Reviva Pharmaceuticals Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

• the success of our current or planned clinical trials through all phases of clinical development, including our ability to conduct and complete clinical trials in accordance with projected timelines, our ability to achieve the desired results, and our ability to successfully complete requisite regulatory review and approval processes
• our ability to obtain the necessary financing to continue to conduct our business operations as planned, and to conduct our ongoing and planned trials, and continue and complete the planned development and commercialization of our product candidates;
• our ability to grow and manage growth economically;
• our ability to retain key executives and medical and science personnel;
• the possibility that our products in development succeed in or fail clinical trials or are not approved by the U.S. Food and Drug Administration or other applicable authorities;
• the possibility that we could be forced to delay, reduce or eliminate our planned clinical trials or development programs;
• our ability to obtain approval from regulatory agencies in different jurisdictions for our current or future product candidates;
• changes in applicable laws or regulations;
• changes to our relationships within the pharmaceutical ecosystem;
• the performance of third-party suppliers and manufacturers and our ability to find additional suppliers and manufacturers and obtain alternative sources of raw materials;
• our ability and the potential to successfully manufacture our product candidates for pre-clinical use, for clinical trials and, if approved, on a larger scale for commercial use;
• our current and future capital requirements to support our development and commercialization efforts and our ability to satisfy our capital needs;
• our ability to access capital on acceptable terms in a rising interest rate and tighter credit environment;
• expectations regarding our ability to continue as a going concern;
• the accuracy of our estimates regarding expenses and capital requirements, including estimated costs of our clinical studies;
• our limited operating history;
• our history of operating losses in each year since inception and expectation that we will continue to incur operating losses for the foreseeable future;
• changes in the markets that we target;
• continuing uncertainties associated with the ongoing impact and uncertain effect of COVID-19 or other future pandemics or events, and related responses of businesses and governments to COVID-19 or other future pandemics or events, on our operations including our clinical trials and on our personnel and those of any third party service providers upon which we rely, on commercial activity in the markets in which we operate and on our results of operations;
• our ability to meet the continued listing requirements for the listing of our common stock and listed warrants on Nasdaq;
• our ability to maintain or protect the validity of our patents and other intellectual property;
• our exposure to any liability, protracted and costly litigation or reputational damage relating to data security;
• our ability to maintain effective internal controls; and
• the possibility that we may be adversely affected by other economic, business, and/or competitive factors.

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

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

Company Overview

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

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

On January 10, 2022, the FDA notified us that we could proceed with our Phase 3 RECOVER trial (the “RECOVER Trial”), which is a global Phase 3, randomized, double-blind, placebo-controlled, multicenter study designed to assess the safety and efficacy of brilaroxazine in approximately 400 patients with acute schizophrenia compared to placebo. We received regulatory approval for initiating the study in Asia (India) on October 11, 2022 and multiple sites were initiated in India in November and December 2022. On October 30, 2023, we announced positive topline results of the RECOVER Trial. See “Recent Developments” below.

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

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

Recent Developments

On October 30, 2023, we announced positive topline results and successful completion of our pivotal Phase 3 RECOVER Trial evaluating the efficacy, safety and tolerability of once-daily brilaroxazine, a serotonin dopamine signaling modulator in adults with schizophrenia. The trial successfully met its primary endpoint, with brilaroxazine at the 50 mg dose achieving a statistically significant and clinically meaningful 10.1-point reduction in Positive and Negative Syndrome Scale (PANSS) total score compared to placebo (-23.9 brilaroxazine 50 mg vs. -13.8 placebo, p<0.001) at week 4. Brilaroxazine also achieved statistically significant and clinically meaningful reductions in all major symptom domains and secondary endpoints at week 4 with the 50 mg dose vs. placebo. The 15 mg dose of brilaroxazine was numerically superior to placebo on the primary endpoint and most secondary endpoints, and reached statistical significance on two key secondary endpoints.

