60 Degrees Pharmaceuticals(SXTP) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Condensed Financial Statements (unaudited) This section presents the company's unaudited consolidated condensed financial statements, including balance sheets, statements of operations, equity, cash flows, and accompanying notes Consolidated Condensed Balance Sheets Total assets decreased from $5,759,345 to $4,181,938, driven by reduced short-term investments and accounts receivable, while liabilities slightly increased and equity decreased | Metric | Dec 31, 2024 | Jun 30, 2025 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Total Assets | $5,759,345 | $4,181,938 | $(1,577,407) | | Total Liabilities | $1,804,339 | $1,836,234 | $31,895 | | Total Shareholders' Equity | $3,955,006 | $2,345,704 | $(1,609,302) | | Cash and Cash Equivalents | $1,659,353 | $1,966,930 | $307,577 | | Short-Term Investments | $1,728,472 | $- | $(1,728,472) | | Inventory | $442,764 | $799,421 | $356,657 | Consolidated Condensed Statements of Operations and Comprehensive Loss The company reported a net loss of $3,612,231 for the six months ended June 30, 2025, with significant increases in net revenue and decreases in R&D expenses | Metric (Six Months Ended June 30) | 2025 | 2024 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Product Revenues – net | $264,484 | $230,646 | $33,838 | 14.67% | | Research Revenues | $299,670 | $30,359 | $269,311 | 887.09% | | Net Revenue | $440,831 | $106,004 | $334,827 | 315.86% | | Gross Profit | $141,161 | $75,645 | $65,516 | 86.61% | | Research and Development | $657,506 | $3,432,508 | $(2,775,002) | (80.84)% | | General and Administrative | $3,299,028 | $2,204,694 | $1,094,334 | 49.64% | | Loss from Operations | $(3,515,703) | $(5,531,198) | $2,015,495 | (36.44)% | | Change in Fair Value of Derivative Liabilities | $(135,342) | $1,739,746 | $(1,875,088) | (107.78)% | | Net Loss | $(3,612,231) | $(3,746,241) | $134,010 | (3.58)% | | Net Loss per Common Share (Basic and Diluted) | $(2.79) | $(21.41) | $18.62 | (86.97)% | Consolidated Condensed Statements of Shareholders' Equity Total shareholders' equity decreased from $3,955,006 to $2,345,704, primarily due to accumulated deficit from net losses, partially offset by capital raises | Metric | Dec 31, 2024 | Jun 30, 2025 | | :-------------------------------- | :----------- | :----------- | | Total Shareholders' Equity | $3,955,006 | $2,345,704 | | Issuance of common stock and warrants (Jan 2025) | - | $804,346 | | Issuance of common stock and warrants (Feb 2025) | - | $908,627 | | Issuance of common stock upon exercise of Pre-Funded Warrants | - | $1,926 | | Share-based compensation expense | - | $177,148 | | Net loss | $(40,527,957) (Accumulated Deficit) | $(44,138,232) (Accumulated Deficit) | Consolidated Condensed Statements of Cash Flows Cash and cash equivalents increased by $307,577, driven by investing activities from short-term investment maturities and continued financing, despite increased operating cash usage | Cash Flow Activity (Six Months Ended June 30) | 2025 | 2024 | Change | % Change | | :------------------------------------------ | :----------- | :----------- | :----------- | :--------- | | Net Cash Used in Operating Activities | $(3,047,494) | $(2,328,650) | $(718,844) | 30.87% | | Net Cash Provided by (Used in) Investing Activities | $1,650,834 | $(140,373) | $1,791,207 | (1276.03)% | | Net Cash Provided by Financing Activities | $1,696,899 | $1,902,426 | $(205,527) | (10.80)% | | Change in Cash and Cash Equivalents | $307,577 | $(565,883) | $873,460 | (154.35)% | | Cash and Cash Equivalents—End of Period | $1,966,930 | $1,576,602 | $390,328 | 24.76% | Notes to Consolidated Condensed Financial Statements This section provides detailed disclosures on accounting policies, financial instruments, equity, debt, and commitments, highlighting going concern risk and recent equity offerings - The company faces substantial doubt about its ability to continue as a going concern due to accumulated losses and insufficient revenues to cover operating expenses[29][31] - Management plans to fund operations through debt/advances, private placements, and future offerings, but cannot assure success[32] - The company completed January and February 2025 offerings, raising approximately $804,346 and $908,627 in net proceeds, respectively, through common stock and warrant issuances[94][96] - The company effected a 1:5 reverse stock split on February 24, 2025, following a 1:12 split in August 2024, retroactively adjusting share and per-share information[38][39][92] - Financial statements are prepared in accordance with U.S. GAAP and are unaudited, with all necessary adjustments included[36] - Significant estimates include inventory reserves, fair value of derivative liabilities, and stock-based compensation[37] 1. NATURE OF OPERATIONS 60 Degrees Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on developing and marketing medicines for infectious diseases, with its lead product ARAKODA® approved for malaria prevention - 60 Degrees Pharmaceuticals specializes in developing and marketing new medicines for infectious diseases[25] - The company's lead product, ARAKODA® (tafenoquine), received FDA approval in 2018 for malaria prevention[25] - The development pipeline includes new tafenoquine products and celgosivir/botanical extracts for tick-borne fungal and viral diseases[25][26] Risks and Uncertainties The company faces typical biopharmaceutical industry risks, including product development, regulatory approval, market adoption, and intense competition - Key risks include challenges in product development, obtaining regulatory approval, achieving broad market adoption, and intense competition in the biopharmaceutical industry[27] - Economic