UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2021

☐ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-40536

Acurx Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)


Delaware		82-3733567
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

259 Liberty Ave Staten Island, NY		10305
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (917)533-1469

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value per share	ACXP	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐Yes ☒No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☒		Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 13, 2021, there were 10,119,208 shares of common stock, $0.001 par value, issued and outstanding.

Table of Contents

Acurx Pharmaceuticals, Inc.

Table of Contents

			Page

PART I -		FINANCIAL INFORMATION	5

	Item 1.	Condensed Interim Financial Statements (unaudited)	5

		Condensed Interim Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020	5

		Condensed Interim Statements of Operations for the Three Months and Six Months Ended June 30, 2021 and 2020 (unaudited)	6

		Condensed Interim Statements of Changes in Members’ and Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	7

		Condensed Interim Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (unaudited)	8

		Notes to the Condensed Interim Financial Statements (unaudited)	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

	Item 4.	Controls and Procedures	24

PART II -		OTHER INFORMATION	25

	Item 1.	Legal Proceedings	25

	Item1A.	Risk Factors	25

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

	Item 3.	Defaults Upon Senior Securities	49

	Item 4.	Mine Safety Disclosure	49

	Item 5.	Other Information	49

	Item 6.	Exhibits	50

		Signatures	52

		Certificates

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In this Quarterly Report, we refer to Acurx Pharmaceuticals, Inc., together with its subsidiary, as the “Company,” “we,” “our” or “us.” All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” or the negative version of these words and similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances included herein may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

●

general economic and financial conditions;

●

the adverse effects of public health epidemics, including the recent COVID-19 outbreak, on our business, results of operations and financial condition;

●

the costs of being a public company;

●

our ability to keep pace with technological advances;

●

the success of our marketing activities;

●

a disruption of breach of our information technology systems;

●

our dependence on third parties;

●

the performance of third parties on which we depend;

●

compliance with health and safety laws;

●

our ability to obtain and maintain protection for our intellectual property and proprietary rights;

●

our ability to protect and defend against litigation, including claims related to intellectual property and proprietary rights;

●

product shortages and relationships with key suppliers;

●

our ability to attract key employees;

●

the volatility of the price of our common stock;

●

the marketability of our common stock; and

●

other risks and uncertainties, including those listed in “Risk Factors.”

Table of Contents

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Any forward-looking statement made by us in this Quarterly Report speaks only as of the date on which it is made. We disclaim any duty to update any of these forward-looking statements after the date of this Quarterly Report to conform these statements to actual results or revised expectations.

Other risks may be described from time to time in our filings made under applicable securities laws. New risks emerge from time to time. It is not possible for our management to predict all risks. All forward-looking statements in this Quarterly Report speak only as of the date made and are based on our current beliefs and expectations. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ACURX PHARMACEUTICALS, INC.

CONDENSED INTERIM BALANCE SHEETS


		June 30,		December 31,
		2021		2020
ASSETS		(unaudited)
CURRENT ASSETS
Cash	$	17,095,596	$	3,175,411
Prepaid Expenses		344,549		48,609
TOTAL ASSETS	$	17,440,145	$	3,224,020

LIABILITIES AND MEMBERS' AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses	$	1,918,639	$	455,931
Paycheck Protection Program Loan		—		16,625
TOTAL CURRENT LIABILITIES		1,918,639		472,556

NON CURRENT LIABILITIES
Paycheck Protection Program Loan		—		49,878
TOTAL LIABILITIES		1,918,639		522,434

COMMITMENTS AND CONTINGENCIES

MEMBERS' AND SHAREHOLDERS' EQUITY
Members' Equity, Class A		—		16,402,198
Members' Equity, Class B		—		100,000
Common Stock; $.001 par value, 200,000,000 shares authorized, 9,916,208 shares issued and outstanding at June 30, 2021		9,916		—
Additional Paid-in Capital		34,790,591		—
Accumulated Deficit		(19,279,001)		(13,800,612)
TOTAL MEMBERS' AND SHAREHOLDERS' EQUITY		15,521,506		2,701,586

TOTAL LIABILITIES AND MEMBERS' AND SHAREHOLDERS' EQUITY	$	17,440,145	$	3,224,020

See accompanying notes to the condensed interim financial statements.

Table of Contents

ACURX PHARMACEUTICALS, INC.

CONDENSED INTERIM STATEMENTS OF OPERATIONS


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(unaudited)			(unaudited)	(unaudited)		(unaudited)
OPERATING EXPENSES
Research and Development	$	95,074	$	400,738	$	186,981	$	1,085,469
General and Administrative		3,975,488		512,622		5,357,911		1,106,992
TOTAL OPERATING EXPENSES		4,070,562		913,360		5,544,892		2,192,461
Gain on forgiveness of Paycheck Protection Program Loan		66,503		—		66,503		—
NET LOSS	$	(4,004,059)	$	(913,360)	$	(5,478,389)	$	(2,192,461)
LOSS PER SHARE
Basic and diluted net loss per common share/units	$	(0.57)	$	(0.15)	$	(0.79)	$	(0.37)
Weighted average pro forma shares outstanding basic and diluted		6,968,341		5,975,971		6,908,396		5,919,792

See accompanying notes to the condensed interim financial statements.

Table of Contents

ACURX PHARMACEUTICALS, INC.

CONDENSED INTERIM STATEMENTS OF CHANGES IN MEMBERS’ AND SHAREHOLDERS’ EQUITY (unaudited)


	Class A Membership Interests			Class B Membership Interests			Common Stock			Additional		Accumulated		Total
	Number of Units	Amount		Number of Units	Amount		Shares	Amount			Paid-In Capital	Deficit		Members’ and Shareholders’ Equity
Balance at January 1, 2020	11,058,666	$	9,920,428	100,000	$	100,000	—	$	—	$	—	$	(9,200,574)	$	819,854

Private Placement Offerings, net of issuance costs of $51,409	182,002		454,980	—		—	—		—		—		—		454,980

Executive Compensation Settled with Membership Interests	312,680		781,700	—		—	—		—		—		—		781,700

Share-Based Compensation	136,111		166,667	—		—	—		—		—		—		166,667

Share-Based Payments to Vendors	57,440		181,100	—		—	—		—		—		—		181,100

Net Loss	—		—	—		—	—		—		—		(1,279,101)		(1,279,101)

Balance at March 31, 2020	11,746,899	$	11,504,875	100,000	$	100,000	—		—		—	$	(10,479,675)	$	1,125,200

