# GridAI Technologies Corp.: Form 10-Q for the period ended Jun 30, 2024

- Company: [GridAI Technologies Corp.](/companies/grdx.md) (CIK 1604191)
- Form: 10-Q
- Filed: 2024-10-21
- Accepted by EDGAR: Oct 21, 2024, 07:31 ET
- Period: 2024-06-30
- Accession: 0001410578-24-001685
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1604191/000141057824001685/tmb-20240630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1604191/000141057824001685/

## Figures reported in this filing

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

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $219.6k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2024-01-01 to 2024-06-30 | $675.5k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$3.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$12.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | −$218 | us-gaap:InterestExpenseNonoperating |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | −$446 | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $4.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | −$10.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$8.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$3.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$3.86 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.65 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$3.86 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.65 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 2,294,208 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 2,028,080 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$7.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-06-30 | $662.5k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $84.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $86.3m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $15.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $15.5m | us-gaap:Liabilities |
| Current portion of debt | at 2024-06-30 | $177.6k | us-gaap:DebtCurrent |
| Shareholders' equity | at 2024-06-30 | $9.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,899 characters.

*References in this report to “Entero,” “First Wave,” “AzurRx,” “Company,” “we,” “us,” “our,” or similar references mean Entero Therapeutics, Inc. and its subsidiaries on a consolidated basis. References to “AzurRx SAS” refer to Entero’s former wholly owned subsidiary through which we previously conducted our European operations. References to “FWB” refer to First Wave Bio, Inc. and references to “IMGX” refer to ImmunogenX, Inc., Entero’s wholly-owned subsidiaries. References to the “SEC” refer to the U.S. Securities and Exchange Commission.*

### Forward-Looking Statements

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” included in this Report and in our Annual Report filed on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 29, 2024. Readers are cautioned not to place undue reliance on these forward-looking statements.*

### Overview

We are engaged in the research and development of targeted, non-systemic therapies for the treatment of patients with gastrointestinal (“*GI”*) diseases. Non-systemic therapies are non-absorbable drugs that act locally, i.e., in the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation.

Our therapeutic pipeline primarily consists of multiple late-stage clinical programs built around three proprietary technologies – the biologic Adrulipase, a recombinant lipase enzyme designed to enable the digestion of fats and other nutrients in cystic fibrosis and chronic pancreatitis patients with exocrine pancreatic insufficiency; Capeserod, a selective 5-HT4 receptor partial agonist which we are developing for the treatment of gastroparesis; and Niclosamide, an oral small molecule with anti-inflammatory properties for patients with inflammatory bowel diseases such as ulcerative colitis and Crohn’s disease. We are currently focusing on our Adrulipase and Capeserod programs and are exploring strategic alternatives for our Niclosamide program.

In May 2024, we changed our name from First Wave Biopharma, Inc. to Entero Therapeutics, Inc.

In March 2024, we announced the closing of a merger with ImmunogenX, Inc. (“*IMGX”*) (the Company’s acquisition of IMGX, the “*Merger”*), a private, clinical-stage biopharmaceutical company founded in 2013, which is developing the biologic Latiglutenase for the treatment of celiac disease. IMGX is also developing CypCel, a metabolic marker compound that can measure the state of small-intestinal recovery of celiac patients undergoing gluten-free diets (“*GFDs”).*

We have initiated a plan to dispose of certain assets and liabilities of IMGX, including Latiglutenase and CypCel, within 12 months of the date of the Merger with IMGX. As of June 30, 2024, these were reclassified as assets and liabilities held for sale and due to the short period of time since the close of the Merger, are reported at their fair value less cost to sell. We determined that the discontinued operations of IMGX represents a strategic shift that will have a major effect on our operations and financial statements.

In December 2023, we announced that we have entered into a non-binding term sheet to sell our Niclosamide program. The non-binding term sheet includes a low seven-figure upfront payment to us for rights to Niclosamide, as well as economics related to future milestones and royalties. This transaction is not expected to move forward at this time.

### Recent Developments

### March 2024 Registered Direct Offering

On March 6, 2024, we completed the March 2024 Offering priced at market under Nasdaq rules, for an aggregate of (i) 173,100 shares of Common Stock, (ii) pre-funded warrants to purchase up to an aggregate of 352,525 shares of Common Stock and (iii) common warrants to purchase up to an aggregate of 525,625 shares of Common Stock. The public offering price for each share of Common Stock and accompanying March 2024 Warrant to purchase one share of Common Stock was $7.61 per share. The March 2024 Pre-Funded Warrants have an exercise price of $0.0001 per share, are exercisable immediately and will expire when exercised in full. The March 2024 Warrants have an exercise price of $7.48 per share, are exercisable immediately and will expire five years from the initial exercise date. We received gross proceeds of approximately $4.0 million less placement agent’s fees and other offering expenses of approximately $0.4 million. The March 2024 Offering included customary registration rights, for registration under the Securities Act, of the shares underlying the warrants in the March 2024 Offering.

