crvo20240930

crvo20240930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________.

Commission file number: 001-37942

CervoMed Inc.

(Exact name of registrant as specified in its charter)

Delaware	30-0645032
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

20 Park Plaza, Suite 424
Boston, Massachusetts	02116
(Address of principal executive offices)	(Zip Code)

(617) 744-4400

(Registrant’s telephone number including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CRVO	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, 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 Act). Yes ☐ No ☒

The number of shares of common stock outstanding at November 7, 2024 was 8,253,741 shares.

CervoMed Inc.

		Page No.
Part I	PART I – FINANCIAL INFORMATION	1

Item 1:	ITEM 1. FINANCIAL STATEMENTS	1

Item 2:	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20

Item 3:	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	30

Item 4:	ITEM 4. CONTROLS AND PROCEDURES	30

Part II	PART II – OTHER INFORMATION	31

Item 1:	ITEM 1. LEGAL PROCEEDINGS	31

Item 1A:	ITEM 1A. RISK FACTORS	32

Item 2:	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	31

Item 3:	ITEM 3. DEFAULTS UPON SENIOR SECURITIES	31

Item 4:	ITEM 4. MINE SAFETY DISCLOSURES	31

Item 5:	ITEM 5. OTHER INFORMATION	31

Item 6:	ITEM 6. EXHIBITS	32

Signatures

INTRODUCTORY NOTES

Note Regarding Company References and Other Defined Terms

As previously disclosed in our Current Report on Form 8-K filed with the SEC on August 17, 2023, on August 16, 2023, the Delaware corporation formerly known as “Diffusion Pharmaceuticals Inc.” completed a merger transaction in accordance with the terms and conditions of the Agreement and Plan of Merger, dated March 30, 2023 (the “Merger Agreement”) by and among Diffusion Pharmaceuticals Inc. (“Diffusion”), Dawn Merger Sub Inc., a wholly-owned subsidiary of Diffusion (“Merger Sub”), and EIP Pharma, Inc. (“EIP”), pursuant to which Merger Sub merged with and into EIP, with EIP surviving the Merger as a wholly-owned subsidiary of Diffusion (the “Merger”). At the Effective Time (as defined below), each outstanding share of EIP capital stock was converted into the right to receive 0.1151 shares of the Company's common stock and, immediately following the Effective Time, Diffusion changed its name from “Diffusion Pharmaceuticals Inc.” to “CervoMed Inc.”

For accounting purposes, the Merger is treated as a reverse recapitalization under US GAAP and EIP is considered the accounting acquirer. Accordingly, EIP’s historical results of operations are deemed the Company’s historical results of operations for all periods prior to the Merger and, for all periods following the Merger, the results of operations of the combined company will be included in the Company’s consolidated financial statements. Following the completion of the Merger, the business conducted by the Company became primarily the business conducted by EIP prior to the Merger.

Accordingly, unless the context otherwise requires, all references in this Quarterly Report to (i) “CervoMed,” the “Company,” “we,” “our,” or “us,” refer to the business of EIP for all dates and periods prior to August 16, 2023 and to the business of CervoMed for all dates and periods subsequent to (and including) August 16, 2023 and (ii) “common stock” refers to the common stock, par value $0.001 per share, of the Company. Historical share and per share figures of EIP have been retroactively restated based upon the Exchange Ratio of 0.1151.

We have also used several other defined terms in this Quarterly Report, many of which are explained or defined below:

Term	Definition
2015 Equity Plan	CervoMed Inc. 2015 Equity Incentive Plan, as amended
2018 Plan	CervoMed Inc. 2018 Employee, Director and Consultant Equity Incentive Plan, as amended
2020 Notes	the previously outstanding convertible promissory notes of EIP, dated as of December 4, 2020, as amended
2021 Notes	the previously outstanding convertible promissory notes of EIP, dated as of December 10, 2021, as amended
2022 Sales Agreement	our At-The-Market Sales Agreement, dated July 22, 2022, with BTIG, as agent, which was terminated in October 2024
2024 Private Placement	our private placement of an aggregate of 2,532,285 units, each consisting of (i) (A) one share of common stock or (B) one Pre-Funded Warrant in lieu thereof and (ii) one Series A Warrant, for aggregate gross proceeds of up to approximately $149.4 million, completed on April 1, 2024
401(k) Plan	CervoMed Inc. 401(k) Defined Contribution Plan
Annual Report	our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024
ASC	Accounting Standard Codification of the FASB
AscenD-LB Trial	our Phase 2a clinical trial evaluating neflamapimod for the treatment of patients with DLB, completed in the second half of 2021
ASU	Accounting Standards Update
BID	twice daily
BFC	basal forebrain cholinergic