Share-Based Compensation	136,111		166,666	—		—	—		—		—		—		166,666

Share-Based Payments to Vendors	49,438		161,096	—		—	—		—		—		—		161,096

Net Loss	—		—	—		—	—		—		—		(913,360)		(913,360)

Balance at June 30, 2020	11,932,448	$	11,832,637	100,000	$	100,000	—				—	$	(11,393,035)	$	539,602

Balance at January 1, 2021	13,493,807	$	16,402,198	100,000	$	100,000	—	$	—	$	—	$	(13,800,612)	$	2,701,586

Executive Compensation Settled with Membership Interests	57,430		186,650	471,042		730,115	—		—		—		—		916,765

Cancellation of Class B Issuance				(471,042)		—	—		—		—		—		—

Share-Based Compensation	143,814		191,667	—		—	—		—		—		—		191,667

Share-Based Payments to Vendors	30,145		135,471	—		—	—		—		—		—		135,471

Net Loss	—		—	—		—	—		—		—		(1,474,330)		(1,474,330)

Balance at March 31, 2021	13,725,196	$	16,915,986	100,000	$	830,115	—	$	—	$	—	$	(15,274,942)	$	2,471,159

Share-Based Compensation	257,122		563,889	—		—	—		—		1,655,885		—		2,219,774

Share-Based Payments to Vendors	—		37,500	—		—	—		—		—		—		37,500

Corporate Conversion	(13,982,318)		(17,517,375)	(100,000)		(830,115)	7,041,208		7,041		18,340,449		—		—

Initial Public Offering, net of $2,452,868 issuance costs							2,875,000		2,875		14,794,257		—		14,797,132

Net Loss	—		—	—		—	—		—		—		(4,004,059)		(4,004,059)

Balance at June 30, 2021	—	$	—	—	$	—	9,916,208	$	9,916	$	34,790,591	$	(19,279,001)	$	15,521,506

See accompanying notes to the condensed interim financial statements.

Table of Contents

ACURX PHARMACEUTICALS, INC.

CONDENSED INTERIM STATEMENTS OF CASH FLOWS


	Six Months Ended
	June 30,
	2021		2020
		(unaudited)		(unaudited)
Cash Flow from Operating Activities:
Net loss	$	(5,478,389)	$	(2,192,461)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-Based Compensation		2,411,441		333,333
Share-Based Payments to Vendors		172,971		342,196
Executive Compensation Settled with Membership Interests		916,765		781,700
Gain on Forgiveness of Paycheck Protection Program Loan		(66,503)		—
(Increase) / Decrease In:
Prepaid Expenses		(295,940)		34,733
Accounts Payable and Accrued Expenses		1,462,708		(932,547)
Net Cash Used In Operating Activities		(876,947)		(1,633,046)
Cash Flow from Financing Activities:
Proceeds from Advanced Receipts of Private Placement Offerings		—		602,680
Proceeds from Paycheck Protection Program Loan		—		66,503
Proceeds from Initial Public Offering, net of issuance costs		14,797,132		—
Proceeds from Private Placement Offerings, net of issuance costs		—		454,980
Net Cash Provided By Financing Activities		14,797,132		1,124,163
Net Increase (Decrease) In Cash		13,920,185		(508,883)
Cash at Beginning of Period		3,175,411		2,483,322
Cash at End of Period	$	17,095,596	$	1,974,439
SUPPLEMNTAL DISCLOSURE
NON CASH FINANCING ACTIVITY
Initial Public Offering Issuance Costs yet to be paid	$	286,000	$	—

See accompanying notes to the condensed interim financial statements.

Table of Contents

ACURX PHARMACEUTICALS, INC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – NATURE OF OPERATIONS

Business:

Acurx Pharmaceuticals, Inc., a Delaware corporation, formerly Acurx Pharmaceuticals, LLC (the “Company”) is a publicly-held, clinical stage biopharmaceutical company formed in July 2017, with operations commencing in February 2018. The Company is focused on developing novel antibiotics that address difficult to treat bacterial infections. The Company’s approach is to develop antibiotic candidates that could potentially block an entirely new molecular target, the DNA polymerase IIIC (“Pol IIIC”) enzyme, and its research and development pipeline includes early stage Pol IIIC antibiotic candidates that target other Gram-positive bacteria, including Methicillin-Resistant Staphylococcus aureus (“MRSA”), Vancomycin-Resistant Enterococcus (“VRE”) and Penicillin-Resistant Streptococcus pneumoniae (“PRSP”). The Pol IIIC enzyme is the primary catalyst for the replication of DNA in certain Gram-positive bacterial cells.

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of coronavirus, a global pandemic. This outbreak caused major disruptions to businesses and markets worldwide as the virus continued to spread. The COVID-19 pandemic has disrupted, and the Company expects it will continue to disrupt, its operations. The extent of the effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. Although the Company is unable to estimate the financial effect of the pandemic, at this time, if the pandemic continues over a long period of time, it could have a material adverse effect on the Company’s business, results of operations, financial condition, and cash flows. The financial statements do not reflect any adjustments as a result of the pandemic.

In February 2018, the Company purchased the active pharmaceutical ingredient, the intellectual property and other rights to an antibiotic product candidate known as GLS362E (renamed ACX-362E and now approved for non-proprietary name, ibezapolstat) (the “Asset”) from GLSynthesis, Inc. The Company paid $110,174 in cash, along with granting 100,000 Class B Membership Interests, profits interests as defined in the operating agreement, with an exercise price of $0.10 per share. The Company was also required to make certain milestone payments totaling $700,000 in aggregate if certain milestones are achieved, $50,000 of which has already been paid by the Company and royalty payments equal to 4% of net sales for a period of time equal to the last to expire of any applicable patents, as defined in the asset purchase agreement. The purchase of the Asset has resulted in our lead antibiotic product candidate, ibezapolstat, which targets the treatment of Clostridium difficile Infections (“CDI”).

The Company’s primary activities since inception have included organizational activities and performing research and development activities relating to the development of its two antibiotic candidates and raising funds through equity offerings including its initial public offering (“IPO”) consummated in June 2021. The Company has not generated any revenues since inception.

The Company has experienced net losses and negative cash flows from operations since inception and expects these conditions to continue for the foreseeable future. The Company has needed to raise capital from sales of its securities to sustain operations. On June 29, 2021, the Company completed the IPO issuing 2,875,000 shares of common stock at a price of $6.00 per share, with gross proceeds of approximately $17.3 million. As of June 30, 2021, the Company had a cash balance of approximately $17.1 million. Management believes that the Company will continue to incur losses for the foreseeable future and will need additional resources to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional equity financing and grant funding, but cannot assure that such financing and funding will be available at acceptable terms, or at all. The accompanying unaudited condensed interim financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that the Company’s research and development will be successfully completed or that any Company product candidate will be approved by the Food and Drug Administration (“FDA”) or any other worldwide regulatory authority or become commercially viable. The Company is subject to risks common to companies in the biopharmaceutical industry including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with FDA and other governmental regulations and approval requirements.