### May 2024 Registered Direct Offering

On May 10, 2024, we announced that we entered into a Registered Direct Offering (the “*May 2024 Offering”*) likewise priced at market under Nasdaq rules. The May 2024 Offering was for an aggregate of (i) 275,000 shares of Common Stock, (ii) pre-funded warrants (the “*May 2024 Pre-Funded Warrants”*) to purchase up to an aggregate of 91,000 shares of Common Stock and (iii) common warrants (the “*May 2024 Warrants”*) to purchase up to an aggregate of 732,000 shares of Common Stock. The May 2024 Pre-Funded Warrants had the same exercise price and exercise terms as the March 2024 Pre-Funded Warrants. The public offering price for each share of Common Stock in the May 2024 Offering was $2.95, and the public offering price for each May 2024 Pre-Funded Warrant, was $2.9499. The May 2024 Warrants have an exercise price of $2.70 per share, are exercisable immediately and will expire six years from the initial exercise date. In this offering, we received gross proceeds of approximately $1.1 million less placement agent’s fees and other offering expenses.

In connection with the May 2024 Offering, we were obligated to file a registration statement with the SEC to register the shares underlying the warrants sold in the offering under the Securities Act, within 30 days of the closing of the May 2024 Offering and have such registration statement declared effective by the SEC within 60 days of such closing, or in the case of full review of the applicable registration statement by the SEC, within 120 days of such closing. If such registration statement is not so filed or declared effective, on each applicable monthly anniversary for which such registration even is not achieved or cured, we are required to pay to the holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 1.0% multiplied by the product of the most recent closing price of our Common Stock on the applicable event date, and the number of shares underlying such warrants, until the shares underlying such warrants are freely tradeable under Rule 144 of the Securities Act or we regain compliance with the registration rights. If we fail to pay partial liquidated damages required thereby within seven (7) days after the date payable, we are required to pay interest thereon at a rate of 12% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages provisions apply on a daily pro rata basis for any applicable portion of a month.

### July 2024 Inducement Offering

On July 10, 2024, we entered into a warrant exercise inducement offer letter (the “*Inducement Letter”*) with a holder (the “*Holder”*) of warrants to purchase shares of our Common Stock (the “*Existing Warrants”*) pursuant to which the Holder agreed to exercise for cash their Existing Warrants to purchase 1,762,674 shares of our Common Stock (the “*Existing Warrant Shares”*), in the aggregate, at a reduced exercised price of $1.09 per share, in exchange for our agreement to issue new warrants (the “*Inducement Warrants”*) on substantially the same terms as the Existing Warrants as described below, to purchase up to 3,525,348 shares of our Common Stock (the “*Inducement Warrant Shares”*). The Inducement Warrants will be exercisable upon the receipt of stockholder approval and may be exercised until the fifth anniversary of the date on which such stockholder approval is obtained. We received aggregate gross proceeds of approximately $1.9 million from the exercise of the Existing Warrants by the Holder and the sale of the Inducement Warrants. We engaged Roth Capital Partners, LLC (“*Roth”*) to act as our financial advisor in connection with the transactions summarized above and paid Roth approximately $96,000 for its services, in addition to reimbursement for certain expenses.

### Nasdaq Continued Listing Requirements

On August 17, 2023, we received a letter from the Listing Qualifications Staff (the “*Staff”*) of The Nasdaq Stock Market LLC (“*Nasdaq”*) indicating that we were not in compliance with the $2.5 million minimum stockholders’ equity requirement for continued listing of our common stock on Nasdaq as set forth in Nasdaq Listing Rule 5550(b)(1) (the “*Minimum Stockholder’s Equity Rule”*). In that regard, we reported stockholders’ equity of $881,960 in our Quarterly Report on Form 10-Q for the period ended June 30, 2023 (we did not then, and do not now, meet the alternative compliance standards relating to the market value of listed securities of $35.0 million or net income from continuing operations of $0.5 million in the most recently completed fiscal year or in two of the last three most recently completed fiscal years). On April 1, 2024, we received a determination from the Staff that we are back in compliance with the Minium Stockholder’s Equity Rule and that the matter is closed.

