Quarterly Report (10-q)

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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 September 30, 2022

☐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 November 10, 2022, there were 11,592,609 shares of common stock, $0.001 par value, issued and outstanding.

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Acurx Pharmaceuticals, Inc.

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			Page

PART I -		FINANCIAL INFORMATION	5

	Item 1.	Condensed Interim Financial Statements	5

		Condensed Interim Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	5

		Condensed Interim Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	6

		Condensed Interim Statements of Changes in Members’ and Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	7

		Condensed Interim Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (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	16

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

	Item 4.	Controls and Procedures	25

PART II -		OTHER INFORMATION	26

	Item 1.	Legal Proceedings	26

	Item1A.	Risk Factors	26

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

	Item 3.	Defaults Upon Senior Securities	51

	Item 4.	Mine Safety Disclosure	51

	Item 5.	Other Information	51

	Item 6.	Exhibits	52

		Signatures	53

		Certificates

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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:

●

our ability to obtain and maintain regulatory approval of ibezapolstat and/or our other product candidates;

●

our ability to successfully commercialize and market ibezapolstat and/or our other product candidates, if approved;

●

our ability to contract with third-party suppliers, manufacturers and other service providers and their ability to perform adequately;

●

the potential market size, opportunity and growth potential for ibezapolstat and/or our other product candidates, if approved;

●

our ability to build our own sales and marketing capabilities, or seek collaborative partners, to commercialize ibezapolstat and/or our other product candidates, if approved;

●

our ability to obtain funding for our operations;

●

the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;

●

the timing of anticipated regulatory filings;

●

the timing of availability of data from our clinical trials;

●

the impact of the ongoing COVID-19 pandemic and our response to it;

●

the accuracy of our estimates regarding expenses, capital requirements and needs for additional financing;

●

our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

●

our ability to advance product candidates into, and successfully complete, clinical trials;

●

our ability to recruit and enroll suitable patients in our clinical trials and the timing of enrollment;

●

the timing or likelihood of the accomplishment of various scientific, clinical, regulatory and other product development objectives;

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●

the pricing and reimbursement of our product candidates, if approved;

●

the rate and degree of market acceptance of our product candidates, if approved;

●

the implementation of our business model and strategic plans for our business, product candidates and technology;

●

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

●

developments relating to our competitors and our industry;

●

the development of major public health concerns, including the novel coronavirus outbreak or other pandemics arising globally, and the future impact of it and COVID-19 on our clinical trials, business operations and funding requirements;

●

the effects of the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide from the conflict between Russia and Ukraine;

●

the volatility of the price of our common stock;

●

our financial performance; and

●

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

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.

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PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED INTERIM FINANCIAL STATEMENTS.

ACURX PHARMACEUTICALS, INC.

CONDENSED INTERIM BALANCE SHEETS


	September 30,		December 31,
	2022		2021
	(unaudited)		(Note 2)
ASSETS

CURRENT ASSETS
Cash	$	10,607,341	$	12,958,846
Prepaid Expenses		337,807		295,304
TOTAL ASSETS	$	10,945,148	$	13,254,150

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts Payable and Accrued Expenses	$	1,182,080	$	843,909
TOTAL CURRENT LIABILITIES		1,182,080		843,909

TOTAL LIABILITIES		1,182,080		843,909

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Common Stock; $.001 par value, 200,000,000 shares authorized, 11,592,609 and 10,215,792 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		11,593		10,216
Additional Paid-In Capital		45,132,049		38,948,334
Accumulated Deficit		(35,380,574)		(26,548,309)

TOTAL SHAREHOLDERS’ EQUITY		9,763,068		12,410,241

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	10,945,148	$	13,254,150

See accompanying notes to the condensed interim financial statements.

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ACURX PHARMACEUTICALS, INC.

CONDENSED INTERIM STATEMENTS OF OPERATIONS


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
OPERATING EXPENSES
Research and Development	$	1,591,043	$	1,126,972	$	3,321,623	$	1,313,954
General and Administrative		1,950,551		3,515,250		5,510,642		8,873,160

TOTAL OPERATING EXPENSES		3,541,594		4,642,222		8,832,265		10,187,114

Gain on Forgiveness of Paycheck Protection Program Loan		—		—		—		66,503

NET LOSS	$	(3,541,594)	$	(4,642,222)	$	(8,832,265)	$	(10,120,611)

LOSS PER SHARE
Basic and diluted net loss per common share/units	$	(0.32)	$	(0.46)	$	(0.84)	$	(1.27)

Weighted average common shares/units outstanding basic and diluted		11,148,402		10,116,403		10,551,503		7,988,563

See accompanying notes to the condensed interim financial statements.

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ACURX PHARMACEUTICALS, INC.