Table of Contents

ACURX PHARMACEUTICALS, INC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the United States Securities Exchange Commission for interim reporting. In the opinion of management, these unaudited interim financial statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair statement of the Company’s financial position, results of operations, and cash flows. The unaudited interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Management believes that the disclosures provided herein are adequate when these unaudited interim financial statements are read in conjunction with the audited financial statements and notes thereto as of December 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with accounting standards generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Federal Income Taxes

The Company estimates an annual effective tax rate of 0% as the Company incurred losses for the six months ended June 30, 2021 and is forecasting additional losses through year-end, resulting in an estimated net loss for both financial statement and tax purposes. Therefore, no current federal or state income tax expense has been recorded in the financial statements.

Based on the Company’s history of generating operating losses and its anticipation of operating losses for the foreseeable future, the Company has determined that it is more likely than not that the tax benefits from those net operating losses would not be realized and a full valuation allowance against all deferred tax assets has been recorded. Should the Company’s assessment change, tax benefits associated with the historic net operating loss carryforwards would be limited due to the ownership change.

Prior to the Company’s corporate conversion in June 2021, the Company was organized as a limited liability company. As such, the Company was not a tax paying entity for federal income tax purposes and, therefore, no income tax expense has been recorded in the financial statements. Income or losses of the Company was passed through to the members for inclusion in their respective income tax returns.

Concentration of Credit Risk

The Company maintains its cash balance in one financial institution. The balance is insured up to the maximum allowable by the Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant risk of loss on cash. At times, the cash balance may exceed the maximum insured limit of the FDIC. As of June 30, 2021, the Company had cash of $17.1 million in U.S. bank accounts which were not fully insured by the FDIC.

Guaranteed Payments to Members

Prior to the corporate conversion, guaranteed payments to members of the Company that were designated to represent reasonable compensation for services rendered, were accounted for as Company expenses rather than an allocation of the Company’s net income.

Table of Contents

ACURX PHARMACEUTICALS, INC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Research and Development

In accordance with Accounting Standards Codification Topic No. 730, Accounting for Research and Development Costs, the Company expenses research and development costs when incurred. At times, the Company may make cash advances for future research and development services. These amounts are deferred and expensed in the period the service is provided.

Share-Based Compensation

The Company accounts for the cost of services performed by officers and directors received in exchange for an award of Company membership interests, common stock or stock options, based on the grant-date fair value of the award. The Company recognizes compensation expense based on the vesting period.

Share-Based Payments to Vendors

The Company accounts for the cost of services performed by vendors in exchange for an award of Company membership interests, common stock, or stock options, based on the grant-date fair value of the award or the fair value of the services rendered; whichever is more readily determinable. Such fair value is measured as of the date the services or the date performance by the other party is complete. The Company recognizes the expense in the same period and in the same manner as if the Company had paid cash for the services.

Foreign Currency Transactions

The financial statements are presented in in U.S. dollars (“USD”) the reporting currency of the Company. The Company may engage in transactions denominated in other foreign currencies. These transactions were translated to USD at rates which approximate those in effect on the transaction dates. Monetary assets and liabilities denominated in foreign currencies at year-end will be translated at exchange rates in effect as of those dates. Nonmonetary assets and liabilities are translated at appropriate historical rates.

Major Vendor

The Company had a major vendor that accounted for approximately 49% of the research and development expenditures for the three months ended June 30, 2020, and 1% and 29% for the six-month period ended June 30, 2021 and 2020, respectively. The same vendor also accounted for approximately 6% of the total accounts payable and accrued expenses at December 31, 2020. Although there has been a pause in activity recently, the Company has maintained this vendor relationship and anticipates incurring significant expenses with this vendor over the next 12 months.

NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses as of June 30, 2021 and December 31, 2020 were as follows:


	June 30, 2021		December 31, 2020
Accrued compensation expenses	$	20,242	$	317,068
Accrued research and development		51,246		89,156
Accrued professional fees		1,750,146		49,707
Other accounts payable and accrued expenses		97,005		—
Total	$	1,918,639	$	455,931

Table of Contents

ACURX PHARMACEUTICALS, INC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4 – PAYCHECK PROTECTION PROGRAM LOAN

In May 2020, the Company received a Paycheck Protection Program (“PPP”) loan under the CARES Act, as administered by the U.S. Small Business Administration (”SBA”) in the amount of $66,503. The Company did not provide any collateral or guarantees in connection with the PPP loan, nor did the Company pay any facility charge to obtain the PPP loan.

In May 2021, the Company was notified by its financial institution that the Paycheck Protection Program loan had been forgiven. The Company has accordingly reduced the full amount of the liability and recorded a gain on the forgiveness of debt in the statement of operations.

NOTE 5 – EXECUTIVE COMPENSATION

The Company’s co-founders and original two executives received compensation pursuant to employment agreements effective commencing January 2018 (the “Original Agreements”). The Original Agreements stipulated that the executives would receive a base salary of $277,000 per annum, of which a portion was payable with the issuance of Class A Membership Interests of the Company at the most recent offering price when the service was rendered. The Company also employs a third executive on a part-time basis for $7,500 per month, of which a portion was payable with the issuance of Class A Membership Interests during 2018. The Company did not issue any Class A Membership Interests to executives in 2019.

In 2019, the three executives executed waiver letters, deferring any unpaid compensation per their Original Agreements until the later to occur of (1) the date upon which the Company has raised $2.5 million from equity/debt offerings and/or grants equal to $2.5 million, and (2) January 15, 2020. Accrued deferred compensation per their Original Agreements was recorded in the amount of $0 and $104,000 as of June 30, 2021 and December 31, 2020, respectively.

In January 2020, the Company issued 312,680 Class A Membership Interests at $2.50 per unit to its three executives to settle unpaid year-end compensation for 2019 and a year-end bonus award, which was approved by the board of directors. The year-end bonus component was equal to 244,860 Class A Membership Interests.

In January 2021, the Company issued 57,430 Class A Membership Interests to two of its executives to settle unpaid year-end bonus award and deferred compensation, which was approved by the board of directors. The year-end bonus component was equal to 38,353 Class A Membership Interests, which was included as accrued compensation. In January 2021, the Company also amended the employment agreements for the three executives.

