60 Degrees Pharmaceuticals(SXTP) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Condensed Financial Statements (unaudited) The unaudited consolidated condensed financial statements for the period ended September 30, 2024, reflect a significant increase in shareholders' equity to $6.0 million from $4.8 million at year-end 2023, primarily due to financing activities. For the nine months ended September 30, 2024, the company reported a net loss of $5.9 million on revenues of $0.38 million, compared to a net loss of $1.8 million on revenues of $0.13 million in the prior-year period. The company also highlights a 'going concern' uncertainty, indicating its dependency on raising additional capital to fund operations - The company's financial statements are prepared on a going concern basis, but its history of losses and insufficient revenue to cover operating expenses raise substantial doubt about its ability to continue as a going concern for the next year. Continuation is dependent on raising additional capital and achieving profitability[26][27][216] - On August 12, 2024, the company effected a 1-for-12 reverse stock split. All share and per-share amounts in the financial statements have been retroactively adjusted to reflect this split[10][41][101] Consolidated Condensed Balance Sheets As of September 30, 2024, the company's total assets were $7.42 million, a slight decrease from $7.78 million at December 31, 2023. Total liabilities significantly decreased to $1.46 million from $2.99 million, primarily due to a reduction in derivative liabilities. Consequently, total shareholders' equity increased to $5.96 million from $4.80 million Consolidated Condensed Balance Sheet Highlights (in USD) | Balance Sheet Item | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $6,890,991 | $7,242,588 | | Total Assets | $7,420,893 | $7,783,771 | | Total Current Liabilities | $1,310,151 | $2,835,424 | | Total Liabilities | $1,458,046 | $2,985,675 | | Total Shareholders' Equity | $5,962,847 | $4,798,096 | Consolidated Condensed Statements of Operations and Comprehensive (Loss) Income For the three months ended September 30, 2024, the company reported a net loss of $2.16 million, compared to a net income of $4.18 million in the same period of 2023, which was skewed by a large gain on the change in fair value of a promissory note. For the nine-month period, the net loss widened to $5.90 million in 2024 from $1.75 million in 2023, driven by a significant increase in research and development expenses Statement of Operations Summary (in USD) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Product and Service Revenues, net | $135,293 | $51,188 | $376,728 | $127,892 | | Gross Profit (Loss) | $23,606 | $(20,008) | $110,040 | $(200,401) | | Total Operating Expenses | $2,155,116 | $1,577,320 | $7,792,318 | $3,142,995 | | Loss from Operations | $(2,118,692) | $(1,521,762) | $(7,639,101) | $(3,260,422) | | Net (Loss) Income | $(2,159,785) | $4,183,198 | $(5,902,070) | $(1,753,418) | | Net (Loss) per Share (Basic & Diluted) | $(0.93) | $9.13 | $(4.35) | $(6.59) | Consolidated Condensed Statements of Shareholders' Equity (Deficit) Shareholders' equity increased from $4.8 million at the end of 2023 to $6.0 million as of September 30, 2024. The increase was primarily driven by capital raising activities, including the issuance of common stock and warrants from an ATM offering and a private placement, which added over $7 million to additional paid-in capital, offsetting the net loss for the period - Key equity changes during the nine months ended Sep 30, 2024 include: issuance of common stock and warrants raising $1.9M, an ATM offering raising $1.7M, and a private placement of warrants raising $3.4M in additional paid-in capital[14] - The accumulated deficit grew from $(32.6) million at the end of 2023 to $(38.5) million by September 30, 2024, reflecting the ongoing net losses[14] Consolidated Condensed Statements of Cash Flows For the nine months ended September 30, 2024, net cash used in operating activities was $4.0 million. Net cash used in investing activities was $1.9 million, mainly for short-term investments. Net cash provided by financing activities was $7.1 million from various offerings. This resulted in a net increase in cash of $1.16 million, bringing the cash and cash equivalents balance to $3.3 million Cash Flow Summary (Nine Months Ended Sep 30, in USD) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(4,009,871) | $(4,479,242) | | Net Cash Used in Investing Activities | $(1,887,016) | $(49,326) | | Net Cash Provided by Financing Activities | $7,052,598 | $6,474,565 | | Change in Cash and Cash Equivalents | $1,158,203 | $1,953,675 | | Cash and Cash Equivalents—End of Period | $3,300,688 | $2,218,540 | Notes to Consolidated Condensed Financial Statements