DIFFUSION PHARMA(DFFN) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents CervoMed Inc.'s unaudited condensed consolidated interim financial statements and notes for periods ended June 30, 2025 and 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (June 30, 2025 vs. December 31, 2024) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $8,320,713 | $8,999,496 | $(678,783) | -7.54% | | Marketable securities | $25,210,453 | $29,922,523 | $(4,712,070) | -15.75% | | Total current assets | $38,081,399 | $43,081,610 | $(5,000,211) | -11.61% | | Total assets | $38,081,399 | $43,081,610 | $(5,000,211) | -11.61% | | Total liabilities | $4,641,620 | $3,879,282 | $762,338 | 19.65% | | Total stockholders' equity | $33,439,779 | $39,202,328 | $(5,762,549) | -14.70% | | Accumulated deficit | $(81,883,922) | $(70,731,484) | $(11,152,438) | 15.77% | Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Grant revenue | $1,757,724 | $3,288,971 | $(1,531,247) | -46.56% | | Research and development | $5,108,625 | $3,772,391 | $1,336,234 | 35.42% | | General and administrative | $3,265,374 | $2,511,679 | $753,695 | 30.01% | | Total operating expenses | $8,373,999 | $6,284,070 | $2,089,929 | 33.26% | | Loss from operations | $(6,616,275) | $(2,995,099) | $(3,621,176) | 120.90% | | Interest income | $368,127 | $678,441 | $(310,314) | -45.74% | | Net loss | $(6,258,404) | $(2,316,905) | $(3,941,499) | 170.12% | | Net loss per share (basic & diluted) | $(0.70) | $(0.27) | $(0.43) | 159.26% | Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :----------- | :--------- | :--------- | | Grant revenue | $3,675,215 | $5,636,221 | $(1,961,006) | -34.80% | | Research and development | $9,946,423 | $6,586,649 | $3,359,774 | 51.01% | | General and administrative | $5,647,951 | $4,639,609 | $1,008,342 | 21.73% | | Total operating expenses | $15,594,374 | $11,226,258 | $4,368,116 | 38.91% | | Loss from operations | $(11,919,159) | $(5,590,037) | $(6,329,122) | 113.22% | | Interest income | $777,112 | $759,074 | $18,038 | 2.38% | | Net loss | $(11,152,438) | $(4,831,240) | $(6,321,198) | 130.84% | | Net loss per share (basic & diluted) | $(1.26) | $(0.65) | $(0.61) | 93.85% | Condensed Consolidated Statements of Stockholders' Equity - As of June 30, 2025, the number of common stock shares outstanding increased to 9,252,719 from 8,702,719 at December 31, 2024, primarily due to the sale of 550,000 common stock shares, net of issuance costs, generating $4,588,687[26] - The accumulated deficit increased significantly from $(70,731,484) at December 31, 2024, to $(81,883,992) at June 30, 2025, reflecting the net loss incurred during the period[26] - Stock-based compensation expense for the six months ended June 30, 2025, was $858,182, contributing to additional paid-in capital[26] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | | :-------------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(10,409,054) | $(3,625,319) | | Net cash provided by (used in) investing activities | $5,141,584 | $(40,570,256) | | Net cash provided by financing activities | $4,588,687 | $46,411,946 | | Net (decrease) increase in cash and cash equivalents | $(678,783) | $2,216,371 | | Cash and cash equivalents at end of period | $8,320,713 | $10,009,217 | - The company experienced a net decrease in cash and cash equivalents of $678,783 for the six months ended June 30, 2025, a significant shift from a net increase of $2,216,371 in the prior year[29] - Cash used in operating activities increased substantially to $10.4 million in 2025 from $3.6 million in 2024, primarily due to a higher net loss[29] Notes To Unaudited Condensed Consolidated Interim Financial Statements 1. The Company and Description of Business - CervoMed Inc. is a clinical-stage biotechnology company focused on developing treatments for age-related neurologic disorders, with its lead drug candidate, neflamapimod, inhibiting p38α in neurons[30] - The company recently completed its RewinD-LB Trial, a Phase 2b study of neflamapimod in patients with Dementia with Lewy Bodies (DLB), primarily funded by a $21.3 million grant from the NIA[30] - For accounting purposes, the August 2023 merger with EIP Pharma, Inc. is treated as a reverse recapitalization, with EIP considered the accounting acquirer, meaning EIP's historical results are deemed the Company's historical results prior to the merger[10] 2. Liquidity and Capital Resources - As of June 30, 2025, the Company had an accumulated deficit of $81.9 million and negative cash flows from operations[31] - Existing cash, cash equivalents, and marketable securities of $33.5 million, combined with remaining NIA Grant funds, are expected to cover operating expenses and capital expenditures