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


	Class A Membership			Class B Membership
	Interests			Interests			Common Stock								Total
											Additional				Members’
	Number of			Number							Paid-In		Accumulated		and Shareholders’
	Units	Amount		of Units	Amount		Shares		Amount		Capital		Deficit		Equity
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 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

Share-Based Compensation	—		—	—		—	—		—		2,070,637		—		2,070,637

Share-Based Payments to Vendors	—		—	—		—	210,695		211		1,327,059		—		1,327,270

Net Loss	—		—	—		—	—		—		—		(4,642,222)		(4,642,222)

Balance at September 30, 2021	—	$	—	—	$	—	10,126,903	$	10,127	$	38,188,287	$	(23,921,223)	$	14,277,191

Balance at January 1, 2022	—	$	—	—	$	—	10,215,792	$	10,216	$	38,948,334	$	(26,548,309)	$	12,410,241

Share-Based Compensation	—		—	—		—	—		—		761,069		—		761,069

Share-Based Payments to Vendors	—		—	—		—	43,889		44		188,056		—		188,100

Cashless Warrant Exercise	—		—	—		—	3,521		3		(3)		—		—

Net Loss	—		—	—		—	—		—		—		(2,670,138)		(2,670,138)

Balance at March 31, 2022	—	$	—	—	$	—	10,263,202	$	10,263	$	39,897,456	$	(29,218,447)	$	10,689,272

Share-Based Compensation	—		—	—		—	—		—		716,682		—		716,682

Net Loss	—		—	—		—	—		—		—		(2,620,533)		(2,620,533)

Balance at June 30, 2022	—	$	—	—	$	—	10,263,202	$	10,263	$	40,614,138	$	(31,838,980)	$	8,785,421

Share-Based Compensation	—		—	—		—	—		—		696,965		—		696,965

Share-Based Payments to Vendors	—		—	—		—	36,000		36		127,044		—		127,080

Issuance of shares of common stock and pre-funded warrants in registered direct offering, net of $529,805 cash issuance costs	—		—	—		—	1,159,211		1,159		3,694,024		—		3,695,183

Cashless Warrant Exercise	—		—	—		—	3,427		4		(4)		—		—

Pre-funded Warrant Exercise	—		—	—		—	130,769		131		(118)		—		13

Net Loss	—		—	—		—	—		—		—		(3,541,594)		(3,541,594)

Balance at September 30, 2022	—	$	—	—	$	—	11,592,609	$	11,593	$	45,132,049	$	(35,380,574)	$	9,763,068

See accompanying notes to the condensed interim financial statements.

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ACURX PHARMACEUTICALS, INC.

CONDENSED INTERIM STATEMENTS OF CASH FLOWS


	Nine Months Ended
	September 30,
	2022		2021
	(unaudited)		(unaudited)
Cash Flow from Operating Activities:
Net Loss	$	(8,832,265)	$	(10,120,611)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Share-Based Compensation		2,174,716		4,482,078
Share-Based Payments to Vendors		315,180		1,500,241
Executive Compensation Settled with Membership Interests		—		916,765
Gain on Forgiveness of Paycheck Protection Program Loan		—		(66,503)
(Increase) / Decrease in:
Prepaid Expenses		(42,503)		(481,973)
Accounts Payable and Accrued Expenses		338,171		256,506
Net Cash Used in Operating Activities		(6,046,701)		(3,513,497)

Cash Flow from Financing Activities:
Proceeds from Initial Public Offering, net of issuance costs		—		14,797,132
Proceeds from Registered Direct Offering, net of issuance costs		3,695,183		—
Pre-funded warrant exercise		13		—
Net Cash Provided by Financing Activities		3,695,196		14,797,132
Net (Decrease) / Increase in Cash		(2,351,505)		11,283,635
Cash at Beginning of Period		12,958,846		3,175,411
Cash at End of Period	$	10,607,341	$	14,459,046
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Warrants issued in connection with offerings	$	171,409		—
Accrued Registered Direct Offering costs	$	16,847		—

See accompanying notes to the condensed interim financial statements.

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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 clinical stage biopharmaceutical company formed in July 2017, with operations commencing in February 2018. The Company is focused on developing a novel class of antibiotics that address serious or life threatening bacterial infections.

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, direct and indirect economic effects as a result of inflation, supply chain disruptions and labor shortages 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 C. difficile infections (“CDI”).

The Company’s primary activities since inception aside from organizational activities have included 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. On July 27, 2022, the Company completed a registered direct offering and a concurrent private placement, issuing 1,159,211 shares of common stock and 130,769 pre-funded warrants and series A warrants to purchase 1,289,980 shares of common stock and series B warrants to purchase 1,289,980 shares of common stock for gross proceeds of approximately $4.2 million. As of September 30, 2022, the Company had a cash balance of approximately $10.6 million, which based on current estimates will be sufficient to meet its anticipated cash requirements for at least 12 months from the issuance of the condensed financial statements for the period ended September 30, 2022. 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 condensed 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.

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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 (“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 GAAP. Management believes that the disclosures provided herein are adequate when these unaudited condensed interim financial statements are read in conjunction with the audited financial statements and notes thereto as of December 31, 2021 filed in Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with 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.