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

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

• No drug related serious adverse events (SAEs) or treatment-emergent SAEs (TESAEs) observed or major safety concerns reported for brilaroxazine after 4 weeks of treatment
• No incidence of suicidal ideation
• No significant change in bodyweight, blood glucose levels, lipids levels, or endocrine hormones (prolactin, thyroid hormone) compared to placebo
• Akathisia and extrapyramidal symptoms <1% reported for brilaroxazine 50 mg and none for 15 mg
• Low discontinuation rates with brilaroxazine that were less than placebo (16% in brilaroxazine 50mg and 19% in brilaroxazine 15mg vs. 22% placebo)

The brilaroxazine program consists of the completed positive Phase 2 REFRESH and Phase 3 RECOVER trials, as well as an ongoing 1-year open label extension (OLE) trial evaluating the long-term safety and tolerability, and soon to be initiated registrational global, randomized 6-week Phase 3 RECOVER-2 trial. We expect to report topline data from the OLE trial in Q4-2024 and initiate the registrational Phase 3 RECOVER-2 trial in Q1-2024, with completion anticipated in early 2025. These data from our brilaroxazine program will potentially support the planned NDA submission to the FDA in 2025.

The RECOVER Trial is a global Phase 3, randomized, double-blind, placebo-controlled, multicenter study designed to assess the safety and efficacy of brilaroxazine in 412 patients with acute schizophrenia compared to placebo. Brilaroxazine was administered at fixed doses of 15 mg or 50 mg once daily for 28 days. The primary endpoint is a decrease in Positive and Negative Symptoms Assessment total score compared to placebo from baseline to Day 28. Key secondary endpoints include clinical global impression (CGI) severity scale, positive and negative symptoms, social functioning and cognition.

Impact of COVID-19

In response to the spread of COVID-19, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees and community, including temporarily requiring employees to work remotely and suspending all non-essential travel for our employees.

As a result of the COVID-19 pandemic, the effects of which are still being felt in the U.S. and around the world, we may experience disruptions that could adversely impact our business. Effects of the COVID-19 pandemic may negatively affect clinical site initiation, patient recruitment and enrollment, patient dosing, distribution of drug to clinical sites and clinical trial monitoring for our clinical trials. Effects of the COVID-19 pandemic may also negatively affect the operations of the third-party contract research organizations that we intend continue to rely upon to assist us in conducting our clinical trials and the contract manufacturers who manufacture our drug candidates.

We are continuing to assess the potential impact of the continuing and lasting effects of the COVID-19 pandemic on our business and operations. For additional information on the various risks posed by the COVID-19 pandemic, refer to Part I—Item 1A—Risk Factors of our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023.

Financial Overview

We are a clinical-stage biopharmaceutical company and have not generated any revenues from the sale of products. We have never been profitable, and our accumulated deficit as of September 30, 2023, was $120.7 million. Our net loss for the three months ended September 30, 2023 and 2022, was approximately $10.5 million and $3.5 million, respectively. Our net loss for the nine months ended September 30, 2023 and 2022, was approximately $29.5 million and $16.2 million, respectively. We expect to incur significant expenses and increased operating losses for the next several years. We expect our expenses to increase in connection with our ongoing activities to research, develop and commercialize our product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company. We will need to generate significant revenues to achieve profitability, and we may never do so.

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

• invest significantly to further research and develop, through clinical trials for Brilaroxazine including the OLE trial and the registrational Phase 3 RECOVER-2 trial, and pre-clinical research for RP1208, and seek regulatory approval for our product candidates Brilaroxazine and RP1208;
• identify and develop additional product candidates;
• hire additional clinical, scientific and management personnel;
• seek regulatory and marketing approvals for any product candidates that we may develop;
• ultimately establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval;
• maintain, expand and protect our intellectual property portfolio;
• acquire or in-license other drugs and technologies; and
• add operational, financial and management information systems and personnel, including personnel to support our product candidate development, any future commercialization efforts, and our ongoing compliance with and maintenance of public company controls, procedures and regulatory requirements and standards.