uncertainties such as rising interest rates and potential banking system instability could impact the company's financial condition and access to capital[28] Going Concern The company's accumulated losses and inability to generate sufficient revenue raise substantial doubt about its ability to continue as a going concern for the next year - The company has accumulated losses and has not generated enough revenue to cover operating expenses, raising substantial doubt about its ability to continue as a going concern[29][31] - Management's plans to fund operations include third-party debt/advances, private placements, and stock offerings, but there is no assurance of successful capital raising or favorable terms[32] - The financial statements are prepared on a going concern basis, without adjustments for potential inability to continue operations[34] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the significant accounting policies used in preparing the consolidated condensed financial statements, including the basis of presentation, use of estimates, and specific policies for revenue recognition, share-based payments, and derivative liabilities Basis of Presentation The financial statements are prepared under U.S. GAAP and presented in accordance with Form 10-Q and Regulation S-X, and are unaudited Use of Estimates Financial statement preparation requires management to make significant estimates and assumptions, particularly concerning inventory reserves, fair value of derivative liabilities, and stock-based compensation Reverse Stock Splits The company effected a 1:12 reverse stock split in August 2024 and a 1:5 reverse stock split in February 2025, with all share and per-share information retroactively adjusted Concentrations The company faces significant concentration risks, with a few customers accounting for a large percentage of receivables and product revenues, and reliance on exclusive distributors and a sole vendor - Significant customer concentration: 94% of receivables at June 30, 2025 (three customers at 37%, 30%, 27%); 99% of net product revenues for Q2 2025 (two customers at 78%, 21%)[41] - Reliance on exclusive distributors in Australia and Europe, and a sole vendor for tafenoquine inventory, poses supply chain and market disruption risks[42][43] Segment Information The company operates as a single identifiable segment focused on developing and marketing infectious disease medicines, with the CEO reviewing consolidated net income/loss and key expense categories - The company operates as a single segment focused on infectious disease medicines[44] - The CEO reviews consolidated net income/loss and expense categories for performance evaluation and resource allocation[46] Derivative Liabilities Derivative liabilities, primarily contingent payment arrangements, are measured at fair value each reporting period using a probability-weighted expected return method, with changes recorded in operations Equity-Classified Warrants All outstanding warrants to purchase common stock are classified as equity instruments based on an assessment of their terms and applicable accounting guidance Revenue Recognition Revenue is recognized when control of goods is transferred to customers, reflecting the expected consideration through a five-step process, including identifying performance obligations and estimating variable consideration - Revenue is recognized when control of goods is transferred to customers, based on a five-step process including identifying performance obligations and estimating variable consideration[52][53] - U.S. commercial revenues are recorded when the American distributor transfers product title; foreign sales to Australia and Europe are recognized upon shipment and are subject to profit-sharing agreements[55] Research and Development Costs Research and development costs are expensed as incurred, including internal costs and prepayments amortized over the service period, with common stock also issued for R&D services | R&D Expense | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :---------------------- | :-------- | :-------- | :-------- | :-------- | | Research and Development | $249,884 | $3,095,326 | $657,506 | $3,432,508 | - R&D costs are expensed as incurred, with prepayments deferred and amortized[56] - Shares of common stock are also issued for R&D services[57] Fair Value of Financial Instruments The carrying values of current financial instruments approximate their fair value, while derivative liabilities are measured at fair value using Level 3 unobservable inputs and a probability-weighted expected return method | Liabilities (Level 3) | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Derivative Liabilities | $776,172 | $640,830 | - Derivative liabilities, primarily a contingent milestone payment, are valued using Level 3 inputs and a probability-weighted expected return method[59][61] Assets and Liabilities Not Measured at Fair Value on a Recurring Basis Non-financial assets like intangible assets and property/equipment are measured at fair value only when impairment is indicated, and certificates of deposit are measured at amortized cost Foreign Currency Transactions and Translation The company's consolidated financial statements are presented in USD, with foreign operations' assets and liabilities translated at reporting date exchange rates and income/expenses using average rates | Currency (1 AUD =) | June 30, 2025 (Avg) | June 30, 2024 (Avg) | June 30, 2025 (As of) | Dec 31, 2024 (As of) | | :----------------- | :------------------ | :------------------ | :-------------------- | :------------------- | | USD | 0.64 | 0.66 | 0.66 | 0.62 | - Exchange differences are recognized as a component of other comprehensive income (loss)[66] Reclassifications Certain prior period interim amounts have been reclassified for consistency, with no material effect on the consolidated financial statements Share-Based Payments Share-based payments to employees, directors, and nonemployees are measured at fair value on the grant date, with compensation cost recognized straight-line for service-based awards or upon performance condition achievement - Share-based payments are measured at fair value on the grant date for employees, directors, and nonemployees[70] - Stock option fair value is estimated using the Black-Scholes model, with assumptions for volatility, risk-free rate, and expected term[71][72] - Compensation for RSUs with service-based vesting is recognized straight-line; for performance-based awards, it's recognized upon achievement of the liquidity event or change in control[73][74] Net Loss per Common Share Net loss per common share is calculated by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding, with diluted EPS equaling basic EPS due to net losses - Basic and diluted net loss per common share are the same due to net losses[77] - All share and per-share information are retroactively adjusted for the 1:12 and 1:5 reverse stock splits[77] Related Parties Related parties include entities controlling, controlled by, or under common control with the company, as well as principal owners, management, and their immediate families Subsequent Events Subsequent events have been evaluated through August 13, 2025, the financial statement issuance date, with details provided in Note 12 Recently Adopted and Issued Accounting Pronouncements The company adopted ASU 2023-07 (Segment Reporting) retrospectively and is evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures) for future periods - Adopted ASU 2023-07 (Segment Reporting) retrospectively for 2024 annual and 2025 interim periods, impacting financial statement disclosures[81][218] - Evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures), effective for fiscal years beginning after December 15, 2024, and December 15, 2026, respectively[82][83][219] 3. INVENTORY Inventory increased to $799,421 at June 30, 2025, from $442,764 at December 31, 2024, with minimal write-downs in Q2 2025 | Inventory Class | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Raw Material (API) | $345,195 | $- | | Work in Process | $246,031 | $284,883 | | Finished Goods | $208,195 | $157,881 | | Total Inventory | $799,421 | $442,764 | - Inventory write-downs for expired inventory were none for the three months ended June 30, 2025, compared to $16,684 for the same period in 2024[84] 4. PROPERTY AND EQUIPMENT Net property and equipment increased to $193,879 at June 30, 2025, primarily due to additions in lab equipment, with depreciation expense rising to $9,236 in Q2 2025 | Asset Class | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Lab Equipment | $286,911 | $233,411 | | Property and Equipment, net | $193,879 | $149,808 | - Depreciation expense for the three months ended June 30, 2025, was $9,236, a significant increase from $1,536 in the prior year[86] 5. INTANGIBLE ASSETS Net intangible assets decreased to $143,704 at June 30, 2025, reflecting amortization expense, with no new website development costs capitalized in Q2 2025 | Asset Class | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Patents | $134,768 | $127,603 | | Website Development Costs | $104,622 | $104,622 | | Intangible Assets, net | $143,704 | $157,084 | - Amortization expense for Q2 2025 was $10,442, compared to $9,472 in Q2 2024[88] - Estimated future amortization expense for patents and website development costs totals $67,473 and $29,850, respectively, as of June 30, 2025[89] 6. STOCKHOLDERS' EQUITY The company's authorized shares include 150 million common stock and 1 million preferred stock, with recent offerings in January and February 2025 raising significant net proceeds after two reverse stock splits - Authorized shares: 150,000,000 common stock and 1,000,000 preferred stock (80,965 designated as Series A Preferred)[90] - Reverse stock splits: 1:12 effective August 12, 2024, and 1:5 effective February 24, 2025, retroactively adjusted all share and per-share information[91][92][93] January 2025 Offering The company sold 204,312 common shares and issued warrants for 408,621 shares, generating approximately $804,346 in net proceeds - Sold 204,312 common shares at $5.105/share and issued warrants for 408,621 shares at $3.855/share[94] - Net proceeds from the January 2025 Offering were approximately $804,346[94] - Issued placement agent warrants for 15,325 shares at an exercise price of $6.382[95] February 2025 Offering The company sold 300,700 common shares and issued warrants for 300,700 shares, generating approximately $908,627 in net proceeds - Sold 300,700 common shares at $3.575/share and issued warrants for 300,700 shares at $2.95/share[96] - Net proceeds from the February 2025 Offering were approximately $908,627[96] - Issued placement agent warrants for 22,554 shares at an exercise price of $4.469[97] January 2024 Offering The January 2024 Offering generated approximately $1.9 million in net proceeds, including units of common stock and warrants, as well as pre-funded units - The January 2024 Offering generated approximately $1.9 million in net proceeds[98] - The offering included 87,682 units (common stock + warrants) and 16,652 pre-funded units (pre-funded warrants + warrants)[98] Trevally Amendment An amendment with Trevally, LLC on April 1, 2024, resulted in the return of 2,000 common shares previously issued for research materials, which were delivered on July 1, 2024 Common Stock Warrants As of June 30, 2025, the company had 2,127,070 equity-classified warrants outstanding with