The Company’s board of directors also approved certain grants to members of management as a component of year-end compensation, authorizing the issuance of 1,540,000 Class B Membership Interests to its three executives, as well as 75,000 Class B Membership Interests which were granted to non-employee management team members. The Class B Membership Interests are profits interests with a defined exercise price of $3.25 per interest, the Company’s most recent financing offering price. In March 2021, the Company along with its three executives and non-employee management team agreed voluntarily to cancel the aforementioned equity grants. The Company granted options to purchase 770,000 shares of the Company’s common stock in June 2021 to the three-member management team in replacement of the cancelled year-end grants described above.

The Company is currently managed by three executives, in each case pursuant to new employment agreements effective June 29, 2021.

NOTE 6 – ISSUANCE OF EQUITY INTERESTS

The Company consummated two private placement equity offerings in 2018 in a total of four closings. These offerings were consummated at $1.00 per share and $1.50 per share, respectively, and both included 50% warrant coverage. Thereafter, on March 29, 2019, the Company entered into a securities purchase agreement for the private placement of the Company’s Class A Membership Interests and warrants to purchase its Class A Membership Interests, at a purchase price of $2.00 per unit. Each unit is comprised of

Table of Contents

ACURX PHARMACEUTICALS, INC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

one Class A Membership Interest and a warrant to purchase one-half of the total Class A Membership Interests purchased. The Company issued and sold an aggregate of 277,000 units, comprised of 277,000 Class A Membership Interests and warrants to purchase up to 138,500 additional Class A Membership Interests for gross proceeds of $554,000. Each warrant, exercisable for 10 years from March 29, 2019, has an exercise price of $2.00 per Class A Membership Interest.

On August 8, 2019, the Company entered into a securities purchase agreement for the private placement of the Company’s Class A Membership Interests and warrants to purchase its Class A Membership Interests, at a purchase price of $2.00 per unit. Each unit is comprised of one Class A Membership Interest and a warrant to purchase one-half of the total Class A Membership Interests purchased. The Company issued and sold an aggregate of 1,248,750 units, comprised of 1,248,750 Class A Membership Interests and warrants to purchase up to 624,375 additional Class A Membership Interests for gross proceeds of $2,497,500. Each warrant, exercisable for 10 years from August 8, 2019, has an exercise price of $2.00 per Class A Membership Interest.

On October 18, 2019, the Company entered into a securities purchase agreement for the private placement of the Company’s Class A Membership Interests and warrants to purchase its Class A Membership Interests, at a purchase price of $2.00 per unit. Each unit is comprised of one Class A Membership Interest and a warrant to purchase one-half of the total Class A Membership Interests purchased. The Company issued and sold an aggregate of 483,501 units, comprised of 483,501 Class A Membership Interests and warrants to purchase up to 241,751 additional Class A Membership Interests for gross proceeds of $967,000. Each warrant, exercisable for 10 years from October 18, 2019, has an exercise price of $2.00 per Class A Membership Interest.

On January 6, 2020, the Company entered into a securities purchase agreement for the private placement of the Company’s Class A Membership Interests and warrants to purchase its Class A Membership Interests, at a purchase price of $2.50 per unit. Each unit is comprised of one Class A Membership Interest and a warrant to purchase one-fourth of the total Class A Membership Interests purchased. The Company issued and sold an aggregate of 182,002 units, comprised of 182,002 Class A Membership Interests and warrants to purchase up to 45,501 additional Class A Membership Interests for gross proceeds of $455,005. The proceeds were received in 2019 and were recorded as advanced receipts of equity subscriptions. Each warrant, exercisable for 10 years from January 6, 2020, has an exercise price of $2.50 per Class A Membership Interest.

On July 20, 2020, the Company entered into a securities purchase agreement for the private placement of the Company’s Class A Membership Interests at a purchase price of $3.25 per unit. The Company issued and sold an aggregate of 533,900 Class A Membership Interests for gross proceeds of $1,735,175. There were no warrants included in this private placement..

On October 16, 2020, the Company entered into a securities purchase agreement for the private placement of the Company’s Class A Membership Interests at a purchase price of $3.25 per unit. The Company issued and sold an aggregate of 705,727 Class A Membership Interests for gross proceeds of $2,293,613. There were no warrants included in this private placement.

On June 23, 2021, Acurx Pharmaceuticals, LLC was converted into a corporation and renamed Acurx Pharmaceuticals, Inc. The Company’s certificate of incorporation authorized 200,000,000 common shares of which 9,916,208 were outstanding as of June 30, 2021.

On June 29, 2021, the Company completed an IPO issuing 2,875,000 shares of common stock at a price of $6 per share, resulting in net proceeds of approximately $14.8 million, with issuance costs of approximately $2.4 million. The outstanding Class A and Class B Membership Interests were converted to shares of common stock using a ratio of 1 for 2 of the Membership Interests outstanding, resulting in the conversion of 14,082,318 Class A and Class B Membership Interests into 7,041,208 shares of common stock. Warrants to purchase Class A Membership Interests were converted to warrants to purchase common stock at the same ratio, resulting in 1,437,577 warrants to purchase common stock.

Table of Contents

ACURX PHARMACEUTICALS, INC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7 – SHARE-BASED COMPENSATION

While the Company was a limited liability company in its pre-IPO phase of corporate development, the Company granted performance-based awards of restricted Class A Membership Interests to board members and corporate advisory council members in exchange for services. All of these awards of membership interests became fully vested upon consummation of the Company’s corporate conversion from Delaware limited liability company to Delaware corporation immediately prior to the Company’s IPO, with the Company recognizing all previously unrecognized compensation expense. The fair value of the membership interests granted during 2020 and 2019 was equal to the per-membership interest value of the most recent private placement ($3.25 per membership interest and $2.50 per membership interest, respectively, with a weighted average of $2.14 per membership interest).

Total share-based compensation expense has been recorded in the amount of $563,889 and $166,666 for the three months ended June 30, 2021 and 2020, respectively, and $755,556 and $333,333 for the six months ended June 30, 2021 and 2020, respectively.

The following table summarizes the unvested Class A Membership Interests converted to common stock at a 1 for 2 ratio, and associated activity for the six months ended June 30, 2021:


		Class A
		Membership Interests
		Converted to common stock 1 for 2 ratio

Unvested at December 31, 2020		200,463
Vested		(200,463)
Unvested at June 30, 2021		—

In April 2021, the board of directors approved the creation of the 2021 Equity Incentive Plan (the “Plan”). The Plan became effective as of the completion of the corporate conversion. The Plan reserves an aggregate of 2,000,000 common shares, subject to adjustments as provided in the Plan. The purpose of the Plan is to attract, retain and incentivize directors, officers, employees, and consultants.