for at least twelve months from the financial statement issuance date[31] - The Company will require additional financing to advance product candidates and fund future operations, intending to seek funds through equity offerings, debt financings, or collaborations, with potential risks of dilution or restrictive covenants[31] 3. Summary of Significant Accounting Policies - The unaudited condensed consolidated interim financial statements are prepared in conformity with U.S. GAAP and SEC rules, with certain information condensed or omitted[33][34] - The Company classifies marketable securities as available-for-sale, carried at fair value with unrealized gains and losses reported in comprehensive loss and accumulated other comprehensive (loss) income[40] - Research and development costs are expensed as incurred, including salaries, consultant fees, process development, stock-based compensation, and fees to third parties for clinical and preclinical activities[48][49] - The Company adopted ASU No. 2023-07, "Segment Reporting," on January 1, 2024, and operates as a single reportable segment focused on developing treatments for age-related neurologic disorders[67][68] 4. Fair Value of Financial Instruments - The Company's financial instruments, including cash, cash equivalents, accounts payable, and accrued liabilities, approximate fair value due to their short maturities[73] Assets Measured at Fair Value (June 30, 2025) | Asset Category | Level 1 | Level 2 | Level 3 | | :----------------------------- | :---------- | :------------ | :-------- | | Cash equivalents (money market accounts) | $6,859,363 | — | — | | Commercial paper | — | $17,741,598 | — | | U.S. treasury bonds | — | $3,995,520 | — | | U.S. government agency bonds | — | $1,981,780 | — | | Corporate debt securities | — | $1,491,555 | — | | Total assets measured at fair value | $6,859,363 | $25,210,453 | — | Marketable Securities Amortized Cost vs. Fair Value (June 30, 2025) | Security Type | Amortized Cost | Unrealized gains | Unrealized losses | Fair Value | | :---------------------- | :------------- | :--------------- | :---------------- | :----------- | | Commercial paper | $17,745,445 | — | $(3,847) | $17,741,598 | | U.S. treasury bonds | $3,993,661 | $1,859 | — | $3,995,520 | | U.S. government agency bonds | $1,979,313 | $2,467 | — | $1,981,780 | | Corporate debt securities | $1,492,817 | — | $(1,262) | $1,491,555 | | Total | $25,211,236 | $4,326 | $(5,109) | $25,210,453 | 5. Significant Agreements and Contracts - The Company holds an exclusive worldwide license from Vertex Pharmaceuticals for VX-745 (neflamapimod) for AD and related CNS disorders, with potential milestone payments up to $117.0 million and low-to-mid teens royalties on net sales[77][78][79] - The NIA Grant, totaling $21.3 million, supports the RewinD-LB Trial; as of June 30, 2025, $18.2 million has been received, with approximately $2.9 million remaining[80][81] - Receipt of remaining NIA Grant funds is subject to U.S. congressional approval of a final appropriations bill and ongoing administrative changes/political uncertainty at the NIH[82] 6. Prepaid Expenses Prepaid Expenses (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | :--------- | | Clinical expenses | $1,602,810 | $1,149,343 | $453,467 | 39.45% | | Insurance | $96,769 | $443,141 | $(346,372) | -78.16% | | Professional services | $142,365 | $95,218 | $47,147 | 49.51% | | Dues and memberships | $80,642 | $11,777 | $68,865 | 584.75% | | Other | $41,741 | $205,881 | $(164,140) | -79.73% | | Total | $1,964,327 | $1,905,360 | $58,967 | 3.09% | 7. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Employee compensation costs | $1,301,907 | $803,193 | $498,714 | 62.09% | | Clinical development costs | $1,055,360 | $1,158,783 | $(103,423) | -8.92% | | Professional fees | $334,604 | $249,527 | $85,077 | 34.09% | | State franchise and excise tax | $20,456 | $40,456 | $(20,000) | -49.44% | | Other | $83,684 | $115,883 | $(32,199) | -27.79% | | Total | $2,796,011 | $2,367,842 | $428,169 | 18.09% | - Employee compensation costs increased significantly by $0.5 million, partly due to $0.6 million in severance-related charges recognized in connection with the Former COO's departure[84] 8. Commitments and Contingencies - The Company has a short-term office lease in Boston, with lease expense of approximately $19,660 for the six months ended June 30, 2025[85] - The Company is involved in a legal proceeding initiated in 2014 by a former CEO, Paul Feller, asserting claims including breach of contract; the case has been subject to multiple postponements and is currently set for trial on November 26, 2025[88] - The Company provides a safe harbor match of up to 4% of participant