We have funded our operations to date primarily from the issuance and sale of our equity and convertible equity securities. As of September 30, 2023, we had cash and cash equivalents of approximately $5.0 million. To fund our current operating plans, we will need to raise additional capital. Our existing cash and cash equivalents will not be sufficient for us to complete development of our product candidates and, if applicable, to prepare for commercializing any product candidate that may receive approval. Accordingly, we will continue to require substantial additional capital beyond our existing cash to continue our clinical development and potential commercialization activities. We believe that we have adequate cash on hand to cover anticipated outlays well into the fourth quarter of 2023, but will need additional fundraising activities and cash on hand during the fourth quarter of fiscal year 2023 for working capital requirements for fiscal year 2024. These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date the financial statements are issued. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. We will seek to fund our operations through public or private equity or debt financings or other sources, which may include collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition, and our ability to pursue our business strategy, and our ability to continue as a going concern. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

Research and Development Expenses

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

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

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

** We completed the Phase 1 clinical study for brilaroxazine prior to starting the Phase 2 study in schizophrenia and schizoaffective disorder, and completed our Phase 3 RECOVER Trial for which we announced topline data in October 2023. In these three studies, we collected safety data for brilaroxazine in over 800 patients, including healthy subjects and patients with stable schizophrenia, acute schizophrenia and schizoaffective disorder. Generally, no separate Phase 1 study is required for conducting a Phase 2 study for an additional indication, provided the treatment doses in the Phase 2 study for an additional indication are within the range of doses tested in the previously completed Phase 1 study.

The successful development of our platform and product candidates is highly uncertain, and we may never succeed in achieving marketing approval for our product candidates RP5063 (Brilaroxazine), RP1208, or any future product candidates. We expect the remaining costs in connection with our ongoing Phase 3 RECOVER clinical trial for brilaroxazine for which we announced topline data in October 2023, including costs associated with ongoing post-data readout matters, wrap-up and reporting activites associated with the trial, to be approximately $3.0 million as of September 30, 2023, with approximately $0.4 million payable during the rest of calendar 2023, and approximately $2.6 million payable during calendar 2024. In addition, in connection with the other activities required to complete the development of brilaroxazine for schizophrenia, including among others our ongoing open-label extension (OLE) trial and our planned registrational Phase 3 RECOVER-2 trial, we expect to incur substantial additional costs over the next approximately two and a half years to take us through the submission of the planned NDA for brilaroxazine, which costs we estimate could be approximately $100 million. This forecasted amount is an estimate based on numerous factors and information available to management as of today, and is subject to change. The actual amount of such expenses could be materially higher or lower than the forecasted amount. The foregoing statements regarding estimates of forecasted future costs and expenses represent forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” At this time, other than our estimates for the remaining costs associated with our recently completed Phase 3 RECOVER trial, and forecasts of what future costs may be in connection with future activities needed to continue to develop brilaroxazine, we cannot reasonably estimate the nature, timing, or costs of the efforts necessary to finish developing any of our product candidates or the period in which material net cash, if any, from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing therapeutics, including the uncertainty of:

• the scope, rate of progress, expense, and results of clinical trials;
• the scope, rate of progress, and expense of process development and manufacturing;
• preclinical and other research activities; and
• the timing of regulatory approvals.

General Administrative Expenses

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

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

Interest Income and Other Income

Interest income and other, net consists largely of interest earned on our cash & cash equivalents.

Critical Accounting Policies and Use of Estimates

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30, 2023. Since the date of the Annual Report on Form 10-K, there have been no material changes in our critical accounting policies.

Results of Operations

Comparison of the three months ended September 30, 2023 and 2022:

The following table summarizes our results of operations for three months ended September 30, 2023 and 2022:

Research and Development Expenses

We incurred approximately $8.7 million and $2.3 million in research and development expenses for the three months ended September 30, 2023 and 2022, respectively. The primary reason for the increase of $6.4 million, or 278%, was attributable to an increase in Phase 3 clinical trial expenses and drug development costs of approximately $5 million for our product candidate brilaroxazine. This is coupled with an increase of approximately $0.3 million in stock-based compensation, and an increase in salaries of approximately $0.7 million. Our research and development expenses are expected to increase for the foreseeable future as we continue to advance our platform and product candidates.