On October 26, 2023, we received a notice from the Staff of Nasdaq indicating that in connection with an offering completed in July 2023 (the “*July 2023 Offering”*), we were not in compliance with Nasdaq’s shareholder approval requirements set forth in listing rule 5635(d), which requires prior shareholder approval for transactions, other than public offerings, involving the issuance of 20% or more of the pre-transaction shares outstanding at less than the Minimum Price, defined as a price that is the lower of: (i) the Nasdaq official closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement. On December 12, 2023, during the Special Meeting, our stockholders ratified our entry into the July 2023 Offering as we received the affirmative vote of the majority of the votes cast by shares of our common stock present or represented by proxy and entitled to vote at the Special Meeting. On March 19, 2024, we received a Letter of Reprimand from the Nasdaq Listing Qualifications Staff (the “*Letter of Reprimand”*) stating that, while we failed to comply with Nasdaq’s continued listing requirements, our violation of listing rule 5635 (d) does not appear to have been the result of a deliberate intent to avoid compliance, and as such, the Staff does not believe that delisting our securities is an appropriate sanction and that it is appropriate to close these matters by issuing the Letter of Reprimand.

On August 7, 2024, we notified the Staff of Nasdaq that, as the result of the resignations of two of our directors, we were no longer in compliance with Nasdaq Rule 5605(c)(2) (the “*Audit Committee Rule”*), which requires a Nasdaq-listed company to have an audit committee of the Board comprised of at least three independent directors meeting the eligibility requirements of the Audit Committee Rule. On August 8, 2024, our Board, having determined that both individuals meet the eligibility requirements of the Audit Committee Rule, appointed Chaitan Khosla and Alastair Riddell to the audit committee of the Board (the “Audit Committee”) to fill the vacancies on the Audit Committee created by the aforementioned resignations. Additionally, the Board appointed the existing Audit Committee member, Edward J. Borkowski, as chair of the Audit Committee. As a result of the appointments, the Audit Committee now has three members, as required by the Audit Committee Rule.

On September 6, 2024, we received a letter from the Staff of Nasdaq indicating that, based upon the closing bid price of our Common Stock for the last 30 consecutive business days, we are not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Notice”. The Notice has no immediate effect on the continued listing status of our common stock on The Nasdaq Capital Market, and, therefore, our listing remains fully effective. We are provided a compliance period of 180 calendar days from the date of the Notice, or until March 5, 2025, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before March 5, 2025, the closing bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, subject to Nasdaq’s discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H), Nasdaq will provide written notification that we have achieved compliance with the minimum bid price requirement, and the matter would be resolved. If we do not regain compliance during the compliance period ending March 5, 2025, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we meet the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and notifies Nasdaq of its intent to cure the deficiency.

### Rationalization Activities and Developments

As of December 31, 2023, we had 9 employees, which increased to 15 employees in March 2024 following the IMGX Merger. In connection with certain cost reduction measures we have taken, on July 16, 2024, we reduced our headcount to 11 employees, and Dr. Syage agreed to reduce his annual base salary to $66,560, effective July 1, 2024. On August 1, 2024, in order to further reduce costs and conserve resources, we approved the termination of all non-essential employees and determined to vacate our Boca Raton office.

On August 2, 2024, in connection with the reduction in workforce, the Board approve the termination of (i) the employment agreement with our Chief Executive Officer, James Sapirstein (the “*Sapirstein Employment Agreement”*), and (ii) the offer letter between us and our President, Jack Syage. In connection with the termination of the Sapirstein Employment Agreement, on August 2, 2024, we entered into a consulting agreement with Mr. Sapirstein (the “*Sapirstein Consulting Agreement”*), whereby he will continue to serve as our Chief Executive Officer, and pursuant to which Mr. Sapirstein will be paid $400 an hour monthly for services rendered to us. The Sapirstein Consulting Agreement has an initial term of six months, subject to early termination by either party for any reason at any time, and may be extended on a month-to-month basis upon mutual agreement after the expiration of the initial six-month term.

Additionally, on August 2, 2024, as part of the reduction in workforce described above, the Board approved the payout of unused vacation time for all employees accrued through August 1, 2024, including Mr. Sapirstein, Dr. Syage, and our Chief Financial Officer, Sarah Romano. We paid Mr. Sapirstein, Dr. Syage, and Ms. Romano $69,230, $1,920, and $45,590, respectively, to compensate for their unused vacation time accrued through August 1, 2024.

As a result of the rationalization, we have paused development of Latiglutenase, Adrulipase, Niclosamide, Capeserod, and any other non-essential research and development activities. We are exploring strategic alternatives, including a sale or wind-down of the IMGX entity, as well as other potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction, however our board of directors has not yet approved any strategic transactions. We are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. 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.

### Notice of Default and Acceleration

As previously disclosed in our Current Report on Form 8-K filed with the SEC on March 14, 2024, we acquired ImmunogenX in a merger transaction, the terms of which included, among other things, our wholly owned subsidiary, IMGX, assuming the debt of ImmunogenX. On August 2, 2024, IMGX received a Notice of Default and Acceleration (the “*Notice”*) relating to that certain Credit Agreement, dated as of October 3, 2022 (as amended, modified, supplemented or restated from time to time, the “*Credit Agreement”*) by and among Mattress Liquidators, Inc. (the “*Lender”*) and ImmunogenX.