In June 2021, the Company granted stock options to purchase 807,500 common shares, to replace the Class B Membership Interests that were cancelled in March 2021. Compensation expense associated with these awards is recognized over the vesting period based on the fair value of the option at the grant date determined based on the Black-Scholes model. Option valuation models require the input of highly subjective assumptions including the expected price volatility. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value computation using the Black-Scholes methodology. Because there is no public market for the Company’s stock options and very little historical experience with the Company’s stock, similar public companies were used for the comparison of volatility and the dividend yield. The risk-free rate of return was derived from U.S Treasury notes with comparable maturities. The Company recorded general and administrative expense of $1,655,885 for the three and six months ended June 30, 2021.

The Company determined the fair value of the option awards using the Black-Scholes option pricing model using the following weighted average assumptions:


	Three Months Ended
	June 30, 2021
Expected term		6.2 years
Volatility		93	%
Dividend yield		—	%
Risk-free interest rate		1.08	%
Weighted average grant date fair value	$	4.75

Table of Contents

ACURX PHARMACEUTICALS, INC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

A summary of the Company’s stock option activity is as follows:


	Three Months Ended	Weighted Average
	June 30, 2021	Excersice Price
Outstanding at the beginning of the period	—
Granted	807,500	$	6.26
Vested	345,500	$	6.26
Forfeited	—
Outstanding and expected to vest	462,000	$	6.26

The total compensation expense not yet recognized as of June 30, 2021 was $2,180,640. The weighted average vesting period for the unvested options is 3 years. The intrinsic value of the of the stock options as of June 30, 2021 was $0, with a weighted average contractual life of 10 years and an exercise price of $6.26. The Company records the impact of any forfeitures of options as they occur.

NOTE 8 – SHARE-BASED PAYMENTS TO VENDORS

While the Company was a limited liability company in its pre-IPO phase of corporate development, the Company granted Class A Membership Interests to certain vendors in the ordinary course of business in exchange for consulting services relating to research and development activities and investor relations. The Company granted 0 and 49,438 Class A Membership Interests for the three months ended June 30, 2021 and 2020, respectively, and 30,145 and 106,878 Class A Membership Interests for the six months ended June 30, 2021 and 2020, respectively. The fair value of the Class A Membership Interests granted was equal to the value of the most recent private placement, the fair value at grant date. The Company recognized the expense in the same period and in the same manner as if the Company had paid cash for the services. The Company recorded general and administrative expenses and research and development expenses for vendor equity grants in the amounts of $37,500 and $0 for the three months ended June 30, 2021 and $100,000 and $61,095 for the three months ended June 30, 2020, respectively, $151,375 and $21,596 for the six months ended June 30, 2021 and $200,000 and $142,196 for the six months ended June 30, 2020.

In October 2019, the Company granted a total of 150,000 restricted Class A Membership Interests to three consultants for investor related consulting services performed in 2019 and for services which are ongoing. These Class A Membership Interests vest on the second anniversary of the grant date, and are subject to accelerated vesting provisions upon a change of control of the Company. The fair value of the Class A Membership Interests granted is equal to the value of the most recent private placement, the fair value at grant date. The Company is recognizing the expense on a straight-line basis over the vesting period. The Company recorded general and administrative expenses of $37,500 for each of the three months ended June 30, 2021 and 2020, and $75,000 for each of the six months ended June 30, 2021 and 2020 with an unrecognized expense of $50,000 at June 30, 2021.

During 2020, the Company issued 10,077 warrants to an investment banker for services relating to the October 2020 private placement. Each warrant vested upon issuance is exercisable for 10 years from the date of issuance and has an exercise price of $3.25 per Class A Membership Interest. The Company used the Black Scholes model to calculate the value of the warrants. The inputs utilized in the calculation were as follows: ten-year term, 0.32% risk-free rate, stock price at grant date of $3.25, and a 94% volatility. The Company reduced the proceeds of the respective equity issuance by $23,177 relating to the warrant issuance.

In the second quarter of 2021, the Company entered into a number of agreements with vendors pursuant to which the Company will make future grants of a total of 175,000 shares of common stock, 100,000 options and included cash payments in the amount of $343,500. These contracts have terms which range from six months to three years. The cash payments will be expensed over the service period and the equity component expensed consistent with the contractual vesting.

Table of Contents

ACURX PHARMACEUTICALS, INC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 – NET LOSS PER SHARE

Basic and diluted net loss per common share for the three months and six months ended June 30, 2021 was determined by dividing net loss by the weighted average common shares outstanding during the period. The Company’s potentially dilutive shares, which include 75,000 unvested common shares, and 1,588,477 warrants, and 807,500 stock options, have not been included in the computation of diluted net loss per share for all periods as the result would be antidilutive. The effects of this corporate conversion on the Company’s weighted average common shares outstanding and net loss per share have been reflected for all periods presented retroactively.

NOTE 10 – RELATED PARTY TRANSACTIONS

During 2020, the Company engaged a member of the Board of Directors to provide administrative services for a 12-month period for a total of $15,000. The Company paid and expensed $0 for these services for the three and six months ended June 30, 2021 and 2020, respectively, and will expense the balance of $7,500 during 2021 consistent with the services provided per the agreement.

NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than twelve (12) months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will continue to primarily depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. ASU 2016-02 also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, with early application permitted. We have evaluated the adoption of ASU 2016-02 and determined that the standard will not have an impact on the Company’s financial statements as the Company currently does not have any lease obligations.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

In conjunction with the Asset purchase in February 2018, the Company is required to make certain milestone payments related to the ongoing development of ACX-362E totaling $700,000 in aggregate if certain milestones are achieved (which includes $50,000 already paid after the acquisition in February 2018). The Company is also obligated to make royalty payments equal to 4% of net sales of ACX-362E for a period of time equal to the last to expire of any applicable patents, as defined in the purchase agreement.