The notes detail the company's operations, accounting policies, and specifics of financial statement line items. Key disclosures include the nature of the company's business in developing medicines for infectious diseases, the significant 'going concern' risk, details of the 1:12 reverse stock split, and information on equity transactions, debt conversion post-IPO, derivative liabilities, and share-based compensation - The company specializes in developing and marketing medicines for infectious diseases, with its lead product, ARAKODA (tafenoquine), approved for malaria prevention in 2018[22] - In September 2024, the company raised net proceeds of $3.4 million through a private placement of pre-funded, Series A, and Series B warrants[119] - As of September 30, 2024, the company's derivative liabilities of $623,762 consist solely of a contingent milestone payment due to Knight Therapeutics upon a future sale of Arakoda™ or a Change of Control[159] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a strategic pivot back to commercializing Arakoda for malaria and developing it for babesiosis after suspending a COVID-19 study. For Q3 2024, product revenues grew 164% year-over-year to $135,293, and gross margin turned positive. However, operating expenses also rose, leading to a larger operating loss. The company raised significant capital through an ATM offering and a private placement, extending its financial runway to an estimated June 30, 2025, though a 'going concern' risk remains Overview and Business Developments The company is a specialty pharmaceutical firm focused on infectious diseases, with its approved product Arakoda® for malaria prevention. After suspending a COVID-19 study in late 2023, the strategy shifted to increasing Arakoda sales, expanding its indications (e.g., babesiosis), and repositioning other small molecules. Key developments in Q3 2024 include receiving ethics clearance for a babesiosis treatment protocol, entering clinical trial agreements with Yale and Rhode Island Hospital, and securing a U.S. Army contract for Arakoda packaging validation - The company's strategy has three facets: (i) increase sales of Arakoda; (ii) conduct clinical trials for new Tafenoquine indications; and (iii) reposition small molecule therapeutics for new indications[197] - In July 2024, the company received IRB (ethics) clearance for its expanded use protocol for treating babesiosis and entered into clinical trial agreements with Yale University and Rhode Island Hospital[198] Liquidity and Capital Resources As of September 30, 2024, the company had $3.3 million in cash, up from $2.1 million at year-end 2023. Net cash used in operations for the first nine months of 2024 was $4.0 million. Recent financing, including an ATM offering and a private placement, provided approximately $5.2 million in net proceeds. Management estimates these funds are sufficient to remain viable through June 30, 2025. However, the company's history of losses has led auditors to express substantial doubt about its ability to continue as a going concern, dependent on future financing and achieving profitability - The company estimates it has sufficient funds to remain viable through June 30, 2025, following net proceeds of approximately $1.8 million from an ATM Agreement and $3.4 million from a Private Placement[215] - A 'going concern' warning persists due to an accumulated deficit of $38.5 million and recurring operating losses, making future operations dependent on raising additional capital and achieving profitability[216][217] Results of Operations For Q3 2024 versus Q3 2023, product revenues increased 164% to $135,293, and gross profit turned positive at $23,606 from a loss of $20,008. R&D expenses rose 256% to $940,063, while G&A expenses decreased 7.5%. For the nine-month period, revenues grew 195% to $376,728, and gross profit became positive at $110,040. However, a 639% surge in R&D expenses to $4.4 million, largely from share-based payments for services, drove a significant increase in the operating loss to $7.6 million Comparison of Three Months Ended September 30 | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Product Revenues, net | $135,293 | $51,188 | 164.31% | | Gross Profit (Loss) | $23,606 | $(20,008) | (217.98)% | | Research and Development | $940,063 | $263,703 | 256.49% | | General and Administrative | $1,215,053 | $1,313,617 | (7.50)% | Comparison of Nine Months Ended September 30 | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Product and Service Revenues, net | $376,728 | $127,892 | 194.57% | | Gross Profit (Loss) | $110,040 | $(200,401) | (154.91)% | | Research and Development | $4,372,571 | $591,569 | 639.15% | | General and Administrative | $3,419,747 | $2,551,426 | 34.03% | - The significant increase in R&D expense for the