The Notice informed IMGX that one or more events of default under the Credit Agreement (“*Event of Defaults”*) were existing and continuing. Such outstanding Events of Default include, among others, IMGX suffering an adverse change in its financial condition which would reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement).

The Notice indicated that, as a result of the outstanding Events of Default, pursuant to the terms of Section 8.3 of the Credit Agreement, (a) the outstanding principal balance of the loan made under the Credit Agreement, all interest and fees related thereto, and all other outstanding obligations are accelerated and declared immediately due and payable, and that the Lender demands immediate payment of all obligations, and (b) the Lender is increasing the effective interest rate to the Default Rate (as defined in the Credit Agreement). The Credit Agreement affords IMGX thirty (30) days to cure Events of Default (the “*Cure Period”*), with a possible extension of an additional thirty (30) days, provided that in no event shall the Cure Period be greater than sixty (60) days in the aggregate. If IMGX is not able to cure the Events of Default within the Cure Period, IMGX may also be deemed to be in default of the stockholder notes ImmunogenX entered into with Jack Syage and Peter Felker as part of the acquisition of ImmunogenX by us (the “*Stockholder Notes”*), the entry into such notes having been previously disclosed by us on our Current Report on Form 8-K filed with the SEC on March 14, 2024. If IMGX is deemed to have defaulted under the Stockholder Notes, the holders of the Stockholder Notes may, at their option and upon notice to IMGX, declare the outstanding principal of, and all accrued interest on, the Stockholder Notes immediately due and payable.

As of the date of the Notice, the aggregate outstanding obligations under the Credit Agreement were $6,997,583 (comprised of (i) $5,360,000 in respect of outstanding principal, (ii) $1,637,583 of accrued and unpaid interest, and (iii) other, presently unliquidated, amounts for fees and expenses (including legal fees) payable in accordance with the Credit Agreement and related documents). This outstanding amount does not include any additional obligations incurred following the date of the Notice (including additional interest, which shall continue to accrue on the outstanding obligations following the date of the Notice).

As previously disclosed in our Current Report on Form 8-K filed with the SEC on September 3, 2024, on August 29, 2024, after discussions with the Lender, ImmunogenX received a letter (the “*Letter”*) from the Lender informing ImmunogenX that at this time, the Lender is suspending the MAE Default. The Letter additionally provided that the Lender’s suspension of the MAE Default is not, and shall not be construed as, a waiver of the MAE Default and the Lender expressly reserves all rights with respect to its enforcement of the MAE Default.

### Letter of Intent with Data Vault Holdings, Inc.

On September 9, 2024, we entered into the Letter of Intent with Data Vault Holdings, Inc. (“*DVHI”*) for the licensing of certain clinical trial software owned by DVHI and associated intellectual property (the “*Assets”*). The Letter of Intent contemplates a worldwide exclusive license to the Assets with the right to grant sublicenses, and a right of first refusal for the Company to fully acquire the Assets in exchange for the issuance of $250,000 of shares of the Company’s junior convertible preferred stock (the “*Preferred Shares”*) priced at a price per preferred share equal to 180% of the five (5) trading day Volume-Weighted Average Price (“*VWAP”*) of the Company’s common stock (the “*Common Share Price”*), immediately preceding the closing of the Proposed Transaction multiplied by 1,000 (the “*Preferred Share Price”*), and single digit royalties on net sales (the “*Proposed Transaction”*). Entry into definitive documentation for the Proposed Transaction will be conditioned upon the Company receiving no less than $500,000 of strategic investment (the “*Strategic Investment”*), with a target of ultimately securing up to $3.0 million of strategic investment with the assistance of DVHI. There can be no assurance that the Proposed Transaction will be completed on the terms contemplated in the Letter of Intent or otherwise.

### Liquidity and Capital Resources

To date, we have not generated any revenues and have experienced net losses and negative cash flows from our activities.

As of June 30, 2024, we had cash and cash equivalents of approximately $0.7 million and had sustained cumulative losses attributable to common stockholders of approximately $187.6 million. Subsequent to June 30, 2024, the Company raised aggregate gross proceeds of approximately $1.9 million from a July 2024 inducement offering. Based on our cash on hand at June 30, 2024, together with proceeds from the July 2024 exercise of warrants, we anticipate having sufficient cash to fund planned operations into November 2024. We believe that we will need to raise substantial additional capital in the near term to fund our continuing operations, satisfy existing and future obligations and liabilities, and otherwise support our working capital needs and business activities. The acceleration or reduction of cash outflows by management can significantly impact the timing for the need to raise additional capital to complete development of our products. In order to manage our operating costs, we have reduced headcount and paused development activities, and we are exploring strategic alternatives for the purpose of maximizing value of all of our stakeholders of the Company. We have been, and expect to continue to, explore various potential strategies available to us including but not limited to raising capital, restructuring our indebtedness and identifying and evaluating potential strategic alternatives but there can be no assurance that these efforts will be successful, that we will be able to raise necessary capital on acceptable terms, reach agreement with our lenders, or that the strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. We are evaluating all potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transactions. However, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stakeholder value or that we will make any cash distributions to our stockholders. Any failure in these efforts could force us to delay, limit or terminate our operations, make reductions in our workforce, discontinue our research and development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.

We evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. As described herein, if we are not able to obtain necessary capital, we may be required to terminate our operations, liquidate all or a portion of our assets and/or seek bankruptcy protection. As a result, management has concluded that its plans at this stage do not alleviate substantial doubt about our ability to continue as a going concern.

Under current Securities and Exchange Commission regulations, because our public float was less than $75.0 million at the relevant measurement period pursuant to General Instruction I.B.6. to Form S-3, the amount we can raise through primary public offerings of securities in any subsequent twelve-month period under our shelf registration statement is limited to an aggregate of one-third of our public float until such time, if any, as our public float is $75.0 million or more. Due to the late filing of our Form 10-Q for the quarter ended June 30, 2024, we are prohibited from registering shares under a Form S-3 for 12 months from the original filing due date, or August 14, 2025.

Our ability to issue securities is subject to market conditions. Each issuance under the shelf registration statements will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.

### Debt Obligations

#### Revolving line of credit

In connection with the IMGX acquisition, we assumed a revolving line of credit. In October 2022, IMGX entered into a credit agreement, which allowed for a revolving line of credit (the “*Revolver”*) for borrowings up to $6.0 million, maturing on October 1, 2024, and bearing interest per annum of the prime rate plus 4.5%. The credit agreement was amended in September 2023 (the “*First Amendment”*) to increase the maximum borrowings of the Revolver to $7.5 million. The credit agreement was amended and restated on March 13, 2024 (the “*Second Amendment”*). Terms under the Second Amendment include a maturity date of September 13, 2025, interest per annum of the prime rate plus 6.0%, and no further draws on the line of credit after March 13, 2024. As of June 30, 2024, the Revolver and accrued interest has been reclassified to liabilities of the disposal group held for sale.

#### Promissory notes

In connection with the IMGX acquisition, we assumed two promissory notes, one of which is with a related party. The notes are each in the amount of $0.5 million, accrue interest at a rate of the prime rate plus 4.5% per annum, and have a maturity date of September 30, 2025. As of June 30, 2024, the promissory notes and all accrued interest has been reclassified to liabilities of the disposal group held for sale.

#### EIDL loan

In connection with the IMGX acquisition, we assumed an EIDL loan with a principal balance of $0.5 million bearing interest of 3.75% per annum, with interest payable monthly in arrears. All unpaid principal and interest are due at maturity on June 30, 2050. As of June 30, 2024, the EIDL loan and all accrued interest has been reclassified to liabilities of the disposal group held for sale.

### Consolidated Results of Operations for the Three Months Ended June 30, 2024 and 2023

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

| ​ ​ ​ ​ Operating expenses: | ​ ​ ​ | ​ ​ Three Months Ended June 30, 2024 ​ | ​ | ​ ​ 2023 ​ | ​ ​ ​ | ​ ​ ​ Increase (Decrease) ​ |
| --- | --- | --- | --- | --- | --- | --- |
| Research and development expenses | ​ | $219,591 | ​ | $1,353,095 | ​ | $(1,133,504) |
| General and administrative expenses | ​ | ​ 3,206,517 | ​ | ​ 2,828,549 | ​ | ​ 377,968 |
| Total operating expenses | ​ | ​ 3,426,108 | ​ | ​ 4,181,644 | ​ | ​ (755,536) |
| Other expenses | ​ | ​ 4,114 | ​ | ​ 7,588 | ​ | ​ (3,474) |
| Loss before income tax expense | ​ | $(3,430,222) | ​ | $(4,189,232) | ​ | $(759,010) |
| Income tax expense | ​ | ​ (4,255,247) | ​ | ​ **—** | ​ | ​ 4,255,247 |
| Loss from continuing operations | ​ | $(7,685,469) | ​ | $(4,189,232) | ​ | $3,496,237 |
| Loss from discontinued operations | ​ | ​ (1,122,233) | ​ | ​ **—** | ​ | ​ 1,122,233 |
| Net loss | ​ | $(8,807,702) | ​ | $(4,189,232) | ​ | $4,618,470 |

#### Research and Development Expense

Research and development expenses include expenses primarily relating to the development of our Adrulipase and Capeserod drug candidates.