a weighted average exercise price of $15.85 and a remaining contractual life of 2.35 years | Warrant Activity | Dec 31, 2024 | Jun 30, 2025 | | :-------------------------------- | :----------- | :----------- | | Total outstanding warrants | 1,765,070 | 2,127,070 | | Weighted Average Exercise Price | $17.59 | $15.85 | | Weighted Average Remaining Contractual Life (Years) | 3.26 | 2.35 | | Warrants Granted (6M 2025) | - | 747,200 | | Warrants Exercised (6M 2025) | - | (385,200) | - During the six months ended June 30, 2025, the exercise of 385,200 pre-funded warrants generated $1,926 in cash proceeds[102][104] Series A Preferred Stock Holders of Series A Preferred Stock have no voting rights but accrue cumulative dividends at 6.0% per annum, totaling $948,878 as of June 30, 2025, and are convertible by the company under specific conditions - Series A Preferred Stock holders have no voting rights[107] - Cumulative dividends accrue daily at 6.0% per annum and totaled $948,878 as of June 30, 2025[108] - The company has the right to convert Series A Preferred Stock into common stock based on Liquidation Value and Conversion Price, subject to ownership limits[110] 7. DEBT The company has a $150,000 SBA EIDL loan from May 2020, bearing 3.75% annual interest, with an outstanding balance of $154,249 at June 30, 2025, and a maturity date of October 12, 2050 - The company has a $150,000 SBA EIDL loan from May 2020, with a 3.75% annual interest rate and maturity in October 2050[111] | Debt Metric | June 30, 2025 | December 31, 2024 | | :---------- | :------------ | :---------------- | | SBA EIDL Balance | $154,249 | $155,891 | | Current Maturity | $8,772 | $8,772 | | Long-Term Liability | $145,477 | $147,119 | 8. DERIVATIVE LIABILITIES Derivative liabilities primarily consist of a $10 million contingent milestone payment to Knight Therapeutics, Inc., measured at fair value using Level 3 inputs, resulting in a $135,342 loss for the six months ended June 30, 2025 - Derivative liabilities include a $10 million contingent milestone payment to Knight Therapeutics, Inc. upon Arakoda sale or Change of Control[115][118] - The fair value of derivative liabilities is determined using a probability-weighted expected return method with significant unobservable (Level 3) inputs[115][116] | Derivative Liabilities | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Total | $776,172 | $640,830 | | Change in fair value (6M ended June 30) | $(135,342) (Loss) | $1,739,746 (Gain) | 9. INCOME TAXES The company did not record a federal or District of Columbia income tax provision or benefit for the three and six months ended June 30, 2025 and 2024, due to taxable losses in both periods 10. SHARE-BASED COMPENSATION Total share-based compensation expense was $265,383 for the six months ended June 30, 2025, significantly lower than the prior year due to a large non-cash charge in 2024, with grants governed by the 2022 Equity Incentive Plan | Share-Based Compensation Expense | 6M Ended June 30, 2025 | 6M Ended June 30, 2024 | | :------------------------------- | :--------------------- | :--------------------- | | Research and Development | $- | $2,627,300 | | General and Administrative Expenses | $265,383 | $250,735 | | Total | $265,383 | $2,878,035 | - The 2022 Equity Incentive Plan allows for grants of stock options, RSUs, and performance awards to employees, directors, and consultants[122] Share-Based Compensation under 2022 Equity Incentive Plan The 2022 Equity Incentive Plan allows for various equity awards, with 57,068 shares remaining available for issuance as of June 30, 2025 Stock Options The company granted 120,000 stock options to two executives in the six months ended June 30, 2025, with a weighted average grant date fair value of $4.55, resulting in $177,148 in compensation expense - Granted 120,000 stock options to two executives in the six months ended June 30, 2025, with an exercise price of $6.55 per share[125] - Weighted-average grant date fair value of options granted was $4.55 for the six months ended June 30, 2025[125][126] - Recognized $177,148 in compensation expense for stock option awards for the six months ended June 30, 2025[127] Restricted Stock Units No RSUs vested or were granted during the three and six months ended June 30, 2025 and 2024, resulting in no compensation expense recognized for RSUs in these periods Annual Performance Bonus In January 2025, the company issued 15,809 common shares to executives as part of 2024 performance bonuses, with some shares withheld for taxes Share-Based Payments to Vendors for Services The company issued common stock to vendors for future services, recognizing the fair value as a prepaid asset and expensing it over the service period, with a remaining unamortized balance of $284,122 as of June 30, 2025 11. COMMITMENTS AND CONTINGENCIES The company has commitments related to its office lease, director compensation, and contingent payments, including a $10 million milestone to Knight Therapeutics and royalties to the U.S. Army and Tufts Medical Center - The company has a short-term office lease expiring March 31, 2026, with lease expense of $4,800 for Q2 2025[131] - Directors receive quarterly cash compensation and annual equity-based awards[132] Leases The company has a short-term office lease in Washington, DC, expiring March 31, 2026, with lease expense for the three months ended June 30, 2025, being $4,800 Board of Directors Board members receive quarterly cash compensation of $11,250, with additional fees for committee chairs, and annual equity-based compensation awards Contingencies The company's operations are subject to various local and state regulations, with potential fines or restrictions for non-compliance Contingent Compensation The