Board	the board of directors of the Company
BTIG	BTIG LLC
CDR-SB	Clinical Dementia Rating Sum of Boxes test
CMO	contract manufacturing organization
CNS	central nervous system
Code	the U.S. Internal Revenue Code of 1986, as amended
Convertible Notes	collectively, the 2020 Notes and the 2021 Notes
CRO	contract research organization
DLB	dementia with Lewy bodies
Early-Stage DLB	DLB which has not progressed to a point where the patient has imaging or biomarker evidence of tau pathology or neuronal loss in the medial temporal lobe
Effective Time	the effective time of the Merger on August 16, 2023
EIP Common Stock	the common stock, par value $0.001, of EIP issued and outstanding prior to the Merger
Exchange Act	Securities Exchange Act of 1934, as amended
Exchange Ratio	the “Exchange Ratio” as defined in the Merger Agreement
FASB	Financial Accounting Standards Board
FDA	U.S. Food and Drug Administration
FTD	frontotemporal dementia
G&A	general and administrative
MoCA	the Montreal Cognitive Assessment
Nasdaq	Nasdaq Stock Market, LLC
NIA	the National Institute on Aging of the National Institutes of Health
NIA Grant	the $21.3 million grant awarded to us by the NIA to support the RewinD-LB Trial, $21.0 million of which was awarded in January 2023 and an additional $0.3 million of which was awarded in August 2024
NIH	National Institutes of Health
NOL	net operating loss
p38α	p38 mitogen-activated protein kinase alpha
Pre-Funded Warrants	the pre-funded warrants each to purchase one share of common stock at a purchase price of $0.001 per share issued in connection with the 2024 Private Placement
ptau181	plasma phosphorylated tau at position 181
R&D	research and development
Regulation S-K	Regulation S-K promulgated under the Securities Act
RestorGenex	RestorGenex Corporation, a legal predecessor to the Company prior to a reverse merger transaction consummated in January 2016
RewinD-LB Trial	our Phase 2b clinical trial evaluating neflamapimod for the treatment of patients with Early-Stage DLB initiated in the second quarter of 2023
ROU	right-of-use
SEC	U.S. Securities and Exchange Commission
Securities Act	Securities Act of 1933, as amended
Series A Warrants	the warrants to purchase an aggregate of 2,532,285 shares of common stock at a purchase price of $39.24 per share issued in connection with the 2024 Private Placement
TID	three times daily
TUG	Timed Up and Go test
U.S.	United States of America
US GAAP	U.S. generally accepted accounting principles
Vertex	Vertex Pharmaceuticals Incorporated
Vertex Agreement	the Option and License Agreement, dated as of August 27, 2012, by and between EIP Pharma LLC and Vertex, as amended

iii

Note Regarding Forward-Looking Statements

This Quarterly Report (including, for purposes of this Note Regarding Forward-Looking Statements, any information or documents incorporated herein by reference) includes express and implied forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition, liquidity, and prospects may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition, liquidity, and prospects are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of actual results or reflect unanticipated developments in future periods.

Forward-looking statements appear in a number of places throughout this Quarterly Report. We may, in some cases, use terms such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “aims,” “seeks,” “intends,” “may,” “might,” “could,” “will,” “should,” “approximately,” “potential,” “target,” “project,” “contemplate,” “predict,” “forecast,” “continue,” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements also include statements regarding our intentions, beliefs, projections, outlook, analyses or expectations concerning, among other things:

