, as they are entitled to do, and we are not able to make the required payments, we would be subject to liability if our creditors chose to enforce their rights, which could result in our bankruptcy and insolvency. Under such a scenario, our assets would be distributed to our creditors, leaving nothing to be distributed to our stockholders.

### Risks Related to the Commercialization of our Products

***Company shareholders may not realize a benefit from the ENTADFI or Proteomedix acquisitions commensurate with the ownership dilution they have experienced in connection with the transactions.***

If the Company is unable to realize the full strategic and financial benefits previously anticipated from the recent ENTADFI and Proteomedix acquisitions, our shareholders may experience a dilution of their ownership interests in our Company without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the Company is able to realize only part of the strategic and financial benefits previously anticipated from the transactions. We are currently considering strategic options for ENTADFI, including a potential sale. There is currently no plan to commercialize ENTADFI, and as such, if we are not able to consummate a sale or other transaction of the ENTADFI assets, we may abandon the assets and destroy our inventory of the product.

### We may fail or elect not to commercialize our products.

We may not successfully commercialize our products. We or our collaboration partners in any potential commercial marketing efforts of our product may not be successful in achieving widespread patient or physician awareness or acceptance of this product. Also, we may be subject to pricing pressures from competitive products or from governmental or commercial payors or regulatory bodies that could make it difficult or impossible for us to commercialize our products. Any failure to commercialize our products could have a material adverse effect on our future revenue and our business.

We are currently considering strategic options for ENTADFI, including a potential sale. There is currently no plan to commercialize ENTADFI, and as such, if we are not able to consummate a sale or other transaction of the ENTADFI assets, we may abandon the assets and destroy our inventory of the product. The Company continues to consider various measures, including strategic alternatives, to rationalize its operations and optimize its existing Proclarix diagnostic program.

If we fail to further commercialize Proclarix, our business, financial condition, results of operations and prospects may be materially adversely affected and our reputation in the industry and in the investment community would likely be damaged.

### Risks Related to Owning our Common Stock

***There can be no assurance that we will be able to comply with the applicable listing standards of Nasdaq.***

Our eligibility for listing on Nasdaq depends on our ability to comply with Nasdaq’s applicable listing requirements.

On September 18, 2023, we received notice from Nasdaq staff indicating that, based upon the closing bid price of the Common Stock for the prior 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2). We have 180 days from September 18, 2023, or through March 16, 2024, to regain compliance with the Bid Price Rule. On March 13, 2024, we submitted a plan of compliance to Nasdaq to discuss our plans to evidence compliance with the Bid Price Rule and we received an additional 180-day period, or until September 16, 2024, to regain compliance with the Bid Price Rule.

On May 8, 2024, we received a notice from Nasdaq notifying us that we are not in compliance with Nasdaq’s continued listing standards as set forth in Listing Rule 5550(b)(1), which requires Nasdaq-listed companies to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing, because our stockholders’ equity for the fiscal year ended December 31, 2023 as reported in the our Annual Report on Form 10-K filed with the SEC on April 11, 2024 was $1,404,476, and as of the date of the notice, we did not meet the alternatives to the Minimum Stockholders’ Equity Requirement of having either (i) a market value of listed securities of at least $35 million or (ii) net income from continuing operations of at least $500,000 in the fiscal year ended December 31, 2023 or in two of the three most recently completed fiscal years. The notice received has no immediate effect on the Company’s Nasdaq listing.

On June 24, 2024, we submitted to Nasdaq our plan to achieve and sustain compliance with the Nasdaq Listing Rules. In order to assist with satisfying Nasdaq’s Market Value standard for listing of the Company’s Common Stock, we intend to release a portion of the Exchange Shares and the Conversion Shares from the Lock-Up Agreement. On July 30, 2024, Nasdaq granted us an extension until November 4, 2024, to regain compliance with the Minimum Stockholders' Equity Requirement. If we fail to timely regain compliance with the Minimum Stockholders’ Equity Requirement (including, to the extent granted by Nasdaq, any applicable extensions of time), our securities will be subject to delisting on Nasdaq.

Additionally, on July 30, 2024, we received a letter from Nasdaq staff stating that the staff had determined that our acquisition of Proteomedix constitutes a business combination that results in a “Change of Control” pursuant to Nasdaq Listing Rule 5110(a), and that, as a result, we will be required to satisfy all of Nasdaq’s initial listing criteria and to complete Nasdaq’s initial listing process prior to shareholder approval of the conversion of the Series B Preferred Stock, or other material changes triggering a change of control.

If Nasdaq delists our common stock from trading on its exchange for failure to meet the Bid Price Rule, the Minimum Stockholders’ Equity Requirement, or all other applicable listing standards, we and our stockholders could face significant material adverse consequences including:

- a limited availability of market quotations for our securities;
- a determination that our common stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;
- a limited amount of analyst coverage; and
- a decreased ability to issue additional securities or obtain additional financing in the future.

Filed Aug 29, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-073545. Last ingested by Listed: Oct 27, 2026, 08:32 ET. No prices; not investment advice.