company is obligated to pay Knight Therapeutics a $10 million contingent milestone payment and has royalty obligations to the U.S. Army and Tufts Medical Center based on sales or milestones - Obligated to pay Knight Therapeutics a $10 million contingent milestone payment upon Arakoda sale or Change of Control[134] - Royalty obligations to the U.S. Army: 3% of Net Sales (below $35M) and 5% (above $35M), excluding US government sales[135] - Royalty obligations to Tufts Medical Center for tafenoquine in babesiosis: 4% of Net Sales (labeled use) or 2% (unlabeled use), plus 10-20% of sublicense revenue, upon patent issuance or regulatory approval[136] Litigation, Claims and Assessments The company may face litigation in the ordinary course of business but reported no material pending or threatened lawsuits as of June 30, 2025 12. SUBSEQUENT EVENTS The company evaluated subsequent events through August 13, 2025, with a significant event being the July 2025 Offering, which raised approximately $4.46 million in net proceeds - Subsequent events were evaluated through August 13, 2025[138] July 2025 Offering The July 2025 Offering closed on July 15, 2025, generating approximately $4,459,874 in net proceeds through the sale of units and pre-funded units, including common stock and various warrants - The July 2025 Offering closed on July 16, 2025, generating approximately $4,459,874 in net proceeds[141][142] - The offering included 1,753,314 units (common stock + A-1 & A-2 warrants) and 878,264 pre-funded units (pre-funded warrants + A-1 & A-2 warrants)[139] - Issued placement agent warrants to purchase up to 197,368 shares of common stock at an exercise price of $2.375[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, liquidity, and results of operations, reiterating going concern risk and detailing revenue and expense trends - The company is a specialty pharmaceutical company focused on developing and commercializing new therapies for infectious diseases, with Arakoda® for malaria prevention[145] - The company estimates sufficient funds to remain viable through March 31, 2026, assuming no additional capital raises, after receiving $4.46 million from the July 2025 public offering[147] - Auditors expressed substantial doubt about the company's ability to continue as a going concern due to recurring operating losses and accumulated losses[149][150][151] Overview The company is a specialty pharmaceutical firm developing and commercializing infectious disease therapies, with Arakoda® for malaria prevention and a pipeline for vector-borne, fungal, and viral diseases Business Developments Recent business developments include commercial research suggesting a total addressable market for Arakoda in babesiosis of up to $1.1 billion and the introduction of a new 8-ct bottle format to mitigate shortages - Commercial research suggests an annual incidence of babesiosis between 25,000 and 380,000 cases, with a total addressable market for Arakoda potentially up to $1.1 billion over 10 years[148] - A new 8-ct bottle format of Arakoda was introduced in the U.S. supply chain to reduce costs for short-term travelers and alleviate temporary shortages of the 16-ct blister pack[148] Liquidity and Capital Resources Cash and cash equivalents were $1.97 million as of June 30, 2025, with net cash used in operating activities of $3.05 million, and the company relies on financing but faces substantial doubt about its going concern ability | Metric | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Cash and Cash Equivalents | $1,966,930 | $1,659,353 | - Net cash used in operating activities was $3,047,494 for the six months ended June 30, 2025[147] - The company estimates sufficient funds through March 31, 2026, assuming no additional capital raises, after receiving $4.46 million from the July 2025 public offering[147] - Substantial doubt exists about the company's ability to continue as a going concern due to recurring operating losses and the need for additional capital[149][151][153] Contractual Obligations Total contractual obligations amounted to $1.16 million as of June 30, 2025, with $914,585 due within one year, primarily for accounts payable and accrued expenses | Obligation Type | Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 Years | | :-------------------------------- | :----------- | :--------------- | :---------- | :---------- | :---------------- | | Principal obligations on debt | $150,000 | $- | $5,339 | $6,941 | $137,720 | | Interest obligations on debt | $100,261 | $8,772 | $12,205 | $10,603 | $68,681 | | Accounts payable and accrued expenses | $905,813 | $905,813 | $- | $- | $- | | Total | $1,156,074 | $914,585 | $17,544 | $17,544 | $206,401 | - Contingent milestone payments are not included in contractual obligations due to uncertainty of achievement and timing[155] Components of Results of Operations This section defines the key components of the company's results of operations, including product revenues, cost of revenues, gross profit, research revenues, operating expenses, and interest/other income/expense Product Revenues - net of Discounts and Rebates Product revenues primarily come from Arakoda sales to U.S. and international resellers, subject to discounts, rebates, and profit-sharing agreements, with U.S. sales involving discounts to 3PL partners, wholesalers, and PBMs Cost of Revenues, Gross Profit, and Gross Margin Cost of revenues includes direct materials, shipping, manufacturing, serialization, and inventory write-downs, with gross profit derived from net product revenues minus cost of revenues Other Operating Revenues Other operating revenues include research revenue from the Australian Tax Authority and, since Q3 2024, from a new USAMMDA contract for Arakoda supply