NOTE 13 – SUBSEQUENT EVENTS

In July 2021, the Company granted its three executives a total of 1,200,000 stock options in accordance with their employment agreements, as well as 50,000 stock options to each of the Company’s five independent board members. The options have vesting terms over a 36 month period.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year ended December 31, 2020 included in the final prospectus for our IPO dated as of June 24, 2021 and filed with the Securities and Exchange Commission (the “SEC”), pursuant to Rule 424(b)(4) on June 28, 2021. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

Acurx Pharmaceuticals, Inc., (the “Company”), a Delaware corporation, formerly Acurx Pharmaceuticals, LLC (the “Company”) is a publicly-held, clinical stage biopharmaceutical company developing a new class of antibiotics for infections caused by bacteria listed as priority pathogens by the World Health Organization (“WHO”), the U.S. Centers for Disease Control and Prevention (“CDC”) and the U.S. Food and Drug Administration (“FDA”). Priority pathogens are those which require new antibiotics to address the worldwide crisis of antimicrobial resistance (“AMR”) as identified by the WHO, CDC and FDA. The CDC estimates that, in the U.S., antibiotic-resistant pathogens infect one individual every 11 seconds and result in one death every 15 minutes. The WHO recently stated that growing antimicrobial resistance is equally as dangerous as the ongoing COVID-19 pandemic, threatens to unwind a century of medical progress and may leave us defenseless against infections that today can be treated easily. According to the WHO, the current clinical development pipeline remains insufficient to tackle the challenge of the increasing emergence and spread of antimicrobial resistance.

Our approach is to develop antibiotic candidates that block the DNA polymerase IIIC (“Pol IIIC”). We believe we are developing the first Pol IIIC inhibitor to enter clinical trials. Pol IIIC is the primary catalyst for DNA replication of several Gram-positive bacterial cells. Our research and development pipeline includes clinical stage and early stage antibiotic candidates that target Gram-positive bacteria for oral and/or parenteral treatment of infections caused by Clostridium difficile (“C. difficile”), Enterococcus (including vancomycin-resistant strains (“VRE”)), Staphylococcus (including methicillin-resistant strains (“MRSA”)), and Streptococcus (including antibioticresistant strains).

Pol IIIC is required for the replication of DNA in certain Gram-positive bacterial species. By blocking this enzyme, our antibiotic candidates are believed to be bactericidal and inhibit proliferation of several common bacterial pathogens, including both sensitive and resistant C. difficile, MRSA, vancomycin-resistant Enterococcus, penicillin-resistant Streptococcus pneumonia (“PRSP”) and other resistant bacteria.

Table of Contents

Recent Developments

Initial Public Offering

On June 29, 2021, we completed our IPO, in which we issued and sold 2,875,000 shares of our common stock, including the full exercise by the underwriters of their option to purchase 375,000 additional shares of our common stock, at a public offering price of $6.00 per share, which resulted in net proceeds of $14.8 million after deducting underwriting discounts and commissions and offering expenses. The proceeds from the IPO are being used (i) to complete the Phase 2b clinical trial of ibezapolstat in patients with CDI (approximately $4 million), (ii) to complete pre-clinical development of ACX-375C and (iii) for general corporate purposes, which may include, without limitation, expenditures relating to research, development and clinical trials other than those specified above, manufacturing, capital expenditures, hiring additional personnel, acquisitions of new technologies or products, the payment, repayment, refinancing, redemption or repurchase of existing or future indebtedness, obligations or capital stock, and working capital. Prior to the IPO, we converted from a Delaware limited liability company into a Delaware corporation, and our previously outstanding Class A membership interests and Class B membership interests were converted to shares of common stock pursuant to a conversion ratio of one-half of one share of common stock for each Class A membership interest or Class B membership interest outstanding, resulting in the conversion of 14,082,318 Class A membership interests and Class B membership interests into 7,041,208 shares of common stock. Our common stock began trading on the Nasdaq Capital Market on June 25, 2021.

Effects of Coronavirus (COVID-19) on Our Business

The World Health Organization recognized COVID-19 as a public health emergency of international concern on January 30, 2020 and as a global pandemic on March 11, 2020. Public health responses have included national pandemic preparedness and response plans, travel restrictions, quarantines, curfews, event postponements and cancellations and closures of facilities including local schools and businesses. The global pandemic and actions taken to contain COVID-19 have adversely affected the global economy and financial markets.

Since the start of the COVID-19 pandemic, we continued to enroll patients in our Phase 2a clinical trial of our lead antibiotic candidate, ibezapolstat, although enrollment rates decreased significantly at certain of our clinical trial sites. Other areas of our business experienced no change, including our manufacturing and research and development activities, in each case, with key vendors. We believe that the COVID-19 pandemic has highlighted the importance of antibiotic development in responding to global health issues particularly because many hospitalized COVID-19 patients were also prescribed antibiotics which only accelerates the current antimicrobial resistance crisis described by several regulatory bodies worldwide.

The extent to which the COVID-19 pandemic will ultimately impact our business, results of operations, financial condition and cash flows depends on future developments that are highly uncertain, rapidly evolving and difficult to predict at this time. While we are not experiencing material adverse impacts at this time, given the global economic slowdown, the overall disruption of global supply chains and distribution systems and the other risks and uncertainties associated with the COVID-19 pandemic, our business, financial condition, results of operations and growth prospects could be materially and adversely affected. While we believe that we are well positioned for the future as we navigate the crisis and prepare for an eventual return to a more normal operating environment, we continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans and response strategy.

In May 2020, we received a Paycheck Protection Program loan (“PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act, as administered by the U.S. Small Business Administration (“SBA”) in the amount of $66,503. The PPP Loan carried an annual interest rate of 0.98% and matures two (2) years from issuance.

On April 13, 2021, the SBA authorized the full forgiveness of the PPP Loan. Upon forgiveness of the PPP Loan, we reduced the liability and recorded a gain on extinguishment of debt in our statement of operations.

Table of Contents

Results of Operations

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

The following table presents a summary of the changes in our results of operations for the three months ended June 30, 2021 compared with the three months ended June 30, 2020:


	Three Months Ended
	June 30,				Percentage
	2021		2020		Increase (Decrease)
		(in thousands)
Research and Development Expenses	$	95	$	401	(76)	%
Selling, General and Administrative Expenses	$	3,976	$	512	677	%
Total Operating Expenses	$	4,071	$	913	346	%
Gain on PPP Loan Forgiveness	$	67	$	—	100	%
Net Loss	$	4,004	$	913	339	%

Research and Development Expenses

Research and development expenses were $0.1 million for the three months ended June 30, 2021, and $0.4 million for the three months ended June 30, 2020, a decrease of $0.3 million. The decrease was due to a $0.2 million decrease in Phase 2a clinical trial related costs which was completed in 2020, and a $0.1 million decrease in consulting costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.9 million for the three months ended June 30, 2021 and $0.5 million for the three months ended June 30, 2020, an increase of $3.4 million. The increase was primarily due to a $0.4 million increase in stock-based director fees due to accelerated vesting of certain stock awards, a $1.7 million increase in stock-based compensation expense, a $1.2 million increase in professional fees, and a $0.1 million related to other employee related expenses.