	●	our cash balances and our ability to obtain additional financing in the future;
	●	the success and timing of our ongoing RewinD-LB Trial and our other clinical and preclinical studies, including our ability to enroll subjects in our studies at anticipated rates and our ability to manufacture an adequate amount of drug supply for our studies;
	●	obtaining and maintaining intellectual property protection for our current or future product candidates and our proprietary technology;
	●	the performance of third parties, including contract research organizations, manufacturers, suppliers, and outside consultants, to whom we outsource certain operational, staff and other functions;
	●	our ability to obtain and maintain regulatory approval of our current or future product candidates and, if approved, our products, including the labeling under any approval we may obtain;
	●	our plans and ability to develop and commercialize our current or future product candidates and the outcomes of our research and development activities;
	●	our estimates regarding expenses, future revenues, capital requirements, and needs for additional financing;
	●	our future obligations under the Vertex Agreement;
	●	our failure to recruit or retain key scientific or management personnel or to retain our executive officers;
	●	the accuracy of our estimates of the size and characteristics of the potential markets for our current or future product candidates, the rate and degree of market acceptance of any of our current or future product candidates that may be approved in the future, and our ability to serve those markets;
	●	the success of products that are or may become available which also target the potential markets for our current or future product candidates;
	●	our ability to operate our business without infringing the intellectual property rights of others and the potential for others to infringe upon our intellectual property rights;
	●	any significant breakdown, infiltration, or interruption of our information technology systems and infrastructure;
	●	our ability to remediate our previously disclosed material weaknesses in our internal controls over financial reporting in a timely manner;

	●	recently enacted and future legislation related to the healthcare system;
	●	other regulatory developments in the U.S., European Union, and other foreign jurisdictions;
	●	our ability to satisfy the continued listing requirements of the Nasdaq or any other exchange on which our securities may trade in the future;
	●	uncertainties related to general economic, political, business, industry, and market conditions; and
	●	other risks and uncertainties, including those discussed under the heading "Risk Factors" herein and in our other public filings.

As a result of these and other factors, known and unknown, actual results could differ materially from our intentions, beliefs, projections, outlook, analyses, or expectations expressed in any forward-looking statements in this Quarterly Report. Accordingly, we cannot assure you that the forward-looking statements contained in this Quarterly Report will prove to be accurate or that any such inaccuracy will not be material. You should also understand that it is not possible to predict or identify all such factors, and you should not consider any such list to be a complete set of all potential risks or uncertainties. In light of the foregoing and the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Any forward-looking statements that we make in this Quarterly Report speak only as of the date of such statement, and, except as required by applicable law or by the rules and regulations of the SEC, we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. Comparisons of current and any prior period results are not intended to express any ongoing or future trends or indications of future performance, unless explicitly expressed as such, and should only be viewed as historical data.

Note Regarding Trademarks, Trade Names, and Service Marks

This Quarterly Report includes trademarks, trade names, and service marks owned by us or other companies. All trademarks, service marks and trade names included in this Quarterly Report are the property of their respective owners. To the extent any such terms appear without the trade name, trademark, or service mark notice, such presentation is for convenience only and should not be construed as being used in a descriptive or generic sense.

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CervoMed Inc.

Condensed Consolidated Balance Sheets

(unaudited)

	September 30, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	7,743,667		$	7,792,846
Marketable securities		38,913,236			—
Prepaid expenses and other current assets		1,888,879			1,256,501
Grant receivable		264,148			915,404
Total current assets		48,809,930			9,964,751
Other assets		73,937			7,770
Total assets	$	48,883,867		$	9,972,521
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,082,435		$	662,471
Accrued expenses and other current liabilities		2,163,936			1,933,276
Total liabilities		3,246,371			2,595,747
Commitments and Contingencies (Note 10)
Stockholders’ Equity:
Common stock, $0.001 par value: 1,000,000,000 shares authorized: 8,253,741 and 5,674,520 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively		8,253			5,674
Additional paid-in capital		109,531,651			61,811,889
Accumulated other comprehensive income		123,162			—
Accumulated deficit		(64,025,570	)		(54,440,789	)
Total stockholders' equity		45,637,496			7,376,774
Total liabilities and stockholders' equity	$	48,883,867		$	9,972,521

See accompanying notes to unaudited condensed consolidated interim financial statements