compensation for its 401(k) Plan, with total contributions of $0.3 million for the six months ended June 30, 2025[87] 9. Stockholders' Equity and Common Stock Warrants - In April 2024, the Company completed a private placement, raising approximately $50.0 million in gross proceeds from the sale of common shares, Series A Warrants, and Pre-Funded Warrants[90] Common Stock Warrants Outstanding (June 30, 2025) | Warrant Type | Outstanding | Range of exercise price per share | Expiration dates | | :------------------------------ | :---------- | :------------------------------ | :----------------------------- | | Historical Diffusion common stock warrants | 25,768 | $44.55 - $96.12 | November 2025 through February 2026 | | Historical EIP common stock warrants | 43,618 | $19.81 | April 2028 | | Series A common stock warrants | 2,532,285 | $39.24 | April 2027 | | Total | 2,601,671 | | | - In May 2025, the Company entered into a Sales Agreement for an 'at-the-market' offering program of up to $50.0 million, under which 550,000 shares were sold for $4.7 million, net of issuance costs, during the three and six months ended June 30, 2025[95] 10. Stock-Based Compensation Expense Stock-Based Compensation Expense by Category | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $121,159 | $40,337 | $244,861 | $104,134 | | General and administrative | $375,856 | $538,244 | $613,321 | $692,662 | | Total | $497,015 | $578,581 | $858,182 | $796,796 | - Total stock-based compensation expense for the six months ended June 30, 2025, increased to $858,182 from $796,796 in the prior year[100] - The Company granted 375,400 stock options during the six months ended June 30, 2025, with a weighted-average exercise price of $3.63 per share[100] - In connection with the Former COO's separation, the Company recognized $0.1 million in expense for the modification of unvested stock options and an additional $0.1 million for the extension of the exercise period for vested options during the three and six months ended June 30, 2025[103] 11. Subsequent Events - The Company has evaluated subsequent events through the filing date of this Quarterly Report and determined that no events require adjustments to the disclosures in the condensed consolidated interim financial statements[104] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses CervoMed Inc.'s financial condition, operations, liquidity, and outlook, detailing performance and financing needs Overview - CervoMed is a clinical-stage biotechnology company developing neflamapimod, an orally administered small molecule, to treat age-related neurologic disorders by inhibiting p38α and addressing synaptic dysfunction[107][108] - The company completed its Phase 2b RewinD-LB Trial for Dementia with Lewy Bodies (DLB), funded by a $21.3 million NIA grant, showing statistically significant improvements in 16-week and 32-week Extension data[107][110][111] - Neflamapimod is also being evaluated for frontotemporal dementia (FTD), having received Orphan Drug designation, and for recovery after ischemic stroke, with Phase 2 trials initiated in Q2 2025 and July 2025, respectively[113] Financial Summary - As of June 30, 2025, CervoMed had approximately $33.5 million in cash, cash equivalents, and marketable securities[114] - The company reported an accumulated deficit of $81.9 million as of June 30, 2025, and has historically incurred net losses, with a net loss of $11.2 million for the six months ended June 30, 2025[115] - CervoMed expects increased expenses due to advancing neflamapimod through clinical trials (including a potential Phase 3), manufacturing, intellectual property protection, hiring, and public company operations[115] Financial Operations Overview Revenue - The Company has not generated product sales revenue to date and does not expect to in the near future[117] Grant Revenue (Six Months Ended June 30) | Period | Grant Revenue | | :-------------------- | :-------------- | | June 30, 2025 | $3,675,215 | | June 30, 2024 | $5,636,221 | | Change | $(1,961,006) | | Change (%) | -34.80% | - Grant revenue decreased due to the completion of the Initial Phase of the RewinD-LB Trial and the transition to the Extension Phase in December 2024[126] Research and Development Expenses - Research and development expenses are a significant portion of operating expenses, recognized as incurred, and include costs for CROs, preclinical testing, clinical material production, personnel, and regulatory submissions[118][121] - R&D expenses are expected to increase substantially due to continued investment in neflamapimod's clinical trials (including a potential Phase 3), manufacturing, regulatory approval, and hiring[120] Research and Development