General and Administrative Expenses

We incurred approximately $2.0 million and $1.3 million in general and administrative expenses for the three months ended September 30, 2023 and 2022, respectively. The increase of $0.7 million, or 58%, was primarily attributable to increases in stock-based compensation of approximately $0.1 million, legal expenses of approximately $0.2 million, recruiting expenses of approximately $0.2 million, consultant and professional expenses of approximately $0.2 million and salary and board of director compensation totaling approximately $0.1 million. These increases were partially offset by a decreases in other miscellaneous expenses of $0.1 million.

Gain on Remeasurement of Warrant Liabilities

The remeasurement of warrant liabilities loss of $0.1 million for the three months ended September 30, 2023, resulted from the decrease in calculated fair value principally as a result of the decrease in our stock price during the three months ended September 30, 2023. There was no gain or loss for the three months ended September 30, 2022.

Interest Income

Interest Income increased primarily due to the Company moving funds to an interest-bearing account in the final months of fiscal year 2022, coupled with an increase in market interest rates in 2023 as compared to 2022.

Comparison of the nine months ended September 30, 2023 and 2022:

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022:

Research and Development Expenses

We incurred approximately $22.9 million and $12.7 million in research and development expenses for the nine months ended September 30, 2023 and 2022, respectively. The primary reason for the increase of $10.3 million, or 81%, was attributable to an increase in Phase 3 clinical trial expenses and higher drug development costs of approximately $7.3 million for our product candidate brilaroxazine. This is coupled with an increase of approximately $1.2 million in stock-based compensation, an increase in salaries of approximately $1.4 million, and an increase of approximately $0.1 million in consultant expense. This is slightly offset by a decrease of approximately $0.3 of recruiting expenses. Our research and development expenses are expected to increase for the foreseeable future as we continue to advance our platform and product candidates.

General and Administrative Expenses

We incurred approximately $6.6 million and $3.9 million in general and administrative expenses for the nine months ended September 30, 2023 and 2022, respectively. The increase of $2.7 million, or 69%, was primarily attributable to increases in stock-based compensation of approximately $1.9 million, legal expenses of approximately $0.5 million, and consultant and professional expenses of approximately $0.2 million.

Gain (Loss) on Remeasurement of Warrant Liabilities

The loss on remeasurement of warrant liabilities of $0.3 million and gain of $0.3 million for the nine months ended September 30, 2023 and 2022, respectively, resulted from the increase in calculated fair value principally as a result of the increase in our stock price during the nine months ended September 30, 2023. The gain on remeasurement of warrant liabilities $0.3 million for the nine months ended September 30, 2022, resulting from the decrease in calculated fair value principally as a result of the decline in stock price during the nine months ended September 30, 2022.

Interest Income

Interest Income increased primarily due to the Company moving funds to an interest-bearing account in the final months of fiscal year 2022, coupled with an increase in market interest rates in 2023 as compared to 2022.

Liquidity and Capital Resources

Capital Resources

As of September 30, 2023, we had cash and cash equivalents of approximately $5.0 million. The Company believes that it has adequate cash on hand to cover anticipated outlays well into the fourth quarter of 2023, but will need additional fundraising activities and cash on hand during the fourth quarter of fiscal year 2023 for working capital requirements for fiscal year 2024. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue our research and preclinical and clinical development of our product candidates; expand the scope of our current studies for our product candidates; initiate additional preclinical, clinical or other studies for our product candidates; change or add additional manufacturers or suppliers; seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical studies; seek to identify, evaluate and validate additional product candidates; acquire or in-license other product candidates and technologies; maintain, protect and expand our intellectual property portfolio; attract and retain skilled personnel; and experience any delays or encounter issues with any of the above.

On September 8, 2022, we completed a registered direct offering and concurrent private placement (together, the “September 2022 Offering”). In the registered direct offering, we issued 1,976,285 shares of common stock at a purchase price per share of $2.53, for aggregate gross proceeds to us of approximately $5.0 million, before deducting certain transaction expenses payable by us of approximately $0.7 million. The transaction expenses were net against the proceeds received and were included in additional paid-in capital.