chain support, recognized as eligible costs are incurred Operating Expenses Operating expenses consist of research and development (contracted services, Babesiosis trial costs, share-based payments) and general and administrative expenses (salaries, advertising, professional fees, corporate costs, amortization) Interest and Other (Expense) Income, Net This category includes interest income from cash and short-term investments, interest expense from the SBA loan, changes in the fair value of derivative liabilities, and other miscellaneous income/expenses Results of Operations The company reported a net loss for both the three and six months ended June 30, 2025 and 2024, with significant increases in research revenues and G&A expenses, and a substantial decrease in R&D costs | Metric (3 Months Ended June 30) | 2025 | 2024 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Product Revenues – net | $100,932 | $124,972 | $(24,040) | (19.24)% | | Research Revenues | $206,939 | $728 | $206,211 | 28325.69% | | Net Revenue | $257,820 | $36,136 | $221,684 | 613.46% | | Gross Profit | $50,881 | $35,408 | $15,473 | 43.70% | | Research and Development | $249,884 | $3,095,326 | $(2,845,442) | (91.93)% | | General and Administrative | $1,612,764 | $1,129,560 | $483,204 | 42.78% | | Loss from Operations | $(1,604,828) | $(4,188,750) | $2,583,922 | (61.68)% | | Net Loss | $(1,734,930) | $(4,174,226) | $2,439,296 | (58.44)% | | Metric (6 Months Ended June 30) | 2025 | 2024 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Product Revenues – net | $264,484 | $230,646 | $33,838 | 14.67% | | Research Revenues | $299,670 | $30,359 | $269,311 | 887.09% | | Net Revenue | $440,831 | $106,004 | $334,827 | 315.86% | | Gross Profit | $141,161 | $75,645 | $65,516 | 86.61% | | Research and Development | $657,506 | $3,432,508 | $(2,775,002) | (80.84)% | | General and Administrative | $3,299,028 | $2,204,694 | $1,094,334 | 49.64% | | Loss from Operations | $(3,515,703) | $(5,531,198) | $2,015,495 | (36.44)% | | Net Loss | $(3,612,231) | $(3,746,241) | $134,010 | (3.58)% | Comparison of the Three Months Ended June 30, 2025 and 2024 For Q2 2025, product revenues decreased by 19.24% due to Arakoda shortages, while research revenues surged over 28,000% from new contracts, R&D expenses declined significantly, and G&A expenses increased Product Revenues - net of Discounts and Rebates, Cost of Revenues, Gross Profit, and Gross Margin Product revenues decreased by 19.24% to $100,932 in Q2 2025 due to Arakoda shortages, but gross profit increased by 43.70% and gross margin improved to 50.41% due to lower costs and rebates | Metric (Q2) | 2025 | 2024 | Change | % Change | | :-------------------------- | :----------- | :----------- | :----------- | :--------- | | Product Revenues – net | $100,932 | $124,972 | $(24,040) | (19.24)% | | Cost of Revenues | $50,051 | $89,564 | $(39,513) | (44.12)% | | Gross Profit | $50,881 | $35,408 | $15,473 | 43.70% | | Gross Margin % | 50.41% | 28.33% | 22.08% | 77.94% | - Domestic product sales volume decreased by 17% due to a shortage of Arakoda 16-ct boxes, partially mitigated by Kodatef imports and a new 8-ct bottle[166][169] - Arakoda sales volume in Europe increased by 293% (110 boxes vs. 28 boxes) due to greater interest in treating babesiosis[171] Other Operating Revenues Research revenues dramatically increased by 28,325.69% to $206,939 in Q2 2025, primarily due to new contracts with USAMMDA and the University of Kentucky | Metric (Q2) | 2025 | 2024 | Change | % Change | | :---------------- | :----------- | :----------- | :----------- | :--------- | | Research Revenues | $206,939 | $728 | $206,211 | 28325.69% | - Increase driven by new USAMMDA contract ($116,948) and University of Kentucky contract ($89,302)[173] Operating Expenses Total operating expenses decreased by 55.91% to $1.86 million in Q2 2025, with R&D costs plummeting due to a prior-year non-cash charge, while G&A expenses rose due to higher sales, advertising, and investor outreach | Operating Expense (Q2) | 2025 | 2024 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :--------- | | Research and Development | $249,884 | $3,095,326 | $(2,845,442) | (91.93)% | | General and Administrative Expenses | $1,612,764 | $1,129,560 | $483,204 | 42.78% | | Total Operating Expenses | $1,862,648 | $4,224,886 | $(2,362,238) | (55.91)% | - R&D decline primarily due to a $2,625,000 non-cash charge in Q2 2024 for stock issued to the University of Kentucky[175] - G&A increase driven by higher sales, advertising, promotion, investor outreach expenses, and stock-based compensation[176] Interest and Other Income, net Total interest and other (expense) income, net, shifted from a $14,962 gain in Q2 2024 to a $(128,602) loss in Q2 2025, primarily due to a significant increase in the loss from change in fair value of derivative liabilities | Metric (Q2) | 2025 | 2024 | Change | % Change | | :-------------------------------------- | :----------- | :----------- | :----------- | :--------- | | Interest Expense | $(1,221) | $(3,621) | $2,400 | (66.28)% | | Change in Fair Value of Derivative Liabilities | $(140,447) | $(1,101) | $(139,346) | 12656.31% | | Other Income, net | $13,066 | $19,684 | $(6,618) | (33.62)% | | Total Interest and Other (Expense) Income, net | $(128,602) | $14,962 | $(143,564) | (959.52)% | - Loss on change in fair value of derivative liabilities increased significantly to $140,447 in Q2 2025 from $1,101 in Q2 2024[179] Comparison of the Six Months Ended June 30, 2025, and 2024 For the six months ended June 30, 2025, product revenues increased by 14.67%, research revenues surged by 887.09%, gross profit rose by 86.61%, R&D expenses decreased significantly, and G&A expenses increased by 49.64% Product Revenues - net of Discounts and Rebates, Cost of Revenues, Gross Profit, and Gross Margin Product revenues increased by 14.67% to $264,484, and gross profit rose by 86.61% with a gross margin improvement to 53.37%, driven by revenue growth, reduced Kodatef discounts, and lower per-unit costs | Metric (6M) | 2025 | 2024 | Change | % Change | | :-------------------------- | :----------- | :----------- | :----------- | :--------- | | Product Revenues – net | $264,484 | $230,646 | $33,838 | 14.67% | | Cost of Revenues | $123,323 | $155,001 | $(31,678) | (20.44)% | | Gross Profit | $141,161 | $75,645 | $65,516 | 86.61% | | Gross Margin % | 53.37% | 32.80% | 20.57% | 62.71% | - Domestic product sales volume increased by 15% to 2,661 16-ct box equivalents, despite a temporary shortage of 16-ct boxes in June 2025[182][184] - Arakoda sales volume in Europe increased significantly (183 boxes vs. 55 boxes) due to greater interest in treating babesiosis[186] Other Operating Revenues Research revenues increased by 887.09% to $299,670 for the six months ended June 30, 2025, primarily due to new contracts with USAMMDA and the University of Kentucky | Metric (6M) | 2025 | 2024 | Change | % Change | | :---------------- | :----------- | :----------- | :----------- | :--------- | | Research Revenues | $299,670 | $30,359 | $269,311 | 887.09% | - Increase driven by new USAMMDA contract ($194,914) and University of Kentucky contract ($89,302)[188] Operating Expenses Total operating expenses decreased by 29.81% to $3.96 million, with R&D costs decreasing significantly due to a prior-year non-cash charge, while G&A expenses increased by 49.64% due to higher sales, advertising, and investor outreach | Operating Expense (6M) | 2025 | 2024 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :--------- | | Research and Development | $657,506 | $3,432,508 | $(2,775,002) | (80.84)% | | General and Administrative Expenses | $3,299,028 | $2,204,694 | $1,094,334 | 49.64% | | Total Operating Expenses | $3,956,534 | $5,637,202 | $(1,680,668) | (29.81)% | - R&D decline primarily due to a $2,625,000 non-cash charge in 2024 for stock issued to the University of Kentucky[190] - G&A increase driven by higher sales, advertising, promotion, investor outreach expenses, and stock-based compensation[191] Interest and Other (Expense) Income, net Total interest and other (expense) income, net, shifted from a $1.79 million gain in the six months ended June 30, 2024, to a $(94,965) loss in the same period of 2025, primarily due to a significant change in the fair value of derivative liabilities | Metric (6M) | 2025 | 2024 | Change | % Change | | :-------------------------------------- | :----------- | :----------- | :----------- | :--------- | | Interest Expense | $(3,011) | $(5,023) | $2,012 | (40.06)% | | Change in Fair Value of Derivative Liabilities | $(135,342) | $1,739,746 | $(1,875,088) | (107.78)% | | Other Income, net | $43,388 | $50,735 | $(7,347) | (14.48)% | | Total Interest and Other (Expense) Income, net | $(94,965) | $1,785,458 | $(1,880,423) | (105.32)% | - Loss on change in fair value of derivative liabilities was $135,342 in 2025, compared to a gain of $1,739,746 in 2024[194] Cash Flows For the six months ended June 30, 2025, net cash used in operating activities increased, while investing activities provided significant cash due to short-term investment maturities, and financing activities provided less cash | Cash Flow Activity (6M) | 2025 | 2024 | Change | % Change | | :------------------------------------------ | :----------- | :----------- | :----------- | :--------- | | Net Cash Used in Operating Activities | $(3,047,494) | $(2,328,650) | $(718,844) | 30.87% | | Net Cash Provided by (Used in) Investing Activities | $1,650,834 | $(140,373) | $1,791,207 | (1276.03)% | | Net Cash Provided by Financing Activities | $1,696,899 | $1,902,426 | $(205,527) | (10.80)% | | Net Increase (Decrease) in Cash and Cash Equivalents | $307,577 | $(565,883) | $873,460 | (154.35)% | Cash Used in Operating Activities Net cash used in operating activities increased to $3.05 million for the six months ended June 30, 2025, primarily due to higher general and administrative expenses, partially offset by lower research and development costs Cash Provided by (Used in) Investing Activities Net cash provided by investing activities was $1.65 million for the six months ended June 30, 2025, a significant improvement from cash used in the prior year, mainly due to $1.71 million from maturities of short-term investments Cash Provided by Financing Activities Net cash provided by financing activities decreased to $1.70 million for the six months ended June 30, 2025, compared to $1.90 million in the prior year, primarily due to lower net proceeds from equity offerings and warrant exercises Effect of Foreign Currency Translation on Cash The effect of foreign currency translation on cash was minor for both periods due to the small scale of foreign operations relative to U.S. operations Critical Accounting Policies, Significant Judgments, and Use of Estimates This section reiterates the critical accounting policies and significant judgments involved in financial reporting, emphasizing the use of estimates for revenue recognition, share-based payments, and derivative liabilities Revenue Recognition Revenue recognition follows ASC 606, involving a five-step process and significant judgments in estimating variable consideration and allocating transaction prices, with U.S. commercial revenues recognized upon title transfer and foreign sales upon shipment Share-Based Payments Share-based payments are measured at fair value on the grant date, with compensation expense recognized straight-line for service-based awards or upon performance condition achievement