Income Taxes

The Company estimates an annual effective tax rate of 0% as the Company incurred net losses for the nine months ended September 30, 2022 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 could be limited due to future ownership changes.

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 had 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 September 30, 2022, the Company had cash of approximately $10.6 million in U.S. bank accounts which was not fully insured by the FDIC.

Research and Development

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. The Company incurred research and development expenses in the amount of $1,591,043 and $1,126,972 for the three months ended September 30, 2022 and 2021, respectively, and $3,321,623 and $1,313,954 for the nine months ended September 30, 2022 and 2021, respectively.

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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 requisite service period.

Compensation expense associated with stock option awards is recognized over the requisite service period based on the fair value of the option at the grant date determined based on the Black-Scholes option pricing 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 option pricing model. 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.

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.

Major Vendor

The Company had a major vendor that accounted for approximately 66% and 52% of the research and development expenditures for the three months ended September 30, 2022 and 2021, respectively, and 50% and 45% for the nine months ended September 30, 2022 and 2021, respectively. The same vendor also accounted for approximately 55% and 5% of the total accounts payable and accrued expenses as of September 30, 2022 and December 31, 2021, respectively. The Company continues to maintain 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 September 30, 2022 and December 31, 2021 were as follows:


	September 30, 2022		December 31, 2021
Accrued compensation expenses	$	296,655	$	508,343
Accrued research and development		764,296		229,090
Accrued professional fees		115,189		43,102
Other accounts payable and accrued expenses		5,940		63,374
Total	$	1,182,080	$	843,909

NOTE 4 – EXECUTIVE COMPENSATION

In January 2021, the Company issued 57,430 Class A Membership Interests at $3.25 per unit, equal to the value of the most recent private placement, 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 board of directors also approved certain grants to members of management as a component of their 2020 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.

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

NOTE 5 – ISSUANCE OF EQUITY INTERESTS

On June 23, 2021, Acurx Pharmaceuticals, LLC was converted into a corporation and renamed Acurx Pharmaceuticals, Inc. The Company’s certificate of incorporation authorizes 200,000,000 shares of common stock of which 11,592,609 were outstanding as of September 30, 2022.

On June 29, 2021, the Company completed an IPO issuing 2,875,000 shares of common stock at a price of $6.00 per share, resulting in net cash proceeds of approximately $14.8 million, with cash issuance costs of approximately $2.4 million. The outstanding Class A and Class B Membership Interests were converted to shares of common stock pursuant to a conversion ratio of one-for-two 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 one-for two conversion ratio, resulting in 1,437,577 warrants to purchase common stock with a weighted average exercise price of $2.88.

In connection with the IPO, the Company issued 150,000 warrants to the underwriter. Each warrant is exercisable for 4.5 years from December 21, 2021 at an exercise price of $7.50 per share. The Company used the Black-Scholes model to calculate the value of the warrants with an estimated fair value of $618,000. The inputs utilized in the calculation were as follows: four and a half-year term, 0.79% risk-free rate, stock price at grant date of $6.26, and a 94% volatility utilizing comparable companies. This amount was recorded as both an increase to additional paid-in capital and as a non-cash issuance cost of the offering.

On July 25, 2022, the Company entered into securities purchase agreements (the “Purchase Agreements”) with two of the Company’s executives and a member of the Company’s board of directors (collectively, the “Affiliate Investors”), and a single U.S. institutional investor (the “Investor”) pursuant to which the Company issued and sold in a registered direct offering an aggregate of 1,159,211 shares of common stock, par value $0.001 per share and pre-funded warrants to purchase an aggregate of 130,769 shares of common stock. The Affiliate Investors purchased an aggregate of 59,211 shares of common stock at a purchase price of $3.80 per share. The Investor purchased an aggregate of 1,100,000 shares of common stock at a purchase price of $3.25 per share and an aggregate of 130,769 prefunded warrants at a purchase price of $3.2499 per pre-funded warrant. The pre-funded warrants sold to the Investor have an exercise price of $0.0001, were immediately exercisable. As of September 30, 2022, all of the pre-funded warrants were exercised. The Company also issued to the Affiliate Investors and the Investor, series A warrants to purchase 1,289,980 shares of common stock and series B warrants to purchase 1,289,980 shares of common stock, all of which are deemed equity classified. These warrants included 59,211 series A warrants and an aggregate of 59,211 series B warrants to the Affiliate Investors with an exercise price per share of $3.55 and an aggregate of 1,230,769 series A warrants and an aggregate of 1,230,769 series B warrants to the Investor with an exercise price per share of $3.25. The series A warrants will be exercisable commencing on January 27, 2023 and will expire on January 27, 2028. The series B warrants will be exercisable commencing on January 27, 2023 and will expire on January 27, 2024. The registered direct offering closed on July 27, 2022.