CervoMed Inc.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Grant revenue	$	1,939,751		$	1,526,482		$	7,575,972		$	4,654,294
Operating expenses:
Research and development		5,125,097			1,791,487			11,711,746			5,583,149
General and administrative		2,210,927			2,410,124			6,850,536			4,403,590
Total operating expenses		7,336,024			4,201,611			18,562,282			9,986,739
Loss from operations		(5,396,273	)		(2,675,129	)		(10,986,310	)		(5,332,445	)
Other income (expense):
Other income (expense)		(3,440	)		4,777,824			(3,717	)		5,422,192
Interest income		646,172			47,667			1,405,246			100,778
Total other income, net		642,732			4,825,491			1,401,529			5,522,970
Net (loss) income	$	(4,753,541	)	$	2,150,362		$	(9,584,781	)	$	190,525
Per share information:
Net (loss) income per share of common stock, basic	$	(0.55	)	$	0.65		$	(1.22	)	$	0.13
Weighted average shares outstanding, basic		8,702,764			3,308,302			7,861,757			1,458,415
Net loss per share of common stock, diluted	$	(0.55	)	$	(0.70	)	$	(1.22	)	$	(2.37	)
Weighted average shares outstanding, diluted		8,702,764			3,766,700			7,861,757			2,209,407
Comprehensive (loss) income:
Net unrealized gain on marketable securities		142,864			—			123,162			—
Total comprehensive (loss) income	$	(4,610,677	)	$	2,150,362		$	(9,461,619	)	$	190,525

See accompanying notes to unaudited condensed consolidated interim financial statements

CervoMed Inc.

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited)

	Three Month Period Ended September 30, 2024
	Convertible preferred stock				Common Stock				Additional Paid-in		Accumulated other comprehensive (loss)			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		income			Deficit			Equity
Balance at June 30, 2024		—	$	—		8,253,741	$	8,253	$	109,260,436	$	(19,702	)	$	(59,272,029	)	$	49,976,958
Stock-based compensation expense		—		—		—		—		271,215		—			—			271,215
Unrealized gain on marketable securities		—		—		—		—		—		142,864			—			142,864
Net loss		—		—		—		—		—		—			(4,753,541	)		(4,753,541	)
Balance at September 30, 2024		—	$	—		8,253,741	$	8,253	$	109,531,651	$	123,162		$	(64,025,570	)	$	45,637,496

	Nine Month Period Ended September 30, 2024
	Convertible preferred stock				Common Stock				Additional Paid-in			Accumulated other comprehensive (loss)		Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital			income		Deficit			Equity
Balance at January 1, 2024		—	$	—		5,674,520	$	5,674	$	61,811,889		$	—	$	(54,440,789	)	$	7,376,774
Issuance of common stock, prefunded warrants and common stock warrants, net of offering costs						2,083,262		2,083		46,396,523			—		—			46,398,606
Stock options granted in lieu of compensation		—		—		—		—		255,724			—		—			255,724
Cashless exercise of prefunded warrants		—		—		495,959		496		(496	)		—		—			—
Stock-based compensation expense		—		—		—		—		1,068,011			—		—			1,068,011
Unrealized gain on marketable securities						—		—		—			123,162		—			123,162
Net loss		—		—		—		—		—			—		(9,584,781	)		(9,584,781	)
Balance at September 30, 2024		—	$	—		8,253,741	$	8,253	$	109,531,651		$	123,162	$	(64,025,570	)	$	45,637,496

	Three Month Period Ended September 30, 2023
	Convertible preferred stock						Common Stock				Additional Paid-in		Accumulated			Total Stockholders'
	Shares			Amount			Shares		Amount		Capital		Deficit			Deficit
Balance at June 30, 2023		3,331,201		$	24,287,211			518,140	$	518	$	19,116,831	$	(54,228,753	)	$	(35,111,404	)
Conversion of convertible preferred stock to common stock		(3,331,201	)		(24,287,211	)		2,936,566		2,937		24,284,274		—			24,287,211
Issuance of common stock upon settlement of convertible notes		—			—			795,905		796		6,988,953		—			6,989,749
Issuance of common stock to Diffusion stockholders in reverse capitalization, net of issuance costs		—			—			1,360,244		1,360		10,337,754		—			10,339,114
Sale of common stock		—			—			63,422		63		809,937		—			810,000
Stock-based compensation expense, including vesting of RSUs		—			—			77		—		109,168		—			109,168
Net income		—			—			—		—		—		2,150,362			2,150,362
Balance at September 30, 2023		—		$	—			5,674,354	$	5,674	$	61,646,917	$	(52,078,391	)	$	9,574,200