Research and development expenses for the three months ended June 30, 2024 totaled approximately $0.2 million, a decrease of approximately $1.1 million, or 84%, over the approximately $1.3 million recorded for the three months ended June 30, 2023.

The approximately $1.1 million decrease in total research and development expenses was primarily attributable to a net decrease of approximately $1.0 million in clinical related expenses primarily due to our Phase 2b Adrulipase SPAN clinical trial which occurred during the three months ended June 30, 2023.

We expect research and development expenses to decrease during the remainder of this fiscal year as we conserve cash.

#### General and Administrative Expense

General and administrative expenses include expenses primarily relating to our overall operations and being a public company, including personnel, legal and financial professional services, insurance, corporate communications and investor relations, listing and compliance related costs, rent, and expenses associated with obtaining and maintaining intellectual property and patents, among others.

General and administrative expenses for the three months ended June 30, 2024 totaled approximately $3.2 million, an increase of approximately $0.4 million, or 13% over the approximately $2.8 million recorded for the three months ended June 30, 2023.

The approximately $0.4 million increase in total general and administrative expenses was primarily attributable to $0.8 million in share-based compensation for consultants, partially offset by a decrease of $0.3 million in public company costs and investor relations.

We expect general and administrative expenses to decrease during the remainder of this fiscal year as we conserve cash.

#### Other Expenses

Other expenses for the three months ended June 30, 2024 and 2023 were insignificant.

#### Income tax expense

Income tax expense for the three months ended June 30, 2024 and 2023 was $4.3 million and $0, respectively. The income tax expense of $4.3 million recorded for the three months ended June 30, 2024 represents an increase in our valuation allowance related to the reclassification of the IMGX in-process research & development (“*IPR&D”*) assets to held for sale.

#### Loss from discontinued operations

Loss from discontinued operations for the three months ended June 30, 2024 and 2023 was $1.1 million and $0, respectively. The $1.1M of loss from discontinued operations recorded for the three months ended June 30, 2024 represents expenses related to the disposal group that was classified as held for sale as of June 30, 2024.

#### Net Loss

As a result of the factors above, our net loss for the three months ended June 30, 2024 totaled approximately $8.8 million, an increase of approximately $4.6 million, or 110%, over the net loss of approximately $4.2 million recorded for the three months ended June 30, 2023.

### Consolidated Results of Operations for the Six Months Ended June 30, 2024 and 2023

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

| ​ ​ ​ ​ Operating expenses: | ​ ​ | ​ ​ Six Months Ended June 30, 2024 ​ | ​ | ​ ​ 2023 ​ | ​ ​ ​ | ​ ​ ​ Increase (decrease) ​ |
| --- | --- | ---: | --- | --- | --- | --- |
| Research and development expenses | ​ | $675,523 | ​ | $2,714,778 | ​ | $(2,039,255) |
| General and administrative expenses | ​ | ​ 11,849,633 | ​ | ​ 5,529,291 | ​ | ​ 6,320,342 |
| Total operating expenses | ​ | ​ 12,525,156 | ​ | ​ 8,244,069 | ​ | ​ 4,281,087 |
| Other expenses | ​ | ​ 4,539 | ​ | ​ 15,816 | ​ | ​ (11,277) |
| Loss before income tax benefit | ​ | (12,529,695) | ​ | ​ (8,259,885) | ​ | ​ 4,269,810 |
| Income tax benefit | ​ | 10,604,640 | ​ | ​ — | ​ | ​ 10,604,640 |
| Loss from continuing operations | ​ | $(1,925,055) | ​ | $(8,259,885) | ​ | $(6,334,830) |
| Loss from discontinued operations | ​ | ​ (1,315,041) | ​ | ​ — | ​ | ​ 1,315,041 |
| Net loss | ​ | $(3,240,096) | ​ | $(8,259,885) | ​ | $(5,019,879) |

#### Research and Development Expenses

Research and development expenses include expenses primarily relating to the development of our Adrulipase and Capeserod drug candidates.

Research and development expenses for the six months ended June 30, 2024 totaled approximately $0.7 million, a decrease of approximately $2.0 million, or 75%, over the approximately $2.7 million recorded for the six months ended June 30, 2023.

The decrease in research and development expenses of $2.0 million was primarily attributable to decreases of approximately $2.0 million in clinical related expenses primarily related to our Phase 2b Adrulipase SPAN clinical trial which occurred during the six months ended June 30, 2023.

We expect research and development expenses to decrease during the remainder of this fiscal year as we conserve cash.

#### General and Administrative Expenses

General and administrative expenses include expenses primarily relating to our overall operations and being a public company, including personnel, legal and financial professional services, insurance, corporate communication and investor relations, listing and compliance related costs, rent, and expenses associated with obtaining and maintaining intellectual property and patents, among others.