The gross proceeds to the Company from the registered direct offering were $4.2 million and net proceeds after deducting the placement agents’ fees and other offering expenses payable by the Company were approximately $3.7 million.

On July 25, 2022, the Company entered into a co-placement agent agreement (the “Placement Agent Agreement”), with two placement agents in connection with the registered direct offering pursuant to which the Company paid the Placement Agents a cash fee of $287,874 and issued to the Placement Agents an aggregate of 63,018 warrants to purchase shares of common stock. The warrants have an exercise price of $3.60 per share (representing 110% of the weighted average public offering price of the aggregate number of shares of common stock sold in the registered direct offering to the Investor and Affiliate Investors) and expire on July 27, 2027. The Company used the Black-Scholes model to calculate the value of the warrants with an estimated fair value of $171,409. The inputs utilized in the calculation were as follows: five year term, 2.82% risk free rate, stock price at grant date of $3.70 and a 95% volatility utilizing comparable companies. This amount was recorded as both an increase to additional paid-in capital and as a non-cash issuance cost of the offering.

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The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at September 30, 2022:


		Weighted Average
	Number of Warrants	Exercise Price
Balance, December 31, 2021	1,588,477	$	3.32
Issued	2,773,747	$	3.12
Exercised	(147,144)	$	0.27
Balance, September 30, 2022	4,215,080	$	3.29

The weighted average contractual life of the outstanding warrants is 4.30 years.

NOTE 6 – 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 a Delaware limited liability company to a Delaware corporation immediately prior to the Company’s IPO in June 2021, 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. Total share-based compensation associated with these awards had been recorded as general and administrative expenses in the amount of $0 and $755,556 for the three and nine months ended September 30, 2021, respectively.

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, with an annual evergreen provision pursuant to the Plan. The Plan currently reserves an aggregate of 2,408,631 shares of common stock, subject to adjustments as provided in the Plan, of which 537,936 are currently still available for issuance. 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 a total of 807,500 shares of common stock to its three executives and three non-employee management team members to replace the Class B Membership Interests that were cancelled in March 2021. The options were issued at an exercise price of $6.26, with the employee options vesting 40% upon issuance and the balance over 36 months, and the non-employee options vesting at grant date. The Company recorded general and administrative expense of $181,720 and $545,160 for the three and nine months ended September 30, 2022, respectively, and $181,720 and $1,837,605 for the three and nine months ended September 30, 2021, respectively, related to compensation expense for these options.

In the second quarter of 2021, the Company entered into a number of agreements with vendors pursuant to which the Company granted a total of 175,000 shares of common stock, cash payments in the amount of $343,500 and 100,000 options which were included as a part of the July 2021 grant. These contracts have terms which range from six months to three years. The common stock was valued based on the grant date fair value and the options valued utilizing Black-Scholes option pricing model. The cash payments were expensed over the service period and the equity component expensed consistent with the contractual vesting. The Company recorded general and administrative expense of $0 for the three and nine months ended September 30, 2022, respectively, and $0 and $1,095,500 for the three and nine months ended September 30, 2021, respectively, related to compensation expense for these shares.

In July 2021, the Company granted stock options to purchase a total of 1,550,000 shares of common stock to its three executives pursuant to their respective employment agreements, the independent directors, and one consultant, pursuant to the Plan. The options were issued at an exercise price of $6.18, the grant date fair value, with one-quarter of the executive’s options vesting upon issuance and the balance over 36 months, and the options granted to the directors and consultants vesting over 36 months. The Company recorded general and administrative expenses of $490,917 and $1,472,750 for the three and nine months ended September 30, 2022, respectively, and $1,888,917 for the three and nine months ended September 30, 2021, respectively, related to compensation expense for these options.

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In January 2022, the Company granted stock options to purchase a total of 80,000 shares of common stock to seven consultants pursuant to the Plan. The options were issued at an exercise price of $4.44, the grant date fair value, with one-quarter of the options vesting upon issuance and the balance over 36 months. The Company recorded general and administrative expenses of $18,950 and $126,333 for the three and nine months ended September 30, 2022 related to compensation expense for these options.

In April 2022, the Company granted stock options to purchase a total of 30,000 shares of common stock to a new employee pursuant to the Plan. The options were issued at an exercise price of $3.79, the grant date fair value, with one-quarter of the options vesting upon issuance and the balance over 36 months. The Company recorded general and administrative expenses of $5,378 and $30,473 for the three and nine months ended September 30, 2022, related to compensation expense for these options.

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


	Nine Months Ended
	September 30, 2022
Expected term		9	years
Volatility		90	%
Dividend yield		—	%
Risk-free interest rate		2.01	%
Weighted average grant date fair value	$	3.54

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


	Nine Months Ended	Weighted Average
	September 30, 2022	Exercise Price
Outstanding at the beginning of the period	2,357,500	$	6.21
Granted	110,000	$	4.26
Vested	(1,402,792)	$	6.15
Outstanding and expected to vest	1,064,708	$	6.08

The total compensation expense not yet recognized as of September 30, 2022 was $4,940,891. The weighted average vesting period for the unvested options is 1.79 years. The intrinsic value of the stock options as of September 30, 2022 was $0, with a remaining weighted average contractual life of 8.78 years. The weighted average grant date fair value for all options is $4.67 as of September 30, 2022. The Company records the impact of any forfeitures of options as they occur.