	Nine Month Period Ended September 30, 2023
	Convertible preferred stock						Common Stock				Additional Paid-in		Accumulated			Total Stockholders'
	Shares			Amount			Shares		Amount		Capital		Deficit			Deficit
Balance at January 1, 2023		3,331,201		$	24,287,211			518,140	$	518	$	18,983,339	$	(52,268,916	)	$	(33,285,059	)
Conversion of convertible preferred stock to common stock		(3,331,201	)		(24,287,211	)		2,936,566		2,937		24,284,274		—			24,287,211
Issuance of common stock upon settlement of convertible notes		—			—			795,905		796		6,988,953		—			6,989,749
Issuance of common stock to Diffusion stockholders in reverse capitalization, net of issuance costs		—			—			1,360,244		1,360		10,337,754		—			10,339,114
Sale of common stock		—			—			63,422		63		809,937		—			810,000
Stock-based compensation expense, including vesting of RSUs		—			—			77		—		242,660		—			242,660
Net income		—			—			—		—		—		190,525			190,525
Balance at September 30, 2023		—		$	—			5,674,354	$	5,674	$	61,646,917	$	(52,078,391	)	$	9,574,200

See accompanying notes to unaudited condensed consolidated interim financial statements

CervoMed Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities:
Net (loss) income	$	(9,584,781	)	$	190,525
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Accretion of discount on marketable securities, net		(822,198	)		—
Stock-based compensation expense		1,068,011			242,660
Changes in fair value of convertible debt		—			(5,424,251	)
Changes in operating assets and liabilities:
Prepaid expenses, deposits and other assets		(698,545	)		(1,549,061	)
Accounts payable		419,964			382,675
Accrued expenses and other liabilities		486,384			699,008
Grant receivable		651,256			—
Deferred grant revenue		—			547,051
Net cash used in operating activities		(8,479,909	)		(4,911,393	)

Cash flows from investing activities:
Purchase of marketable securities		(44,467,876	)		—
Maturities of marketable securities		6,500,000			—
Net cash used in investing activities		(37,967,876	)		—

Cash flows from financing activities:
Net assets assumed in connection with reverse recapitalization		—			11,887,757
Proceeds from sale of common stock, prefunded warrants and common stock warrants		46,398,606			810,000
Payment of reverse capitalization costs		—			(1,455,268	)
Net cash provided by financing activities		46,398,606			11,242,489

Net (decrease) increase in cash and cash equivalents		(49,179	)		6,331,096
Cash and cash equivalents at beginning of period		7,792,846			4,093,579
Cash and cash equivalents at end of period	$	7,743,667		$	10,424,675

Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible notes	$	—		$	6,989,749
Conversion of convertible preferred stock	$	—		$	24,287,211
Merger costs in accounts payable and accrued expenses	$	—		$	93,375
Stock options granted in lieu of cash bonus	$	255,724		$	—
Cashless exercise of pre-funded warrants	$	496		$	—

See accompanying notes to unaudited condensed consolidated interim financial statements

CervoMed Inc.

Notes To Unaudited Condensed Consolidated Interim Financial Statements

1. The Company and Description of Business

The Company is a corporation organized under the laws of the state of Delaware and headquartered in Boston, Massachusetts. The Company is a clinical-stage biotechnology company developing treatments for age-related neurologic disorders. The Company is currently focused on developing of its lead drug candidate, neflamapimod, an investigational, orally administered, small molecule brain penetrant that inhibits p38α. Neflamapimod has the potential to treat synaptic dysfunction, the reversible aspect of the underlying neurodegenerative processes that cause disease in DLB and certain other major neurological disorders, and is currently being evaluated in the Company's ongoing RewinD-LB Trial, a Phase 2b study in patients with Early-Stage DLB, funded by a $21.3 million grant from the NIA.