We issued to the investors in the September 2022 Offering warrants to purchase up to 3,359,684 shares of common stock (the “2022 Private Placement Warrants”). The 2022 Private Placement Warrants were immediately exercisable upon issuance at an exercise price of $2.40 per share and will expire on September 8, 2027.

In a concurrent private placement we issued pre-funded warrants (the “2022 Private Pre-Funded Warrants”) to purchase up to an aggregate of 1,383,399 shares of common stock at a purchase price of $2.5299 per share, for aggregate gross proceeds to us of approximately $3.5 million, before deducting transaction expenses payable by us, which were net against the proceeds received and were included in additional paid-in capital. The 2022 Private Pre-Funded Warrants were immediately exercisable at an exercise price of $0.0001 per share and will expire when the 2022 Private Pre-Funded Warrants are fully exercised.

During the nine months ended September 30, 2023, 1,976,285 2022 Private Placement Warrants were exercised for $4,743,084 in proceeds, resulting in the issuance of 1,976,285 shares of common shares. As of September 30, 2023, there are 2022 Private Placement Warrants outstanding to purchase an aggregate of 1,383,399 shares of common stock. No 2022 Private Pre-Funded Warrants issued during the September 2022 Offering have been exercised as of September 30, 2023. Additionally, during the nine months ended September 30, 2023, 302,150 of the 2021 Investor Warrants were exercised for $934,766 in proceeds, resulting in the issuance of 226,610 shares of common stock. As of September 30, 2023, there are 2021 Investor Warrants outstanding to purchase an aggregate of 6,645,041 shares of common stock.

The September 2022 Offering resulted in aggregate gross proceeds of approximately $8.5 million before deducting transaction expenses. Net proceeds totaled approximately $7.8 million after deducting transaction costs of $0.7 million.

We obtained financing for certain Director & Officer liability insurance policy premiums from First Insurance Funding. The total premiums, taxes, and fees financed is $667,500 with an annual percentage interest rate of 8.735%. At September 30, 2023 the balance of insurance financing debt payable was $222,500, recorded at such date as short-term debt on the unaudited condensed consolidated balance sheet. The Company paid the remaining insurance financing through the last quarterly installment payment on October 3, 2023.

Until such time as we can generate substantial product revenue, if ever, we expect to finance our cash needs through a combination of equity or debt financings and collaboration agreements. We do not currently have any committed external sources of capital.

To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders.

If we raise additional funds through collaboration agreements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

Net Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2023, was approximately $19.4 million, consisting primarily of a net loss of $29.5 million, an increase of approximately $3.0 million in stock-based compensation expense, and a change in our operating assets and liabilities totaling $6.8 million. The decrease in net operating assets was primarily due to a decrease in accounts payable coupled with an increase in accrued expenses and other current liabilities and prepaid expenses and other current assets.

Net cash used in operating activities for the nine months ended September 30, 2022, was approximately $14.3 million, consisting primarily of a net loss of approximately $16.2 million, coupled with a change in our operating assets and liabilities totaling $2.1 million. The decrease in net operating assets was primarily due to increases in accounts payable, a decrease in prepaid expenses and other current assets and an increase in accrued expenses and other current liabilities.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 consists of approximately $0.7 million related to proceeds from the issuance of short-term debt and approximately $5.7 million related to proceeds from the exercise of warrants for common stock, slightly offset by repayments of short-term debt of approximately $0.4 million. Net cash provided by financing activities for the nine months ended September 30, 2022, of $403 related to proceeds from the exercise of warrants for common stock.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

JOBS Act Accounting Election

As an emerging growth company under the Jumpstart Our Business Startups Act, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We have elected not to opt out of such extended transition period. Accordingly, when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, will adopt the new or revised standard at the time private companies adopt the new or revised standard, unless early adoption is permitted by the standard, and we elect early adoption. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. We expect that our eligibility to qualify as an emerging growth company will end on December 31, 2023, the last day of the fiscal year following the fifth anniversary of Tenzing’s initial public offering.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the 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 the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. 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 also is 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.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30, 2023, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K, for the year ended December 31, 2022, as filed with the SEC on March 30, 2023, may not be the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

There were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30, 2023.