NeOnc Technologies Holdings Inc(NTHI) - 2025 Q1 - Quarterly Report

Part I - Financial Information Financial Statements The company's Q1 2025 financials show a soaring net loss and a 'going concern' warning despite increased cash from financing Condensed Consolidated Balance Sheet The balance sheet reflects increased cash and total assets, but liabilities more than doubled, widening the shareholders' deficit Balance Sheet Highlights (Unaudited) | Financial Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $5,439,210 | $64,893 | | Total Assets | $8,441,691 | $3,417,241 | | Liabilities & Equity | | | | Accounts payable | $4,025,244 | $2,917,801 | | Accrued advisory fee - related party | $8,828,565 | $0 | | Total Current Liabilities | $18,065,336 | $8,922,202 | | Accumulated deficit | ($88,610,432) | ($50,608,445) | | Total Shareholders' Deficit | ($9,623,645) | ($5,504,961) | Condensed Consolidated Statement of Operations The Q1 2025 net loss surged to $38.0 million due to significant one-time, non-cash expenses related to the NASDAQ listing Statement of Operations Summary (Unaudited) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $39,990 | $43,000 | | Research and development | $998,222 | $614,517 | | Share based compensation | $23,073,745 | $0 | | Advisory fees | $11,737,806 | $0 | | Total Operating Expenses | $37,616,803 | $1,594,483 | | Loss From Operations | ($37,576,813) | ($1,551,483) | | Net Loss | ($38,001,987) | ($2,938,976) | | Net loss per share | ($2.10) | ($0.18) | Condensed Consolidated Statement of Cash Flows Financing activities provided $11.0 million in cash, offsetting operating cash use and resulting in a net cash increase of $5.4 million Cash Flow Summary (Unaudited) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($5,650,055) | $145,747 | | Net cash provided by (used in) financing activities | $11,024,372 | ($172,595) | | Net increase (decrease) in cash | $5,374,317 | ($26,848) | | Cash and cash equivalents - end of period | $5,439,210 | $5,014 | Note 1 – Business Description and Liquidity The company is a clinical-stage biopharma firm facing substantial doubt about its ability to continue as a going concern - The company's lead product, NEO100, is in clinical trials for treating glioblastoma and has received Orphan Drug and Fast Track designation from the FDA[21] - The company raised $11.6 million in gross proceeds from a common stock sale, which was released from escrow upon its NASDAQ listing on March 26, 2025[22] - There is substantial doubt about the company's ability to continue as a going concern, as it lacks sufficient capital to fund operations for the next 12 months[23][24] Note 3 & 4 – Related Party Transactions and Loans Significant related-party transactions include an $11.3 million advisory fee and a high-interest short-term loan from the Chairman - Upon its NASDAQ listing, the company incurred an $11.3 million advisory fee to AFH Holdings, an affiliate, with $8.8 million remaining payable[56] - The Executive Chairman advanced the company $300,000 in February 2025, which was repaid as $600,000 in March 2025, booking a $300,000 interest expense due to a 100% OID[63] Note 6 – Equity and Financing Agreements The company raised $11.6 million through a stock sale and secured a $50 million equity purchase agreement for future funding - During Q1 2025, the company sold 727,750 shares of common stock at $16.00 per share, raising gross proceeds of $11,644,005[67][70] - The company entered into a $50 million Equity Purchase Agreement with Mast Hill Fund, LP, allowing it to sell shares at its discretion[74][76] Note 8 – Stock-Based Compensation The NASDAQ listing triggered a $23.1 million share-based compensation expense for previously granted RSUs - The NASDAQ listing on March 26, 2025, triggered the vesting condition for outstanding RSUs, leading to the recognition of $23.1 million in share-based compensation expense for the quarter[84][85] - As of March 31, 2025, there was approximately $14.3 million in unamortized stock-based compensation expected to be recognized over the next 1.8 years[85] - A total of 3,110,000 RSUs were granted and outstanding as of March 31, 2025[86] Note 9 – Commitments and Contingencies Commitments include a $10 million line of credit and two significant, unpaid litigation settlements totaling over $4.6 million - The company has a $10.0 million line of credit agreement with HCWG, bearing 10.0% interest, with no amounts borrowed as of March 31, 2025[87] - A litigation settlement requires a payment of $4.0 million to Orient EuroPharma Co., Ltd. (OEP) following the company's IPO, which remains unpaid[93] - A separate litigation settlement requires a payment of $600,000 plus accrued interest to a vendor, which also remains unpaid[94][95] Management's Discussion and Analysis (MD&A) Management attributes the Q1 2025 net loss to listing-related expenses and reiterates the 'going concern' risk Results of Operations Operating expenses surged to $37.6 million due to one-time listing costs, while R&D spending also increased Comparison of Operating Results (Unaudited) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Total operating expenses | $37,616,803 | $1,594,483 | $36,022,320 | | Loss from operations | ($37,576,813) | ($1,551,483) | ($36,025,330) | | Net loss | ($38,001,987) | ($2,938,976) | ($35,063,011) | - The increase in operating expenses was primarily driven by a $23.1 million share-based