NOTE 7 – 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 30,145 Class A Membership Interests for the three and nine months ended September 30, 2021. The fair value of the Class A Membership Interests granted was equal to the value of the most recent private placement. 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 September 30, 2021, respectively, and $188,875 and $21,596 for the nine months ended September 30, 2021, respectively.

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In October 2019, the Company granted a total of 150,000 restricted Class A Membership Interests to three consultants for investor relations consulting services performed in 2019 through October 2021. These Class A Membership Interests vested on the second anniversary of the grant date, and were subject to accelerated vesting provisions upon a change of control of the Company. The fair value of the Class A Membership Interests granted was equal to the value of the most recent private placement, $2.00 per Class A Membership Interest. The Company recognized the expense on a straight-line basis over the vesting period. The Company recorded general and administrative expenses of $37,500 for the three months ended September 30, 2021 and $112,500 for the nine months ended September 30, 2021 with an unrecognized expense of $12,500 at September 30, 2021. The conversion adjusted shares of common stock were issued in October 2021.

In October 2021, the Company entered into an agreement with a consultant to provide financial advisory services for a six-month term. Pursuant to the agreement, the Company will grant $150,000 of common stock over the term of service. In January 2022, The Company granted 13,889 shares of common stock at grant date fair value, pursuant to the agreement, and recorded general and administrative expenses of $0 for the three months ended September 30, 2022 and $75,000 for the nine months ended September 30, 2022.

In March 2022, the Company entered into an agreement with a consultant to provide investor relation services for a six-month term. Pursuant to the agreement, the Company granted 30,000 shares of common stock with a grant date fair value of $3.77 and paid $25,000 of cash compensation The cash component will be expensed over the service period and the equity component expensed consistent with the contractual vesting. The Company recorded general and administrative expenses of $0 for the three months ended September 30, 2022 and $113,100 for the nine months ended September 30, 2022.

In September 2022, the Company entered into an agreement with a company to provide consulting services for a six-month term. Pursuant to the agreement, the Company granted 36,000 shares of common stock with a grant date fair value of $3.53, which was expensed consistent with the contractual vesting. The Company recorded general and administrative expenses of $127,080 for the three and nine months ended September 30, 2022.

NOTE 8 – NET LOSS PER SHARE

On June 23, 2021, the Company completed a corporate conversion from a limited liability company to a corporation. Accordingly, the outstanding Class A and Class B Membership Interests were converted to shares of common stock using a conversion ratio of one-half of one share of common stock for each Class A membership interest or Class B membership interest.

Basic and diluted net loss per share of common stock for the three and nine months ended September 30, 2022 and 2021 was determined by dividing net loss by the weighted average shares of common stock outstanding during the period. The Company’s potentially dilutive shares, consisting of 4,215,080 warrants and 2,467,500 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 the corporate conversion on the Company’s weighted average shares of common stock outstanding and net loss per share have been reflected for all periods presented retroactively.

NOTE 9 – 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 the 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.

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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, 2021 included in the Annual Report on Form 10-K (the “2021 Annual Report”) and filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2022. 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 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 a new class of antibiotic candidates that block the DNA polymerase IIIC (“Pol IIIC”). We believe we are developing the first Pol IIIC inhibitor to enter clinical trials and have clinically validated the efficacy of our lead antibiotic candidate in a Phase 2a clinical trial. 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 ), and Streptococcus (including antibiotic resistant 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 Gram-positive bacterial pathogens, including both sensitive and resistant C. difficile, methicillin-resistant Staphylococcus aureus (“MRSA”), vancomycin-resistant Enterococcus, penicillin-resistant Streptococcus pneumonia (“PRSP”) and other resistant bacteria.

We intend to “de-risk” this new class of antibiotics through our drug development activities and potentially partner with a fully-integrated pharmaceutical company for late-stage clinical trials and commercialization.

Our lead antibiotic candidate, ibezapolstat (formerly named ACX-362E), has a novel mechanism of action that targets the Pol IIIC enzyme, a previously unexploited scientific target. Phase 2a clinical data validate the efficacy of our lead antibiotic candidate as well as Pol IIIC as an appropriate bacterial target. On December 3, 2021, we commenced enrollment in a Phase 2b 64-patient, randomized (1-to1), non-inferiority, double-blind trial of oral ibezapolstat compared to oral vancomycin, a standard of care to treat C. difficile infections (“CDI”).

