Lipella Pharmaceuticals (LIPO) - 2025 Q2 - Quarterly Report

Part I Item 1. Financial Statements Presents Lipella Pharmaceuticals Inc.'s unaudited condensed financial statements, covering balance sheets, operations, equity, cash flows, and detailed explanatory notes Condensed Balance Sheets Summarizes Lipella Pharmaceuticals Inc.'s financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $2,781,828 | $2,184,863 | | Total Current Assets | $3,437,246 | $2,617,252 | | Total Assets | $3,720,206 | $2,673,870 | | Total Current Liabilities | $746,898 | $754,417 | | Total Liabilities | $978,534 | $754,417 | | Total Stockholders' Equity | $2,741,672 | $1,919,453 | Condensed Statements of Operations Presents Lipella Pharmaceuticals Inc.'s revenues, expenses, and net loss for the three and six months ended June 30, 2025 and 2024 | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Grant revenues | $87 | $136 | $216 | $282 | | R&D expenses | $792 | $662 | $1,785 | $1,504 | | G&A expenses | $652 | $427 | $1,115 | $948 | | Total costs & expenses| $1,443 | $1,089 | $2,901 | $2,452 | | Loss from operations | $(1,357) | $(952) | $(2,684) | $(2,170) | | Net Loss | $(1,327) | $(938) | $(2,634) | $(2,130) | | Basic EPS | $(0.31) | $(0.99) | $(0.83) | $(2.29) | Condensed Statements of Changes in Stockholders' Equity (Deficit) Details changes in Lipella Pharmaceuticals Inc.'s stockholders' equity, including net loss, preferred stock issuance, and conversions for the periods ended June 30, 2025 and 2024 - Total stockholders' equity increased from $1,919,453 at December 31, 2024, to $2,741,672 at June 30, 2025, despite a net loss, primarily due to the issuance of preferred stock and warrants[16] - Significant conversions of Series B and Series C preferred stock into common stock occurred during the six months ended June 30, 2025, increasing common stock shares outstanding[16] Condensed Statements of Cash Flows Analyzes Lipella Pharmaceuticals Inc.'s cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(2,859) | $(2,307) | | Net cash provided by financing activities | $3,456 | $200 | | Net increase (decrease) in cash and cash equivalents | $597 | $(2,107) | | Cash and cash equivalents at end of period | $2,781,827 | $1,186,507 | Notes to Condensed Financial Statements Provides detailed explanations and disclosures supporting the unaudited condensed financial statements, covering accounting policies, going concern, and specific financial instrument details Note 1. Description of Business and Basis of Presentation Describes Lipella Pharmaceuticals Inc.'s business as a clinical-stage biotechnology company focused on drug reformulation and its basis of financial statement presentation - Lipella Pharmaceuticals Inc. is a clinical-stage biotechnology company focused on developing new drugs by reformulating active agents in existing generic drugs for new applications[21] - Operations consist of research, preclinical, and clinical development activities, with the most advanced program in Phase 2 clinical development[21] Note 2. Going Concern Addresses the Company's ability to continue operations, highlighting significant net losses and the need for additional capital to alleviate substantial doubt - The Company has incurred significant net losses and an accumulated deficit, raising substantial doubt about its ability to continue as a going concern without additional capital[24][25][26] | Metric | June 30, 2025 | December 31, 2024 | | :----------------- | :-------------- | :---------------- | | Net Loss (6 months/fiscal year) | $2,634,009 | $5,016,264 | | Accumulated Deficit | $17,974,116 | $15,340,107 | | Cash and Cash Equivalents | $2,781,828 | N/A | | Net Working Capital | $2,690,348 | N/A | Note 3. Summary of Significant Accounting Policies Outlines the Company's key accounting policies, including revenue recognition, concentration risks, and earnings per share calculations, with no material changes reported - No material changes to significant accounting policies occurred during the three months ended June 30, 2025[27] - Grant revenues and receivables are concentrated with the National Institute of Health (NIH), with $216,117 in revenue for the six months ended June 30, 2025[30] - Common Stock equivalents (stock options, preferred stock, warrants) were anti-dilutive due to net loss, resulting in basic and diluted EPS being the same[31] Note 4. Fair Value Measurements and Marketable Debt Securities Discusses the fair value of financial instruments, primarily cash and cash equivalents, and their classification based on valuation inputs - The Company's financial instruments primarily consist of cash and cash equivalents, accounts payable, and accrued liabilities, with carrying amounts representative of fair values due to short maturity[36] | Cash Equivalents (maturity < 90 days) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Money market funds | $2,628,237 | $1,692,141 | | Total Cash equivalents | $2,628,237 | $1,692,141 | Note 5. Prepaid Expenses Details the composition of prepaid expenses, including insurance, issuance costs, and clinical trial advance deposits, as of June 30, 2025, and December 31, 2024 | Prepaid Expense Category | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Total Prepaid Expenses | $613,437 | $347,676 | | - Prepaid insurance | $83,074 | N/A | | - Prepaid issuance costs | $17,499 | N/A | | - Advance deposit (clinical trial) | $384,907 | $267,684 | | - Other prepaid expenses | $127,597 | $66,128 | Note 6. Accrued Expenses Outlines the components of accrued expenses, such as unbilled legal and franchise taxes, and professional service expenses, as of June 30, 2025, and December 31, 2024 | Accrued Expense Category | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Total Accrued Expenses | $15,087 | $237,886 | | - Unbilled legal and franchise taxes | $15,087 | N/A | | - Accrued professional service expenses | N/A | $237,886 | Note 7. Letter of Credit Describes the Company's $50,000 letter of credit, collateralized by assets and personally guaranteed by the CEO, with a zero outstanding balance - The Company has a $50,000 letter of credit, collateralized by assets and personally guaranteed by the CEO, with a $0 outstanding balance as of June 30, 2025, and December 31, 2024[40] Note 8. Segment Information Reports that the Company operates as a single segment, 'Products,' focused on therapeutic development, and provides segment-level financial results - The Company operates as a single operating and reportable segment, 'Products,' focused on discovery, development, and commercialization of novel therapeutics[41] | Segment Results (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $87 | $136 | $216 | $282 | | Total G&A | $652 | $427 | $1,115 | $948 | | Total R&D | $792 | $662 | $1,785 | $1,504 | | Loss from operations | $(1,357) | $(952) | $(2,684) | $(2,170) | Note 9. Stock Options Details stock option activity, compensation costs, and outstanding option statistics for the periods ended June 30, 2025, and December 31, 2024 - The Company recognized $0 in stock option compensation costs for the three and six months ended June 30, 2025, a decrease from $80,665 and $289,305 respectively in 2024[45] | Stock Options | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Outstanding Shares | 361,624 | 361,624 | | Weighted Average Exercise Price | $19.74 | $19.74 | | Weighted Average Remaining Term | 4.59 years | 5.07 years | - No stock options were granted in the three and six months ended June 30, 2025, compared to 55,000 options granted in March 2024[46] Note 10. Preferred Stock Describes the characteristics, conversion terms, and outstanding shares of the Company's Series B and Series C Preferred Stock - Series A Preferred Stock was eliminated on April 11, 2024[48] - Series B Preferred Stock is convertible into Common Stock at a stated value of $100 per share, with limited voting rights and senior ranking to Common Stock[50] - Series C Preferred Stock is convertible into Common Stock on a one-to-one basis, ranks pari passu to Common Stock, and its authorized shares were increased to 1,260,000 on April 8, 2025[52][53] | Preferred Stock | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Series B Outstanding Shares | 1,260 | 25,975 | | Series C Outstanding Shares | 153,442 | 303,041 | Note 11. Common Stock Provides details on common stock outstanding, recent conversions, and the delisting of the Company's Common Stock from Nasdaq | Common Stock | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Shares Outstanding | 4,467,395 | 1,208,919 | - The Company's Common Stock was delisted from Nasdaq on June 20, 2025, due to non-compliance with shareholder approval and voting rights requirements, and is now quoted on the OTCID Market under 'LIPO'[60] - 1,535,067 shares of Common Stock were issued from Series B Preferred Stock conversion and 383,517 shares from Series C Preferred Stock conversion in Q2 2025[58] Note 12. Warrants Describes the terms and exercise activity of Placement Agent Warrants and Series B Warrants, including cashless exercises and outstanding balances - Placement Agent Warrants were issued in connection with the Offering, immediately exercisable at $1.00 per share or via cashless exercise, expiring in five years[61] - On January 23, 2025, 97,216 Placement Agent Warrants were exercised for 64,702 shares of Common Stock on a cashless basis[62] - 72,000 Series B Warrants were outstanding as of June 30, 2025, exercisable for Series B Preferred Stock at $100 per share, which are convertible into Common Stock at $2.16 per share[64] Note 13. Commitment and Contingencies Outlines the Company's lease commitments for its headquarters and contractual obligations with CROs and manufacturers - The Company renewed its principal headquarters lease for five years, starting July 1, 2025[67][68] | Lease Commitments | June 30, 2025 | | :---------------- | :------------ | | Total minimum lease payments | $326,087 | | Present value of minimum lease payments | $274,539 | | ROU asset | $274,539 | | Current operating lease liability | $42,903 | | Non-current operating lease liability | $231,636 | - Contract commitments with CROs and manufacturers are generally cancellable, with payments due for services rendered or non-cancellable obligations[72] Note 14. Income Taxes Explains the Company's income tax position, detailing the effective tax rate and the impact of valuation allowances on deferred tax assets - The Company reported a 0% effective income tax rate for the three and six months ended June 30, 2025 and 2024, primarily due to a full valuation allowance against net deferred tax assets[73][74] Note 15. Subsequent Events Discloses significant events