2. Liquidity and Capital Resources

The Company has generated negative cash flows from operations and, as of September 30, 2024, had an accumulated deficit of $64.0 million. Based on its current operating plan, the Company believes its existing cash and cash equivalents and marketable securities on hand as of September 30, 2024, along with the remaining funds to be received from the NIA Grant, will enable the Company to fund its operating expenses and capital expenditure requirements for at least twelve months from the issuance of these unaudited condensed consolidated interim financial statements. The Company has based this estimate on assumptions that may prove to be wrong, and it could utilize its available capital resources sooner than it currently expects. The Company will continue to require additional financing to advance its current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. The Company intends to continue to seek funds through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, the Company may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms, or at all. If the Company does raise additional capital through public or private equity offerings, the ownership interest of its existing stockholders will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect the Company's stockholders’ rights. If the Company raises additional capital through a debt financing, it may be subject to covenants limiting or restricting the Company's ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on the Company's financial condition and on its ability to pursue its business plans and strategies. If the Company is unable to raise sufficient capital when needed, it may need to delay, reduce or terminate planned activities to reduce costs, including development or commercialization activities for neflamapimod. The Company might also be required to seek funds through arrangements with third parties that require it to relinquish certain of its rights to neflamapimod or otherwise agree to terms unfavorable to the Company.

Operations of the Company are subject to certain additional risks and uncertainties as well, and any one or more of these factors could materially affect the Company’s financial condition, future operations and liquidity needs. Many of these risks and uncertainties are outside of the Company’s control, including internal and external factors that may affect the success or failure of the Company’s research and development efforts, the length of time and cost of developing and commercializing the Company’s current or future product candidates, whether and when any such product candidates become approved drugs, and how significant a drug’s market share will be, if approved, among others.

3. Summary of Significant Accounting Policies

Basis of presentation

The unaudited condensed consolidated interim financial statements have been prepared in conformity with US GAAP as defined by the FASB.

CervoMed Inc.

Notes To Unaudited Condensed Consolidated Interim Financial Statements

Unaudited condensed consolidated interim financial statements

The accompanying unaudited condensed consolidated interim financial statements have been prepared by the Company in accordance with US GAAP for interim information and pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2023, filed as part of the Company's Annual Report.

These unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited consolidated financial statements and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the financial information for the interim periods. However, the results of operations for any interim period are not necessarily indicative of the results to be expected for the full fiscal year.

Consolidation

The unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of unaudited condensed consolidated interim financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, grant revenue, expenses, and related disclosures. On an ongoing basis, the Company’s management evaluates its estimates, including estimates related to money market accounts, clinical trial accruals, stock-based compensation expense, grant revenue, and expenses during the reported period. The Company bases its estimates on historical experience and other market-specific or relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ significantly from those estimates or assumptions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in a financial institution in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at a financial institution that management believes to be of high credit quality, and the Company has not experienced any losses on these deposits. Management also believes that the Company is not exposed to significant credit risk as it relates to marketable securities because the Company invests in U.S. government securities and commercial paper.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities of 90 days or less at the date of purchase to be cash and cash equivalents. Cash equivalents, which consist of amounts invested in money market funds, are stated at fair value. There are de minimis unrealized losses on the money market funds for the period ended September 30, 2024.

Marketable Securities

The Company classifies its marketable securities as available-for-sale, which include commercial paper and U.S. government debt securities with original maturities of greater than 90 days from date of purchase. These securities are carried at fair value, with unrealized gains and losses reported on the condensed consolidated statement of operations and comprehensive (loss) income and accumulated other comprehensive (loss) income within stockholders’ equity until realized. Purchase discounts are accreted using the effective interest method over the term of the related security and such accretion is included in interest income on the accompanying condensed consolidated statements of operations and comprehensive (loss) income.

CervoMed Inc.

Notes To Unaudited Condensed Consolidated Interim Financial Statements

The Company evaluates its investments in marketable securities for impairment at each reporting period when the fair value is below amortized cost. If the Company intends to sell the security, or it is more likely than not the Company will be required to sell the security before recovery of amortized cost, the entire impairment is included in earnings. The Company did not record any impairment on marketable securities during the three and nine months ended September 30, 2024 and 2023. There was no allowance for credit losses as of September 30, 2024 and December 31, 2023.

Fair Value of Financial Instruments

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases”, which establishes an ROU model that requires a lessee to recognize an ROU asset and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and expense recognition in the statement of operations and comprehensive (loss) income as well as the reduction of the ROU asset. The standard provides a number of optional practical expedients in transition. The Company has elected to apply (i) the practical expedient, which allows us to not separate lease and non-lease components, for new leases and (ii) the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the standard.

At the inception of an arrangement, the Company determ

SEC Form 10-Q filed by CervoMed Inc.