Prior to that, we completed our Phase 2a clinical trial of ibezapolstat to treat patients with CDI and reported the top-line data in November 2020. The Phase 2a clinical trial was terminated early based upon the recommendation of our Scientific Advisory Board (the “SAB”). The SAB reviewed the study data presented by management, including adverse events and efficacy outcomes, and discussed its clinical impressions. The SAB unanimously supported the early termination of the Phase 2a trial after 10 patients were

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enrolled in the trial instead of 20 patients as originally planned. The early termination was further based on the evidence of meeting the treatment goals of eliminating the infection with an acceptable adverse event profile.

The SAB noted that 10 out of 10 patients enrolled in the Phase 2a trial reached the Clinical Cure endpoint, defined in the study protocol as the resolution of diarrhea in the 24-hour period immediately before the end of treatment that is maintained for 48 hours after end of treatment. Such cure was sustained, meaning that the patients showed no sign of infection recurrence, for 30 days thereafter. This constitutes a 100% response rate for the primary and secondary endpoints of the trial. All 10 patients enrolled in the Phase 2a trial met the study’s primary and secondary efficacy endpoints, namely, Clinical Cure at end of treatment and Sustained Clinical Cure of no recurrence of CDI at the 28-day follow-up visit. No treatment-related serious adverse events (“SAEs”) were reported by the investigators who enrolled patients in the trial. We believe these results represent the first-ever clinical data showing Pol IIIC has potential as a therapeutically relevant antibacterial target. Our Phase 2b clinical trial commenced enrollment on December 3, 2021.

Currently available antibiotics used to treat CDI infections utilize other mechanisms of action. We believe ibezapolstat is the first antibiotic candidate to work by blocking the DNA Pol IIIC enzyme in C. difficile. This enzyme is necessary for replication of the DNA of certain Gram-positive bacteria, like C. difficile.

We also have an early stage pipeline of antibiotic product candidates with the same previously unexploited mechanism of action which has established proof of concept in animal studies. This pipeline includes ACX-375C, a potential oral and parenteral treatment targeting Gram-positive bacteria, including MRSA, VRE and PRSP.

Recent Developments

Referring Physician Program and Trial Site Expansion

In July 2022, we launched an innovative patient enrollment acceleration program (“Referring Physician Program”) to optimize patient enrollment in our ongoing Phase 2b clinical trial of ibezapolstat in patients with CDI. Our newly instituted Referring Physician Program involves principal investigators and study coordinators of our clinical trial sites reaching out to potential Referring Physicians (“RPs”) within an approximately twenty-five mile radius of our clinical trial sites. In each case, our scientific team has identified all of these potential RPs as high-prescribing physicians of the most commonly used antibiotics for treatment of C. difficile Infection over a recent twelve-month period.

According to the physician prescribing data available to us from an industry-standard source, identified RPs in the aggregate of just fourteen of our currently activated clinical trial sites treated a total of over 30,000 patients in a recent one-year period, suggesting that a substantial number of subjects could potentially be available for referral to one of these fourteen clinical trial sites if the patients qualify. The first tranche of this program has been activated with four of our clinical trial sites and is planned to be followed up later this year with a second tranche of twelve to twenty clinical trial sites as we expand our participating sites from sixteen up to thirty.

We believe the Referring Physician Program, which has a number of other supportive elements, will enhance the rate of enrollment potentially mitigating or partially mitigating the countervailing enrollment disruption caused by the COVID-19 pandemic.

Additionally, in July 2022, we increased the target number of clinical trial sites participating in our Phase 2b clinical trial from a targeted twenty-four clinical trial sites up to thirty clinical trial sites and we are continuing to onboard clinical trial sites to reach our target.

Registered Direct Offering

On July 25, 2022, we entered into securities purchase agreements (the “Purchase Agreements”) with David P. Luci, our President and Chief Executive Officer, Robert J. DeLuccia, our Executive Chairman, Carl V. Sailer, a member of our board of directors (collectively, the “Affiliate Investors”), and a single U.S. institutional investor (the “Investor”) pursuant to which we issued and sold in a registered direct offering an aggregate of 1,159,211 shares of our common stock, par value $0.001 per share and pre-funded warrants to purchase an aggregate of 130,769 shares of our common stock. The Affiliate Investors purchased an aggregate of 59,211 shares of common stock at a purchase price of $3.80 per share. The Investor purchased an aggregate of 1,100,000 shares of common stock at a purchase price of $3.25 per share and an aggregate of 130,769 pre-funded warrants at a purchase price of $3.2499

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per pre-funded warrant. The pre-funded warrants sold to the Investor have an exercise price of $0.0001, were immediately exercisable and may be exercised at any time until fully exercised. As of September 30, 2022, all of the pre-funded warrants were exercised.

The gross proceeds to us from the registered direct offering were $4.2 million and net proceeds after deducting the placement agents’ fees and other offering expenses payable by us were approximately $3.7 million. The securities were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-265956) previously filed with the SEC on July 1, 2022, and which was declared effective by the SEC on July 11, 2022.