compensation charge and an $11.7 million advisory fee, both recognized upon the NASDAQ listing[120][126][127] - Research and development expenses increased by $383,705 year-over-year due to expanded clinical trial activities[123][130] Liquidity and Capital Resources Despite raising $11.3 million, current cash is insufficient for the next year, necessitating reliance on future financing - The company ended Q1 2025 with $5.4 million in cash after raising approximately $11.3 million net from a private placement of common stock[133][135][136] - Management confirms a substantial doubt about the company's ability to continue as a going concern, as current cash is insufficient to fund operations for the next 12 months[136] - Future funding sources include a $10 million line of credit and a $50 million equity purchase agreement[140][141][142] Market Risk Disclosures The company reports no significant market risk exposure from foreign currency exchange rates or inflation - The company is not currently exposed to significant market risk from changes in foreign currency exchange rates or inflation[152][153] Controls and Procedures Management identified material weaknesses in internal controls, rendering disclosure controls ineffective as of March 31, 2025 - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025[156] - Material weaknesses were identified in internal controls related to duties separation, risk processes, major financial transactions, and IT user access management[158] - The company has begun remediation by hiring additional financial personnel and plans to enhance access to accounting literature and third-party professionals[159] Part II - Other Information Legal Proceedings The company is in default on one settlement payment and disputes another $4.0 million claim following its direct listing - The company is in default on a settlement agreement to pay a vendor $600,000, which was due by March 31, 2024, and is now accruing interest[161][162][163] - The company has a dispute with OEP regarding a $4.0 million settlement payment, which OEP believes is due, but the company disagrees[439] Risk Factors The company faces significant risks including going concern uncertainty, reliance on early-stage products, and internal control weaknesses Financial and Capital Risks A history of significant losses and an immediate need for additional capital threaten the company's continued operations - The company has incurred significant losses since inception, with a net loss of $38.0 million for Q1 2025 and an accumulated deficit of $88.6 million[181] - The independent auditor's report includes a "going concern" paragraph, indicating substantial doubt about the company's ability to continue operations[194] Product Development and Regulatory Risks Success hinges on a few early-stage products facing a lengthy, expensive, and highly uncertain regulatory approval process - The company's product candidates are in preclinical and clinical stages and might never receive regulatory approval or become commercially viable[198] - The business substantially depends on its two perillyl acid-based product candidates, NEO100 and NEO212[202] - The marketing approval process is expensive, time-consuming, and uncertain, and may prevent the company from obtaining approvals for commercialization[237] Manufacturing and Third-Party Risks The company depends heavily on third-party manufacturers and researchers, creating significant operational and supply chain risks - The company is subject to multiple manufacturing risks and relies on contract manufacturing organizations (CMOs) for large-scale production, which it has not yet secured[260][262] - The company relies on third-party CROs and study sites to conduct its clinical trials, reducing its direct control over their performance[273] Intellectual Property Risks The business relies on licensed intellectual property from USC and faces uncertainty in protecting its patent portfolio - The company's commercial success depends on its ability to obtain, maintain, and protect its intellectual property rights, which is highly uncertain[314] - The company licenses critical intellectual property from USC and could lose these rights if it fails to comply with its obligations under the agreement[319][342] General and Public Company Risks Risks include ongoing legal disputes, public company costs, identified material weaknesses, and concentrated ownership - The company is involved in disputes with former licensees and is in default on one settlement agreement, which could result in further legal costs[438][439] - As a new public company, it will incur significantly increased legal and compliance costs, and its management has limited experience in this environment[387][440] - Material weaknesses in internal control have been identified, which could result in a material misstatement of financial statements if not remediated[446][447][448] Unregistered Sales of Equity Securities In Q1 2025, the company issued approximately $11.64 million in unregistered common stock through private placements - In March 2025, the company issued a total of 727,750 shares of common stock in private placements, raising gross proceeds of approximately $11.64 million[459][460] - In March 2025, 30,000 shares of common stock were issued to Dawson James Securities, Inc. for advisory services[459] - In February 2025, 150,000 restricted stock units were granted to three board members[458]