Gain on the Forgiveness of the Paycheck Protection Program Loan

We recorded a gain of $.07 million for the three months ended June 30, 2021 associated with the forgiveness of the PPP Loan.

Net Loss

Net loss was $4.0 million for the three months ended June 30, 2021, and $0.9 million for the three months ended June 30, 2020, an increase of $3.1 million, due to the reasons stated above.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

The following table presents a summary of the changes in our results of operations for the six months ended June 30, 2021 compared with the six months ended June 30, 2020:


	Six Months Ended
	June 30,				Percentage
	2021		2020		Increase (Decrease)
		(in thousands)
Research and Development Expenses	$	187	$	1,085	(83)	%
Selling, General and Administrative Expenses	$	5,358	$	1,107	384	%
Total Operating Expenses	$	5,545	$	2,192	153	%
Gain on PPP Loan Forgiveness	$	67	$	—	100	%
Net Loss	$	5,478	$	2,192	150	%

Table of Contents

Research and Development Expenses

Research and development expenses were $0.2 million for the six months ended June 30, 2021, and $1.1 million for the six months ended June 30, 2020, a decrease of $0.9 million. Research and development expenses decreased due to a $0.3 million decrease in Phase 2a clinical trial related costs which was completed in 2020, and a $0.6 million decrease in consulting costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $5.4 million for the six months ended June 30, 2021, and $1.1 million for the six months ended June 30, 2020, an increase of $4.3 million. The increase in selling, general and administrative expenses is primarily attributable to a $2.4 million increase in stock-based compensation expenses, $1.4 million increase in professional fees, and a $0.5 million increase in stock-based director fees due to accelerated vesting of certain stock awards.

Gain on the Forgiveness of the Paycheck Protection Program Loan

We recorded a gain of $.07 million for the six months ended June 30, 2021 associated with the forgiveness of the PPP Loan.

Net Loss

Net loss was $5.5 million for the six months ended June 30, 2021, and $2.2 million for the six months ended June 30, 2020, an increase of $3.3 million, primarily due to an increase in selling, general, and administrative expenses due to the reasons stated above.

Liquidity and Capital Resources

Overview

Since inception, we have generated no revenue from operations and we have incurred cumulative losses of approximately $19.3 million since inception as of June 30, 2021. We have funded our operations primarily from equity issuances. We received net cash proceeds of approximately $12.9 million from equity financings closed between March 2018 and October 2020 On June 29, 2021, we completed our IPO resulting in net proceeds of approximately $14.8 million after deducting underwriter discounts of $1.4 million and offering costs of approximately $1.1 million.

Based upon our lack of revenue expected for the foreseeable future, and because of numerous risks and uncertainties associated with the research, development and future commercialization of our product candidates, we are unable to estimate with certainty the amounts of increased capital outlays and operating expenditures associated with our anticipated clinical trials and development activities.

These conditions raise substantial doubt about our ability to continue as a going concern within two years after the date that the financial statements included in this Quarterly Report on Form 10-Q were issued. We may see to raise capital through private or public equity offerings, debt financings, collaborations, other out-licensing arrangements, strategic alliances, federal and private grants, marketing, other distribution or licensing arrangements, or the sale of current or future assets. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we might have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible or suspend or curtail planned programs. Due to the uncertainty regarding future financings and/or other potential options to raise additional funds, management has concluded that substantial doubt exists with respect to the our ability to continue as a going concern within one year after the date that the financial statements in this Quarterly Report on Form 10-Q were issued.

As of June 30, 2021, we had working capital of $15.5 million, consisting primarily of $17.1 million of cash, offset by $1.9 million of accounts payable and accrued expenses.

Table of Contents

The following table sets forth selected cash flow information for the periods indicated:


	For the six months ended
	June 30,
	2021		2020
Net cash used in operating activities	$	(877)	$	(1,633)
Net cash provided by financing activities		14,797		1,124
Net increase (decrease) in cash	$	13,920	$	(509)

Net Cash Used in Operating Activities

Net cash used in operating activities was $0.9 million for the six months ended June 30, 2021. The net loss was greater than the net cash used in operating activities by $4.6 million, primarily attributable to share-based compensation of $3.4 million and an increase in accounts payable of $1.5 million, offset by an increase in prepaid expenses of $0.3 million.

Net cash used in operating activities was $1.6 million for the six months ended June 30, 2020. The net loss was greater than the net cash used in operating activities by $0.6 million, primarily attributable to share-based compensation of $1.5 million, offset by a decrease in accounts payable of $0.9 million.

Net Cash Used in Financing Activities

Net cash provided by financing activities was $14.8 million for the six months ended June 30, 2021, which was attributable to the net proceeds from the Company’s IPO.

Net cash provided by financing activities was $1.1 million for the six months ended June 30, 2020, which was primarily attributable to the net proceeds from the Company’s private placement offerings.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2, “Summary of significant accounting policies”, we believe the following accounting policies and estimates to be most critical to the preparation of our financial statements.

Federal Income Taxes

Table of Contents

recorded in the financial statements. Income or losses of the Company was passed through to the members for inclusion in their respective income tax returns

Concentration of Credit Risk

We maintain our cash balance in one financial institution. The balance is insured up to the maximum allowable by the Federal Deposit Insurance Corporation (“FDIC”). We have not experienced any losses in such accounts and do not believe we are exposed to any significant risk of loss on cash. At times, the cash balance may exceed the maximum insured limit of the FDIC.

Guaranteed Payments to Members

Guaranteed payments to members of the Company, prior to the corporate conversion, that were designated to represent reasonable compensation for services rendered, were accounted for as Company expenses rather than an allocation of the Company’s net income.

Research and Development

In accordance with Accounting Standards Codification Topic No. 730, Accounting for Research and Development Costs, we expense research and development costs when incurred. At times, we may make cash advances for future research and development services. These amounts are deferred and expensed in the period the service is provided. We incurred net research and development expenses in the amount of $2,202,979 and $3,510,088 for the years ended December 31, 2020 and 2019, respectively, and $186,981 and $1,085,469 for the six months ended June 30, 2021 and 2020, respectively.

Share-Based Compensation

Share-Based Payments to Vendors

Foreign Currency Transactions

The financial statements are presented in U.S. dollars (“USD”), our reporting currency. We may engage in transactions denominated in other foreign currencies. These transactions were translated to USD at rates which approximate those in effect on the transaction dates. Monetary assets and liabilities denominated in foreign currencies at year-end will be translated at exchange rates in effect as of those dates. Nonmonetary assets and liabilities are translated at appropriate historical rates.