In a concurrent private placement, we issued to the Affiliate Investors and the Investor, series A warrants to purchase 1,289,980 shares of our common stock and series B warrants to purchase 1,289,980 shares of our common stock, all of which are deemed equity classified. We issued an aggregate of 59,211 series A warrants and an aggregate of 59,211 series B warrants to the Affiliate Investors with an exercise price per share of $3.55. Additionally, we issued an aggregate of 1,230,769 series A warrants and an aggregate of 1,230,769 series B warrants to the Investor with an exercise price per share of $3.25. The series A warrants will be exercisable commencing on January 27, 2023 and will expire on January 27, 2028. The series B warrants will be exercisable commencing on January 27, 2023 and will expire on January 27, 2024. The registered direct offering and concurrent private placement closed on July 27, 2022.

On July 25, 2022, we entered into a co-placement agent agreement (the “Placement Agent Agreement”), with A.G.P./Alliance Global Partners (“AGP”) and Maxim Group LLC (“Maxim”, and together with AGP, the “Placement Agents”) in connection with the registered direct offering pursuant to which we paid the Placement Agents a cash fee of $287,874 and issued to the Placement Agents an aggregate of 63,018 warrants to purchase shares of common stock (which is 5% of the aggregate number of shares of common stock and pre-funded warrants sold in the registered direct offering to the Investor and 2.5% of the aggregate number of shares of common stock sold to the Affiliate Investors). The warrants will have an exercise price of $3.60 per share (representing 110% of the weighted average public offering price of the aggregate number of shares of common stock sold in the registered direct offering to the Investor and Affiliate Investors), will be exercisable beginning January 27, 2023, and will expire on July 27, 2027.

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 cash 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, (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 (“WHO”) recognized COVID-19 as a public health emergency of international concern on January 30, 2020 and as a global pandemic on March 11, 2020. The global pandemic and actions taken to contain COVID-19 have adversely affected the global economy and financial markets. Vaccines for COVID-19 continue to be administered in the United States and other countries around the world, but the extent and rate of vaccine adoption, the long-term efficacy of these vaccines and other factors remain uncertain. Authorities throughout the world have implemented measures to contain or mitigate the spread of the virus, including at various times physical distancing, travel bans and restrictions, closure of non-essential businesses, quarantines, work-from-home directives, mask requirements, shelter-in-place orders and vaccination programs. Despite these efforts, COVID-19 has persisted, has mutated into new variants, and is expected to become endemic. Additionally, new waves of COVID-19 or its variants could cause the reinstatement of such limitations. The impact of COVID-19 and its variants, including direct and indirect economic effects as a result of inflation, supply chain disruptions and labor shortages, have been and remain unpredictable.

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Since the start of the COVID-19 pandemic, we continued to enroll patients in our Phase 2a and Phase 2b clinical trial of our lead antibiotic candidate, ibezapolstat, although enrollment rates decreased significantly compared to expectations. Other areas of our business experienced no change, including our research and development activities 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 continue to 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. 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 the forgiveness of the PPP Loan in our statement of operations.

Components of our Results of Operations

Revenue

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all.

Research and Development Expenses

To date, our research and development expenses have related primarily to development of ibezapolstat, preclinical studies and other preclinical activities related to our portfolio. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Research and development expenses include:

●

external research and development expenses incurred under agreements with contract research organizations, or CROs, and consultants to conduct our preclinical, toxicology and other preclinical studies;

●

laboratory supplies;

●

costs related to manufacturing product candidates, including fees paid to third-party manufacturers and raw material suppliers;

●

license fees and research funding; and

●

facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance, equipment and other supplies.

Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as CROs, independent clinical investigators and other third-party service providers to assist us with the execution of our clinical trials.

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We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and seek to discover and develop new product candidates. Due to the inherently unpredictable nature of preclinical and clinical development, we cannot determine with certainty the timing of the initiation, duration or costs of future clinical trials and preclinical studies of product candidates. Clinical and preclinical development timelines, the probability of success and the amount of development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Our future clinical development costs may vary significantly based on factors such as:

●

per-patient trial costs;

●

the number of trials required for regulatory approval;

●

the number of sites included in the trials;

●

the countries in which the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

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potential additional safety monitoring requested by regulatory agencies;

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the duration of patient participation in the trials and follow-up;

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the phase of development of the product candidate; and

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the efficacy and safety profile of the product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in our executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities, pre-commercialization and, if any product candidates receive marketing approval, commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company.

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Results of Operations

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

The following table presents a summary of the changes in our results of operations for the three months ended September 30, 2022 compared with the three months ended September 30, 2021:


	Three Months Ended
	September 30,				Percentage
	2022		2021		Change

	(in thousands)
OPERATING EXPENSES:
Research and Development	$	1,591	$	1,127	41	%
General and Administrative		1,951		3,515	(45)	%
TOTAL OPERATING EXPENSES		3,542		4,642	(24)	%
Net Loss	$	(3,542)	$	(4,642)	(24)	%

Research and Development Expenses

Research and development expenses were $1.6 million for the three months ended September 30, 2022 and $1.1 million for the three months ended September 30, 2021, an increase of $0.5 million due to Phase 2b clinical trial related costs and increased consulting costs.

