Gyre Therapeutics(GYRE) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements for the period ended September 30, 2023, reflect a significant transformation, including asset sales, a pending business combination, and a shift to net loss, raising going concern doubts Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2023, shows a significant reduction in total assets and liabilities, alongside a major reclassification of preferred stock to permanent equity, resulting in positive stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,228 | $21,666 | | Total current assets | $5,132 | $28,206 | | Total assets | $9,964 | $28,444 | | Liabilities & Equity | | | | Total current liabilities | $1,783 | $16,824 | | Total liabilities | $6,447 | $16,824 | | Redeemable convertible preferred stock | $0 | $33,309 | | Total stockholders' equity (deficit) | $3,517 | $(21,689) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the nine months ended September 30, 2023, the company reported a net loss of $3.8 million, a significant shift from the prior year's net income driven by asset disposal gains Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | $0 | $794 | | Research and development | $415 | $803 | $1,321 | $12,377 | | General and administrative | $2,408 | $4,363 | $8,603 | $13,201 | | GNI cost-sharing reimbursement | $(1,200) | $0 | $(1,200) | $0 | | Gain on disposal of assets, net | $0 | $0 | $(4,736) | $(57,245) | | Net Income (Loss) | $(1,576) | $(4,884) | $(3,788) | $32,212 | | Net Income (Loss) per share, basic | $(0.04) | $(0.16) | $(0.10) | $1.02 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, the company experienced a net decrease in cash of $19.4 million, driven by operating and financing outflows, resulting in a period-end balance of $2.2 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,904) | $(31,621) | | Net cash provided by investing activities | $5,206 | $55,375 | | Net cash used in financing activities | $(12,740) | $(45,011) | | Net decrease in cash and cash equivalents | $(19,438) | $(21,257) | | Cash and cash equivalents at end of period | $2,228 | $23,090 | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes detail significant corporate events, including asset acquisitions, a pending business combination, asset sales, and the reclassification of preferred stock, alongside a going concern disclosure - The company has ceased its prior biopharmaceutical research and has pivoted its strategy through an asset purchase agreement for F351 assets with GNI Group and a concurrent business combination agreement to acquire an indirect controlling interest in Beijing Continent Pharmaceutical Co., Ltd[16][17][24] - Management has identified substantial doubt about the company's ability to continue as a going concern for at least 12 months, citing a net loss of $3.8 million for the nine months ended Sep 30, 2023, a low cash balance of $2.2 million, and uncertainties surrounding the pending Business Combination Agreement[29] - The company sold its complement portfolio to Vertex for $60.0 million and its legacy rare bleeding disorder program to GC Biopharma for $6.0 million. Net proceeds from these sales are being distributed to holders of Contingent Value Rights (CVRs)[18][19][82] - Following stockholder approval on August 29, 2023, the cash redemption feature of the Series X Redeemable Convertible Preferred Stock was eliminated, and the stock was reclassified from a liability to permanent stockholders' equity[22][23] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic shift, significant expense reductions, critical liquidity position, and reliance on a cost-sharing agreement, highlighting substantial doubt about its going concern ability Comparison of Results of Operations (in thousands) | Line Item | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $1,321 | $12,377 | $(11,056) | (89)% | | General and administrative | $8,603 | $13,201 | $(4,598) | (35)% | | GNI cost-sharing reimbursement | $(1,200) | $0 | $(1,200) | 100% | | Gain on disposal of assets, net | $(4,736) | $(57,245) | $52,509 | (92)% | | Net Income (Loss) | $(3,788) | $32,212 | $(36,000) | * | - The company's operations have fundamentally changed, ceasing old R&D activities in March 2022 and acquiring F351 assets from GNI in December 2022. A pending business combination with GNI is expected to close by the Outside Date[91][93][104] - The significant decrease in R&D and G&A expenses for the nine months ended Sep 30, 2023, compared to 2022, is primarily due to the cessation of development programs and a reduction-in-force[116][118] - The company's cash position has dwindled to $2.2 million. Management states there is substantial doubt about the ability to continue as a going concern, with future operations dependent on the closing of the Business Combination Agreement and cost-sharing support from GNI[126][127] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has determined that quantitative and qualitative disclosures about market risk are not applicable for this reporting period - The company has determined that quantitative and qualitative disclosures about market risk are not applicable for this reporting period[137] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[139] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, such controls[140] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not a party to any material legal proceedings - As of the filing date, Catalyst is not involved in any material legal proceedings[142] Item 1A. Risk Factors The company faces significant delisting risk from Nasdaq due to non-compliance with minimum bid price and stockholders' equity requirements, which could jeopardize stock value and the pending business combination - The company is not in compliance with Nasdaq's Minimum Bid Price Requirement (below $1.00) and the minimum stockholders' equity requirement ($2.5 million)[144][145] - Nasdaq has granted the company an extension until October 30, 2023, to regain compliance, pending the completion of the Business Combination Agreement and a reverse stock split[145] - Failure to regain compliance could result in delisting, which would adversely affect the stock's price and liquidity, and could jeopardize the closing of the Business Combination Agreement[146] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company states that this item is not applicable - There were no unregistered sales of equity securities during the reporting period[147] Item 5. Other Information The company reports that no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended September 30, 2023 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during the third quarter of 2023[150] Item 6. Exhibits This section refers to the Exhibit Index at the end of the report, which lists all documents filed as part of the Form 10-Q - The report incorporates by reference an index of all exhibits filed with this Form 10-Q[151]