Expenses (Six Months Ended June 30) | Period | R&D Expenses | | :-------------------- | :------------- | | June 30, 2025 | $9,946,423 | | June 30, 2024 | $6,586,649 | | Change | $3,359,774 | | Change (%) | 51.01% | General and Administrative Expenses - General and administrative expenses primarily consist of personnel-related costs (including stock-based compensation), legal fees, professional fees for accounting and auditing, insurance, and facility costs[122] - G&A expenses are anticipated to increase due to headcount growth supporting R&D activities, development activities under the NIA Grant, and costs associated with operating as a public company[123] General and Administrative Expenses (Six Months Ended June 30) | Period | G&A Expenses | | :-------------------- | :------------- | | June 30, 2025 | $5,647,951 | | June 30, 2024 | $4,639,609 | | Change | $1,008,342 | | Change (%) | 21.73% | Interest Income - Interest income is generated from marketable securities and cash/cash equivalent balances held with financial institutions[124] Interest Income (Six Months Ended June 30) | Period | Interest Income | | :-------------------- | :-------------- | | June 30, 2025 | $777,112 | | June 30, 2024 | $759,074 | | Change | $18,038 | | Change (%) | 2.38% | - Interest income remained relatively flat year-over-year for the six months ended June 30, 2025, as a higher average cash balance was offset by lower interest rates[136] Results of Operations Comparison of the Three Months Ended June 30, 2025 and 2024 - Net loss increased by 170% to $(6,258,404) for the three months ended June 30, 2025, compared to $(2,316,905) in the prior year[125] - Grant revenue decreased by 47% to $1.8 million, primarily due to the completion of the Initial Phase of the RewinD-LB Trial[125][126] - Research and development expenses increased by 35% to $5.1 million, driven by higher costs for CMC activities, non-clinical studies, headcount, and outsourced CRO costs for new clinical trials (Restore Trial and PPA trial)[125][127] - General and administrative expenses rose by 30% to $3.3 million, mainly due to increased headcount costs and outsourced services[125][128] Comparison of the Six Months Ended June 30, 2025 and 2024 - Net loss increased by 131% to $(11,152,438) for the six months ended June 30, 2025, compared to $(4,831,240) in the prior year[131] - Grant revenue decreased by 35% to $3.7 million, primarily due to the completion of the Initial Phase of the RewinD-LB Trial[131][132] - Research and development expenses increased by 51% to $9.9 million, driven by higher costs for CMC activities, non-clinical studies, headcount, and outsourced CRO costs for new clinical trials (Restore Trial and PPA trial)[131][133] - General and administrative expenses rose by 22% to $5.6 million, mainly due to increased headcount costs and outsourced services[131][134] Liquidity and Capital Resources - As of June 30, 2025, the Company had $33.5 million in cash, cash equivalents, and marketable securities, and an accumulated deficit of $81.9 million[137] - The Company believes its current capital, along with remaining NIA Grant funds ($2.9 million), will fund operations for at least twelve months, but acknowledges this estimate may be wrong and additional financing will be required[137][142] - Future capital requirements are highly uncertain and depend on factors such as clinical trial progress, regulatory approvals, milestone payments, hiring, manufacturing, commercialization, intellectual property costs, and the ability to secure additional non-dilutive funding or collaborations[144] Cash Flows Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | | :-------------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(10,409,054) | $(3,625,319) | | Net cash provided by (used in) investing activities | $5,141,584 | $(40,570,256) | | Net cash provided by financing activities | $4,588,687 | $46,411,946 | | Net (decrease) increase in cash and cash equivalents | $(678,783) | $2,216,371 | - Cash used in operating activities significantly increased to $10.4 million in 2025 from $3.6 million in 2024, primarily due to a higher net loss[146][147] - Investing activities shifted from using $40.6 million in 2024 (due to marketable securities purchases) to providing $5.1 million in 2025 (due to maturities of marketable securities offsetting purchases)[148][150] - Cash provided by financing activities decreased substantially to $4.6 million in 2025 (from common stock sales under the Sales Agreement) from $46.4 million in 2024 (from the 2024 Private Placement)[151][152] Contractual Obligations and Other Commitments - The Company enters into contracts with third-party organizations for clinical trials, nonclinical