General and Administrative Expenses

General and administrative expenses were $2.0 million for the three months ended September 30, 2022 and $3.5 million for the three months ended September 30, 2021, a decrease of $1.5 million. The decrease was primarily due to a $0.2 million decrease in legal fees and $1.3 million decrease in share-based compensation costs.

Net Loss

Net loss was $3.5 million for the three months ended September 30, 2022, and $4.6 million for the three months ended September 30, 2021, a decrease of $1.1 million, due to the reasons stated above.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

The following table presents a summary of the changes in our results of operations for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021:


	Nine Months Ended
	September 30,				Percentage
	2022		2021		Change

	(in thousands)
OPERATING EXPENSES:
Research and Development	$	3,322	$	1,314	153	%
General and Administrative		5,510		8,873	(38)	%
TOTAL OPERATING EXPENSES		8,832		10,187	(13)	%
Gain on forgiveness of Paycheck Protection Program Loan		—		67	(100)	%
Net Loss	$	(8,832)	$	(10,120)	(13)	%

Research and Development Expenses

Research and development expenses were $3.3 million for the nine months ended September 30, 2022, and $1.3 million for the nine months ended September 30, 2021, an increase of $2.0 million due to Phase 2b clinical trial related costs and increased consulting costs.

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General and Administrative Expenses

General and administrative expenses were $5.5 million for the nine months ended September 30, 2022 and $8.9 million for the nine months ended September 30, 2021, a decrease of $3.4 million. The decrease was primarily due to a $1.1 million decrease in professional fees, $2.3 million decrease in share-based compensation costs, $0.3 million decrease in other compensation related costs, offset by $0.3 million increase in filing and insurance costs.

Net Loss

Net loss was $8.8 million for the nine months ended September 30, 2022, and $10.1 million for the nine months ended September 30, 2021, a decrease of $1.3 million, 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 $35.3 million as of September 30, 2022. 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. On July 27, 2022, we completed a registered direct offering and concurrent private placement resulting in net proceeds of approximately $3.7 million after deducting placement agents commission of $0.3 million and offering costs of $0.2 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.

As of September 30, 2022, we had working capital of $9.8 million, consisting primarily of $10.6 million of cash and $0.3 million of prepaid expenses, offset by $1.1 million of accounts payable and accrued expenses.

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


	For the nine months ended
	September 30,
	2022		2021

	(in thousands)
Net cash (used in) provided by:
Operating activities	$	(6,047)	$	(3,513)
Financing activities		3,695		14,797
Net (decrease) / increase in cash	$	(2,352)	$	11,284

Net Cash Used in Operating Activities

Net cash used in operating activities was $6.0 million for the nine months ended September 30, 2022. The net loss was greater than the net cash used in operating activities by $2.8 million, primarily attributable to share-based compensation and share-based vendor payments of $2.5 million and increase in accrued expenses of $0.3 million.

Net cash used in operating activities was $3.5 million for the nine months ended September 30, 2021. The net loss was greater than the net cash used in operating activities by $6.6 million, primarily attributable to share-based compensation and share-based vendor payments of $6.9 million and an increase in accounts payable of $0.2 million, offset by an increase in prepaid expense of $0.5 million

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Net Cash Provided by Financing Activities

Net cash provided by financing activities was $3.7 million for the nine months ended September 30, 2022, which was attributable to the net proceeds from the registered direct offering.

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

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are 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.

Income Taxes

Research and Development

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. The Company incurred research and development expenses in the amount of $3,321,623 and $1,313,954 for the nine months ended September 30, 2022 and 2021, respectively.

Share-Based Compensation

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affect the fair value computation using the Black-Scholes option pricing model. 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.

Share-Based Payments to Vendors

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 September 30, 2022 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, or that they will have a significant impact on us at the time they become effective.

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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 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.

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

As previously reported, management recognized that the Company had material weaknesses in its internal control over financial reporting as of June 30, 2022. We identified a material weakness as it relates to a lack of adequate segregation of accounting functions.

To remediate the inadequate segregation of duties, our management (i) engaged a third-party specialist to review our current internal controls and to recommend design improvements given the limited number of employees (ii) hired a controller to remediate the segregation of duties issue, who commenced employment in April 2022 and (iii) implemented a quarterly financial statement close process that includes formal reviews of financial statement account balances and journal entries. Accordingly, management believes it has remediated the material weakness related to inadequate segregation of duties. As of September 30, 2022, we have 4 full-time employees.

Except as noted above, there were no additional 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

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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.

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 are a clinical-stage company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

We are a clinical-stage biopharmaceutical company that was formed in July 2017. We acquired the

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