General and administrative expenses for the six months ended June 30, 2024 totaled approximately $11.8 million, an increase of approximately $6.3 million, or 114% over the approximately $5.5 million recorded for the six months ended June 30, 2023.

The increase in general and administrative expenses of $6.3 million was primarily due to $4.0 million of non-cash expense recorded for financial advisor fees related to the IMGX acquisition, $1.5 million in share-based compensation for consultants, as well as an increase of $0.9 million in legal fees and professional fees related to the IMGX acquisition.

We expect general and administrative expenses to decrease during the remainder of this fiscal year as we conserve cash.

#### Other Expenses

Other expenses for the six months ended June 30, 2024 and 2023 were insignificant.

#### Income Tax Benefit

A tax benefit of approximately $10.6 million was recorded in the six months ended June 30, 2024 due to the release of a portion of our valuation allowance in connection with the IMGX Merger of $14.9 million, partially offset by an increase in our valuation allowance of $4.3 million related to the reclassification of the IMGX IPR&D to held for sale.

#### Loss from discontinued operations

Loss from discontinued operations for the six months ended June 30, 2024 of $1.3 million represents expenses related to the disposal group that was classified as held for sale as of June 30, 2024.

#### Net Loss

As a result of the factors above, our net loss for the six months ended June 30, 2024 totaled approximately $3.2 million, a decrease of approximately $5.0 million, or 61%, over the approximately $8.3 million net loss recorded for the six months ended June 30, 2023.

### Cash Flows for the Six Months Ended June 30, 2024 and 2023

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

| ​ ​ ​ ​ Net cash (used in) provided by: | ​ ​ ​ | ​ ​ Six Months Ended June 30, 2024 ​ | ​ | ​ ​ 2023 ​ |
| --- | --- | ---: | --- | ---: |
| Operating activities | ​ | $(7,197,816) | ​ | $(5,607,262) |
| Investing activities | ​ | 88,169 | ​ | ​ — |
| Financing activities | ​ | ​ 4,060,350 | ​ | ​ 5,480,412 |
| Net decrease in cash, cash equivalents and restricted cash | ​ | $(3,049,297) | ​ | $(126,850) |

### Operating Activities

Net cash used in operating activities during the six months ended June 30, 2024 of approximately $7.2 million was primarily attributable to our non-cash change in deferred tax valuation allowance of $10.6 million and our net loss of $3.2 million, partially offset by other non-cash expenses totaling approximately $6.3 million, mainly related to stock issued to our financial advisors in connection with the IMGX acquisition of $4.0 million, common stock granted to consultants of $1.5 million, and stock-based compensation of $0.4 million, as well as a decrease in prepaid expenses of $0.7 million.

Net cash used in operating activities during the six months ended June 30, 2023 of approximately $5.6 million was primarily attributable to our net loss of approximately $8.2 million, partially offset by non-cash expenses of approximately $0.7 million, mainly related to stock-based compensation, as well as a decrease in prepaid expenses of $0.9 million and increases in accounts payable and accrued expense of approximately $1.0 million.

### Investing Activities

Net cash provided by investing activities during the six months ended June 30, 2024 of approximately $0.1 million was due to the net cash acquired in the acquisition of IMGX.

### Financing Activities

Net cash provided by financing activities of approximately $4.1 million for the six months ended June 30, 2024 was primarily due to net proceeds of approximately $4.5 million from the March 2024 and May 2024 registered direct offerings, partially offset by approximately $0.5 million of cash repayments of the note payable financing for corporate insurances.

Net cash provided by financing activities of approximately $5.5 million for the six months ended June 30, 2023 was primarily due to the net proceeds of approximately $2.2 million from the exercise of warrants and $3.7 million from the March 2023 Offering, partially offset by approximately $0.4 million of cash repayments of the note payable financing for corporate insurances.

### Critical Accounting Policies and Estimates

Our accounting policies are essential to understanding and interpreting the financial results reported on the consolidated financial statements. The significant accounting policies used in the preparation of our consolidated financial statements are summarized in Note 2 to the consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2023. Certain of those policies are considered to be particularly important to the presentation of our financial results because they require us to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.

During the six months ended June 30, 2024, there were no material changes to matters discussed under the heading “Critical Accounting Policies and Significant Judgments and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

## Controls and procedures

As filed, 1,476 characters.

### Disclosure Controls and Procedures

As required by Rule 13a - 15(b) under the Securities Exchange Act of 1934, as amended, (the “*Exchange Act”*) our Chief Executive Officer (“*CEO”*) and our Chief Financial Officer (“*CFO”*) conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10 - Q, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a - 15(e) and 15d - 15(e) under the Exchange Act. Based on that evaluation, our CEO and our CFO each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) is accumulated and communicated to our management, including our CEO and our CFO, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a - 15(d) or 15d - 15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10 - Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 8,955 characters.