studies, manufacturing, and other services, with the ability to discontinue work under these agreements at any time[153] - Future agreements may involve upfront payments and long-term cash commitments, but the amount and timing of these obligations can vary[153] Off-Balance Sheet Arrangements - The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material effect on its financial condition, results of operations, liquidity, or capital resources[154] Critical Accounting Policies and Estimates - There were no material changes to the Company's critical accounting policies and estimates during the six months ended June 30, 2025, from those disclosed in its Annual Report[155] Recently Adopted Accounting Pronouncements - Information on recently issued accounting pronouncements that may impact the Company's financial position and results of operations is disclosed in Note 3, Summary of Significant Accounting Policies[156] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, CervoMed Inc. is not required to provide quantitative and qualitative disclosures about market risk - CervoMed Inc. is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a 'smaller reporting company' under SEC regulations[158] ITEM 4. CONTROLS AND PROCEDURES Addresses CervoMed Inc.'s disclosure controls, reports material weaknesses in internal control, and outlines remediation efforts Evaluation of Disclosure Controls and Procedures - Management, including the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were ineffective as of June 30, 2025, due to an identified material weakness[159] Material Weaknesses in Internal Control over Financial Reporting - A material weakness was identified in the absence of effective controls regarding the accurate identification, evaluation, and proper recording of various expense accounts for the years ended December 31, 2024, 2023, and 2022[160] - The Company is actively implementing measures to remediate this material weakness, including adding additional review procedures by qualified personnel, with completion expected during the year ending December 31, 2025[162] - Despite the material weaknesses, management concluded that the consolidated financial statements in this Quarterly Report are fairly stated in all material respects in accordance with U.S. GAAP[163] Change in Internal Control Over Financial Reporting - Except for the material weakness discussed, there were no other changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected or are reasonably likely to materially affect internal control over financial reporting[164] PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section refers to the detailed disclosure of legal proceedings found in Note 8 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 8, Commitments and Contingencies, in the notes accompanying the unaudited condensed consolidated interim financial statements[166] ITEM 1A. RISK FACTORS This section states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report - As of the date of this Quarterly Report, there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K[167] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section indicates that there were no unregistered sales of equity securities or use of proceeds to report - There were no unregistered sales of equity securities or use of proceeds to report for the period[168] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities - There were no defaults upon senior securities for the period[169] ITEM 4. MINE SAFETY DISCLOSURES This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[170] ITEM 5. OTHER INFORMATION Reports no directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - During the three months ended June 30, 2025, none of the Company's directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement[171] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Quarterly Report, including agreements, certifications, and XBRL data - The report includes various exhibits such as the Sales Agreement, employment agreements, the Separation Agreement, the 2025 Equity Incentive Plan, and certifications from executive officers[172] - XBRL (Extensible Business Reporting Language) information is furnished for purposes of the Securities Act and Exchange Act but is not considered filed or subject to liability under certain sections[173] SIGNATURES Signatures This section contains the required signatures for the Quarterly Report, certifying its submission on behalf of CervoMed Inc. - The report was signed by John Alam, President and Chief Executive Officer (Principal Executive Officer), and William Elder, Chief Financial Officer and General Counsel (Principal Financial Officer), on August 8, 2025[178]