Major Vendor

For the year ended December 31, 2020, we had a major vendor that accounted for approximately 40% of the research and development expenditures. The same vendor also accounted for approximately 6% of the total accounts payable at December 31, 2020. This vendor is a clinical research organization (“CRO”), and has been involved with managing our clinical trials of ibezapolstat since the fourth quarter 2019. We anticipate working with the same vendor to perform CRO services in connection with our planned Phase 2b clinical trial.

Table of Contents

Other Company Information

Emerging Growth Company Status

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, companies have extended transition periods available for complying with new or revised accounting standards. We have elected this exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, we are entitled to rely on certain exemptions as an emerging growth company, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b), (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items. These exemptions will apply for a period of five years following the completion of our IPO or until we no longer meet the requirements of being an emerging growth company, whichever is earlier.

Recent Accounting Pronouncements

The Financial Accounting Standards Board has issued certain accounting pronouncements as of June 30, 2021 that will become effective in subsequent periods; however, we do not believe that any of those pronouncements would have significantly affected our financial accounting measurements or disclosures had they been in effect during 2021, or that they will have a significant impact on us at the time they become effective.

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There is an inadequate segregation of duties consistent with control objectives. Our management is composed of three persons, resulting in a situation where limitations on segregation of duties exist. Management plans to engage a third-party specialist to review our current internal controls and recommend design improvements to address the segregation of duties given the limited number of employees.

We can give no assurance that additional weaknesses in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements and cause us to fail to meet our reporting obligations.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations over Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Table of Contents

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

ITEM 1A. RISK FACTORS

The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. Please see page 3 of this Quarterly Report on Form 10-Q for a discussion of some of the forward-looking statements that are qualified by these risk factors. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.

Risks Related to Our Business

We have a very limited operating history and are expected to incur significant operating losses during the early stage of our corporate development.

We were organized in July 2017 and we acquired the rights to our lead product candidate, ibezapolstat, in February 2018. We have a limited operating history. Our operations to date have been limited to securing our initial product candidate, generating a second product candidate in-house, conducting clinical and regulatory development for our lead program and raising capital.

Investing in an early-stage company with limited history, financial or otherwise, includes a high degree of risk. As an early-stage company, our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations. We have generated losses since inception and we expect to continue to run at a loss for several years until our initial program, or one of our pipeline products, is approved by the FDA or another worldwide regulatory body. We expect to incur substantial operating expenses over the next several years as our product development activities and related costs increase. No assurance can be given that we will be able to successfully implement any or all of our business plan, or if implemented, that we will accomplish the desired objectives, including achieving profitability.

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.

Our independent registered public accounting firm noted in its report accompanying our financial statements for the fiscal year ended December 31, 2020 that we had suffered significant accumulated deficit and had negative operating cash flows and that the development and commercialization of our product candidates are expected to require substantial expenditures. We have not yet generated any material revenues from our operations to fund our activities, and are therefore dependent upon external sources for financing our operations. There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations. As a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we cannot successfully continue as a going concern, our stockholders may lose their entire investment in our common stock.

We are reliant on the success of our lead product candidate, ibezapolstat, which we are developing for the treatment of CDI. If we are unable to commercialize ibezapolstat, or experience significant delays in doing so, our business will be materially harmed.

Our ability to generate product revenues, which may not occur for several years, if ever, currently depends heavily on the successful development and commercialization of ibezapolstat. The success of ibezapolstat will depend on a number of factors, including the following:

●

successful completion of clinical development;

Table of Contents

●

receipt of marketing approvals from applicable regulatory authorities;

●

establishing commercial manufacturing arrangements with third-party manufacturers;

●

obtaining and maintaining patent and trade secret protection and regulatory exclusivity;

●

protecting our rights in our intellectual property portfolio;

●

establishing sales, marketing and distribution capabilities;

●

launching commercial sales of ibezapolstat, if and when approved, whether alone or in collaboration with others;

●

acceptance of ibezapolstat, if and when approved, by patients, the medical community and third-party payors;

●

effectively competing with other CDI therapies; and

●

maintaining a continued acceptable safety profile of ibezapolstat following approval.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize ibezapolstat, which would materially harm our business.

We have not yet demonstrated our ability to successfully complete development of any product candidates, obtain marketing approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Assuming we obtain marketing approval for any of our product candidates, we will need to transition our focus from research and development to supporting commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays and may not be successful in such a transition.

If serious adverse or inappropriate side effects are identified during the development of ibezapolstat or any other product candidate, we may need to abandon or limit our development of that product candidate.

Our product candidates are in clinical development and its risk of failure is high. It is impossible to predict when our product candidates will prove effective or safe in humans or will receive marketing approval. If our product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.

Many compounds that initially show promise in clinical or earlier stage testing have later been found to cause side effects or other safety issues that prevented further development. If we elect or are forced to suspend or terminate any clinical trial of our product candidates, the commercial prospects of such product candidate will be harmed and our ability to generate product revenues from such product candidate will be delayed or eliminated. Any of these occurrences could materially harm our business.

Ibezapolstat or our other product candidates may never achieve sufficient market acceptance even if we obtain regulatory approval.

If ibezapolstat or any of our other future product candidates receive marketing approval, such products may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenues or revenue from collaboration agreements or any profits from operations. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

●

the efficacy and potential advantages compared to alternative treatments or competitive products;

●

the prevalence and severity of any side effects;

Table of Contents

●

the ability to offer our product candidates for sale at competitive prices;

●

convenience and ease of administration compared to alternative treatments;

●

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

●

obtaining regulatory clearance of marketing claims for the uses that we are developing;

●

our ability to timely and effectively manufacture, market and distribute our products, either on our own or through third parties;

●

pricing and reimbursement policies of government and third-party payers such as insurance companies, health maintenance organizations and other health plan administrators;

●

the timing of any such marketing approval in relation to other product approvals;

●

support from patient advocacy groups;

●

our ability to attract corporate partners, including pharmaceutical companies, to assist in commercializing our proposed formulations or products; and

●

any restrictions on concomitant use of other medications.

If our products do not achieve an adequate level of acceptance by the relevant constituencies, or adequate pricing, we may not generate significant product revenue and may not become profitable.

We are exposed to product liability, and non-clinical and clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.

Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. We expect that such claims are likely to be asserted against us at some point, although we do carry product liability and clinical trial insurance to mitigate