for performance-based awards, using the Black-Scholes model for stock options Derivative Liabilities Derivative liabilities are measured at fair value each reporting period, with changes recorded in operations, and the company uses a probability-weighted expected return method for valuation Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements with unconsolidated organizations or financial partnerships during 2025 and 2024 JOBS Act Accounting Election As an emerging growth company, the company has elected to use the extended transition period under the JOBS Act for complying with new or revised accounting standards, delaying adoption until they apply to private companies Recent Accounting Pronouncements The company adopted ASU 2023-07 (Segment Reporting) retrospectively and is evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures) for future periods - Adopted ASU 2023-07 (Segment Reporting) retrospectively for 2024 annual and 2025 interim periods, impacting financial statement disclosures[218] - Evaluating ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures), effective for fiscal years beginning after December 15, 2024, and December 15, 2026, respectively[219][220] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk and has elected scaled disclosure reporting obligations Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were not effective as of June 30, 2025, due to identified material weaknesses - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025[223] - Material weaknesses in internal control over financial reporting include lack of full-time in-house personnel for complex transactions, inadequate segregation of duties, and insufficient accounting staff for period-end financial disclosure[225][231] Disclosure Controls and Procedures The CEO and CFO evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, concluding they were not effective due to material weaknesses in internal control over financial reporting Limitations on Effectiveness of Controls and Procedures Management acknowledges that controls and procedures provide only reasonable assurance and are subject to resource constraints and judgment in balancing benefits against costs Changes in Internal Control over Financial Reporting There were no material changes in internal control over financial reporting during the most recent fiscal quarter PART II. OTHER INFORMATION Item 1. Legal Proceedings The company may be involved in litigation in the ordinary course of business but reported no reportable litigation events during the quarter ended June 30, 2025 Item 1A. Risk Factors As a smaller reporting company, the company is not required to provide risk factor disclosures, and no material changes to previously disclosed risk factors were reported, though warrant exercises could cause dilution - As a smaller reporting company, the company is not required to provide risk factor disclosures and reported no material changes to previously disclosed risk factors[229] - The issuance of a substantial number of common shares upon exercise of warrants from the July 2025 Offering could dilute existing stockholders' ownership and affect the market price of common stock[230][232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the January and February 2025 securities purchase agreements, involving registered direct offerings of common stock and concurrent private placements of unregistered warrants, and the intended use of proceeds January 2025 Securities Purchase Agreement On January 28, 2025, the company sold 204,312 common shares in a registered direct offering and issued unregistered warrants for 408,621 shares, generating approximately $804,346 in net proceeds for general corporate purposes - Sold 204,312 common shares at $5.105/share and issued unregistered warrants for 408,621 shares at $3.855/share[233][235] - Net proceeds of approximately $804,346 were received and intended for general corporate purposes, including working capital[241] - Issued placement agent warrants for 15,325 shares at an exercise price of $6.382[240] February 2025 Securities Purchase Agreement On February 5, 2025, the company sold 300,700 common shares in a registered direct offering and issued unregistered warrants for 300,700 shares, generating approximately $908,627 in net proceeds for general corporate purposes - Sold 300,700 common shares at $3.575/share and issued unregistered warrants for 300,700 shares at $2.95/share[242][245] - Net proceeds of approximately $908,627 were received and intended for general corporate purposes, including working capital[251] - Issued placement agent warrants for 22,554 shares at an exercise price of $4.469[250] Registration of the Shares of Common Stock Underlying Warrants The company filed a registration statement on Form S-1, declared effective on April 2, 2025, to cover the resale of common stock issuable upon exercise of warrants from the January and February 2025 offerings Use of Proceeds This section states that there is no information to report regarding the use of proceeds Issuer Purchases of Equity Securities This section states that there were no issuer purchases of equity securities Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities Item 4. Mine Safety Disclosures This item is not applicable to the company Item 5. Other Information This section includes information on securities trading plans Securities Trading Plans No Section 16 officers or directors adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including engagement agreements, forms of warrants, securities purchase agreements, and certifications SIGNATURES SIGNATURES The report was signed by Geoffrey Dow, Chief Executive Officer and President, and Tyrone Miller, Chief Financial Officer, on August 13, 2025