that occurred after the balance sheet date but before the issuance of the financial statements - On August 12, 2025, 153,442 shares of Series C Preferred Stock were converted to 153,442 shares of Common Stock[77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses Lipella Pharmaceuticals Inc.'s financial condition, operational results, liquidity, capital resources, and critical accounting policies for the periods ended June 30, 2025 and 2024 Overview Provides a general description of Lipella Pharmaceuticals Inc.'s clinical-stage biotechnology business, its drug development programs, and patent portfolio - Lipella is a clinical-stage biotechnology company developing new drugs by reformulating existing generic active agents for new applications, aiming for cost efficiencies and patent protection[84] - LP-10: Reformulation of tacrolimus for hemorrhagic cystitis (HC), in Phase 2 clinical development - LP-310: Oral, liposomal tacrolimus for oral lichen planus (OLP), completed dosing for first cohort in Phase 2a clinical trial with no product-related serious adverse events - LP-410: Oral, liposomal tacrolimus for oral graft-versus-host disease (GVHD), received orphan drug designation from FDA in November 2023 and IND approval in March 2024 - LP-50: Intravesical formulation of immunoglobulins for non-muscle invasive bladder cancer, in preclinical development - The Company holds two issued U.S. patents for LP-10 and LP-310 formulations, expiring July 11, 2035, and additional patents in Australia, Canada, and Europe expiring October 22, 2034[91] Recent Developments Highlights key recent events, including the ATM Offering Agreement, changes to Series C Preferred Stock, and the delisting of Common Stock from Nasdaq - The Company entered into an At The Market (ATM) Offering Agreement on April 4, 2025, to sell up to $2,641,881 in Common Stock, but does not intend to utilize it due to Nasdaq delisting[95] - On April 8, 2025, the Certificate of Amendment to the Series C Certificate of Designation was filed, increasing authorized Series C Preferred Stock from 1,050,000 to 1,260,000 shares[96] - The Common Stock was delisted from the Nasdaq Capital Market on June 20, 2025, due to non-compliance with shareholder approval and voting rights requirements related to Series C Preferred Stock and Series B Warrants issuances[98][99][100] Results of Operations Analyzes Lipella Pharmaceuticals Inc.'s financial performance, focusing on revenue, expenses, and net loss for the three and six months ended June 30, 2025 and 2024 Comparison of the Three Months Ended June 30, 2025 and 2024 Compares Lipella Pharmaceuticals Inc.'s financial results for the three months ended June 30, 2025, against the same period in 2024, detailing changes in revenue, expenses, and net loss | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (Increase/Decrease) | | :-------------------- | :--------------------------- | :--------------------------- | :------------------------- | | Revenue | $87 | $136 | $(49) | | R&D expenses | $792 | $662 | $130 | | G&A expenses | $652 | $427 | $225 | | Net loss | $(1,327) | $(938) | $(389) | - Grant revenue decreased by $49,000 (36%) due to the full depletion of funds from the 2022 NIH Grant during Q2 2025[102] - R&D expenses increased by $130,000 (19.6%) primarily due to a $139,000 increase in outside services for the LP-310 clinical trial, partially offset by a $39,000 decrease in stock option expense[108] - G&A expenses increased by $225,000 (52.7%) mainly due to a $323,000 rise in professional and outside services (legal, accounting, investor relations), offset by decreases in employee costs and stock option expense[110] Comparison of the Six Months Ended June 30, 2025 and 2024 Compares Lipella Pharmaceuticals Inc.'s financial results for the six months ended June 30, 2025, against the same period in 2024, detailing changes in revenue, expenses, and net loss | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (Increase/Decrease) | | :-------------------- | :--------------------------- | :--------------------------- | :------------------------- | | Revenue | $216 | $282 | $(66) | | R&D expenses | $1,785 | $1,504 | $281 | | G&A expenses | $1,115 | $948 | $167 | | Net loss | $(2,634) | $(2,130) | $(504) | - Grant revenue decreased by $66,000 (23.4%) due to the full depletion of funds from the 2022 NIH Grant[113] - R&D expenses increased by $281,000 (18.7%) driven by a $376,000 increase in outside services for the LP-310 clinical trial and $209,000 in salaries/benefits, partially offset by a $247,000 decrease in stock option expense[114] - G&A expenses increased by $167,000 (17.6%) due to a $240,000 rise in professional and outside services, offset by decreases in employee costs and stock option expense[115] Liquidity and Capital Resources Assesses Lipella Pharmaceuticals Inc.'s ability to meet short-term and long-term obligations, discussing cash flows, financing activities, and future capital requirements - The Company has not commercialized any products and expects to incur operating losses and negative cash flows for the foreseeable future, requiring significant equity financing[117][118][119] | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(2,859) | $(2,307) | | Net cash provided by financing activities | $3,456 | $200 | | Net increase (decrease) in cash and cash equivalents | $597 | $(2,107) | - Net cash provided by financing activities significantly increased to $3,456,228 in H1 2025 (from $200,000 in H1 2024) due to net proceeds from preferred stock and warrant issuances[123] - Existing cash and cash equivalents are estimated to be sufficient to fund operations and capital expenses through the end of 2025, but this estimate is subject to risks and uncertainties[126][127] - The Company's ability to continue as a going concern is in substantial doubt, necessitating additional funds through equity or debt, which may dilute stockholders or impose restrictive covenants[128][129] - No off-balance sheet arrangements - Lease agreement for headquarters renewed for five years, with annual base rent of approximately $67,000 - Service agreement expenses for R&D and clinical trials increased to $819,000 in H1 2025 from $421,000 in H1 2024 Critical Accounting Policies and Significant Judgments and Estimates Discusses the Company's critical accounting policies and the significant judgments and estimates required in preparing its financial statements, such as for R&D expenses and stock-based compensation - The preparation of financial statements requires significant judgments and estimates, particularly for accrued third-party R&D expenses and stock-based compensation[135][137] - Stock-based compensation expense is measured at grant date fair value using the Black-Scholes model, with assumptions for volatility, expected term, risk-free rate, and dividend yield[143] - As an emerging growth company, Lipella has irrevocably elected to use the extended transition period for complying with new or revised accounting standards and benefits from reduced disclosure requirements[149][150][151] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Lipella Pharmaceuticals Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing market risk disclosures as a smaller reporting company[154] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter. The report acknowledges the inherent limitations of any control system - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[156] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[157] - Management acknowledges that control systems provide only reasonable assurance and have inherent limitations, such as human error, collusion, or management override[158][160] Part II. Other Information Item 1. Legal Proceedings Lipella Pharmaceuticals Inc. is not currently a party to any legal proceedings that would have a material adverse effect on its business or financial condition - The Company is not currently involved in any material litigation, claims, or legal proceedings[162] Item 1A. Risk Factors This section supplements previously disclosed risk factors, emphasizing new risks related to the Company's Nasdaq delisting, its designation as a 'penny stock,' and the potential for significant dilution from the conversion of preferred stock and warrants - Nasdaq Delisting: The Company's Common Stock was suspended from the Nasdaq Capital Market in June 2025 and now trades on the OTC Markets, potentially limiting liquidity and increasing price volatility - 'Penny Stock' Designation: The Common Stock is deemed a 'penny stock,' which limits liquidity and makes it difficult for broker-dealers to recommend, potentially further restricting trading activity - Dilution from Conversions: The conversion of outstanding Series B and Series C Preferred Stock, and the exercise of Series B Warrants, will cause immediate and substantial dilution to existing common stockholders - Seniority of Series B Preferred Stock: Holders of Series B Preferred Stock have senior rights over Common Stock holders regarding dividends and liquidation payments Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the fiscal quarter ended June 30, 2025 - No unregistered sales of equity securities or use of proceeds occurred during the period[173] Item 3. Defaults upon Senior Securities The Company reported no defaults upon senior securities during the fiscal quarter ended June 30, 2025 - No defaults upon senior securities were reported[174] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to Lipella Pharmaceuticals Inc.'s operations - Mine safety disclosures are not applicable to the Company[175] Item 5. Other Information No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025 - No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[176] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including amendments to preferred stock designations, the At The Market Offering Agreement, and certifications from the principal executive and financial officers - Exhibit 3.1: Certificate of Amendment of Certificate of Designation of Preferences, Rights and Limitations of Series C Voting Convertible Preferred Stock - Exhibit 10.1: At The Market Offering Agreement, dated April 4, 2025, with H.C. Wainwright & Co., LLC - Exhibits 31.1 and 31.2:** Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Exhibits 32.1 and 32.2: Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Signatures The report is duly signed on behalf of Lipella Pharmaceuticals Inc. by its President and Chief Executive Officer, Jonathan Kaufman, and its Chief Financial Officer, Douglas Johnston, on August 14, 2025 - The report was signed by Jonathan Kaufman, President and CEO, and Douglas Johnston, CFO, on August 14, 2025[182]