Except as described below, there have been no material changes in or additions to the risk factors included in our Quarterly Report on Form 10-Q for the period ended June 30, 2024 or our Annual Report on Form 10-K for the year ended December 31, 2023.

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

We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future. As of June 30, 2024, we had cash and cash equivalents of approximately $0.7 million and have sustained cumulative losses attributable to common stockholders of approximately $187.6 million.

Based on our cash on hand at October 21, 2024, we anticipate having sufficient cash to fund planned operations into November 2024. The acceleration or reduction of cash outflows by management can significantly impact the timing for the need to raise additional capital to complete development of our products. We believe that we will need to raise substantial additional capital in the near term to fund our continuing operations, satisfy existing and future obligations and liabilities, and otherwise support our working capital needs and business activities. In order to manage our operating costs, we have paused development activities for Latiglutenase, Capeserod and Adrulipase, and we are exploring strategic alternatives for Latiglutenase and Niclosamide.

We have not yet achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability. Therefore, we are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. We are actively working to obtain additional funding. However, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to us on favorable terms, if at all. We believe these conditions may raise substantial doubt about our ability to continue as a going concern. If we are unable to secure additional capital, we may be required to delay or curtail any future development of products, and we may take additional measures to reduce expenses in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. This would negatively impact our business and operations, which would likely cause the price of our Common Stock to decline or ultimately force us to cease our operations.

***We have recently rationalized our operations and may further rationalize or terminate our operations if we cannot obtain sufficient capital.***

We are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. 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.

As of December 31, 2023, we had 9 employees, which increased to 15 employees in March 2024 following the IMGX Merger. In connection with certain cost reduction measures we have taken, on July 16, 2024, we reduced our headcount to 11 employees, and Dr. Syage agreed to reduce his annual base salary to $66,560, effective July 1, 2024. On August 1, 2024, in order to further reduce costs and conserve resources, we approved the termination of all non-essential employees.

On August 2, 2024, in connection with the reduction in workforce, the Board approve the termination of (i) the employment agreement with our Chief Executive Officer, James Sapirstein (the “*Sapirstein Employment Agreement”*), and (ii) the offer letter between us and our President, Jack Syage. In connection with the termination of the Sapirstein Employment Agreement, on August 2, 2024, we entered into a consulting agreement with Mr. Sapirstein (the “*Sapirstein Consulting Agreement”*), whereby he will continue to serve as our Chief

Executive Officer, and pursuant to which Mr. Sapirstein will be paid $400 an hour monthly for services rendered to us. The Sapirstein Consulting Agreement has an initial term of six months, is subject to early termination by either party for any reason at any time, and may be extended on a month-to-month basis upon mutual agreement after the expiration of the initial six-month term.

Additionally, on August 2, 2024, as part of the reduction in workforce described above, the Board approved the payout of unused vacation time for all employees accrued through August 1, 2024, including Mr. Sapirstein, Dr. Syage, and our Chief Financial Officer, Sarah Romano. We paid Mr. Sapirstein, Dr. Syage, and Ms. Romano $69,230, $1,920, and $45,590, respectively, to compensate for their unused vacation time accrued through August 1, 2024.

As a result of the rationalization, we have paused research and development activities for our Latiglutenase, Adrulipase and Capeserod product candidates and any other non-essential research and development activities. We are exploring strategic alternatives for Niclosamide and are evaluating all potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction, including a potential sale or wind-down of the IMGX assets and liabilities. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stakeholder value or that we will make any cash distributions to our stockholders. Any failure in these efforts could force us to delay, limit or terminate our operations, make reductions in our workforce, discontinue our research and development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.

***Due to the significant resources required for the development of our product candidates, we must prioritize development of certain product candidates and/or certain disease indications, and deprioritize others. We may expend our limited resources, as they become available, on candidates or indications that do not yield a successful product and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.***

Our goal is to develop a pipeline of product candidates to treat GI and other diseases. Due to the significant resources required for the development of product candidates, we must focus our attention and resources on specific diseases and/or indications and decide which product candidates to pursue and the amount of resources to allocate to each. We intend to focus our resources, as they become available, on the development of our product candidates Adrulipase and Capeserod.

Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of any viable commercial product and may divert resources away from better opportunities. Similarly, any decision to delay, terminate or collaborate with third parties in respect of certain programs or product candidates may subsequently prove to be suboptimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the viability or market potential of any of our programs or product candidates or misread trends in the GI, CF, CP, COVID-19, ICI-AC or biotechnology industry, our business, financial condition and results of operations could be materially adversely affected. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases and indications that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain development and commercialization rights.

Filed Oct 21, 2024.
Source: SEC EDGAR, the filing index for accession 0001410578-24-001685. Last ingested by Listed: Oct 30, 2026, 17:12 ET. No prices; not investment advice.