nine months of 2024 was primarily due to recognizing $3.225 million in share-based payments to vendors for completed research materials, which had been previously deferred[262] Critical Accounting Policies, Significant Judgments, and Use of Estimates Management identifies several critical accounting policies that require significant judgment and estimates. These include Revenue Recognition, where estimates of variable consideration like product returns are necessary; Inventory valuation, which involves assessing for expiration and realizable value; Share-Based Payments, which require using models like Black-Scholes with assumptions for volatility and term; and the valuation of Derivative Liabilities, which uses models like Monte Carlo simulation or discounted cash flow analysis - Key areas requiring significant management estimates include revenue recognition (variable consideration), inventory valuation (write-downs), share-based payments (fair value models), and derivative liabilities (fair value models)[278] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has elected scaled disclosure reporting obligations as a smaller reporting company and is therefore not required to provide the information for this item - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[295] Item 4. Controls and Procedures Management concluded that as of September 30, 2024, the company's internal control over financial reporting was not effective due to identified material weaknesses. These weaknesses include a lack of in-house personnel with technical knowledge for complex transactions, inadequate segregation of duties, and ineffective controls over the period-end financial reporting process due to insufficient accounting staff. No material changes to internal controls occurred during the quarter - Management identified material weaknesses in internal control over financial reporting as of September 30, 2024[296] - The identified weaknesses include: lack of technical accounting knowledge for complex transactions, inadequate segregation of duties, and ineffective controls over the financial reporting process due to insufficient staff[297] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no material pending or threatened lawsuits that could be reasonably expected to have a material effect on its operations for the quarter ended September 30, 2024 - There were no reportable litigation events during the quarter ended September 30, 2024[298] Item 1A. Risk Factors As a smaller reporting company, the company has elected scaled disclosure and is not required to provide this information. There have been no material changes to risk factors previously disclosed - The company is electing scaled disclosure reporting obligations as a smaller reporting company and is not required to provide risk factor information. No material changes from previous disclosures were noted[299] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In September 2024, the company entered into a Securities Purchase Agreement for a private placement, raising approximately $4 million in gross proceeds. The placement involved the sale of 2,898,551 pre-funded warrants, 2,898,551 Series A warrants, and 2,898,551 Series B warrants to an institutional investor. The proceeds are intended for working capital, general operations, commercialization of Arakoda, and R&D. The securities were issued under an exemption from registration under Section 4(a)(2) of the Securities Act - On September 4, 2024, the company entered into a private placement agreement to sell pre-funded, Series A, and Series B warrants for gross proceeds of approximately $4 million[302] - The proceeds from the private placement are intended for working capital, general operations, Arakoda commercialization, and research and development[309] Item 5. Other Information The company disclosed several subsequent events occurring after the reporting period. In October 2024, a total of 435,551 pre-funded warrants were exercised. A Special Meeting of Stockholders on November 6, 2024, approved the exercise of various warrants, an increase in shares for the 2022 Equity Incentive Plan, and a potential future reverse stock split. The company also provided updates on its R&D projects and clinical trial enrollment for babesiosis - On November 6, 2024, stockholders approved the exercise of warrants from the September private placement, an increase of 500,000 shares to the 2022 Equity Incentive Plan, and a potential future reverse stock split[316] - As of November 14, 2024, the clinical trial for severe babesiosis (NCT06207370) had enrolled 6 of the 24 patients required for an interim analysis[319] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including forms of various warrants, certification statements from the CEO and CFO, and Inline XBRL data files