10-Q/A: Alterola Biotech Restates Q1 2025 Financials Due to Subsidiary Consolidation Error

Alterola Biotech has filed an amended quarterly report to restate its financials for the period ended June 30, 2024, due to an error in consolidating its newly formed subsidiary, Phytanix Bio.

Summary

• Alterola Biotech has restated its unaudited consolidated financial statements for the three months ended June 30, 2024, due to an error in the initial consolidation of its subsidiary, Phytanix Bio.
• The restatement includes the financial position and results of operations of Phytanix Bio since its inception, which occurred during the three months ended June 30, 2024.
• The restatement resulted in an increase in the company's cash, notes payable, accumulated deficit, operating expenses, and net loss.
• The company's cash balance increased by $703,308 due to the inclusion of Phytanix Bio's cash.
• Notes payable increased by $959,479 due to the issuance of promissory notes and warrants by Phytanix Bio.
• The accumulated deficit increased by $146,530 due to the inclusion of Phytanix Bio's net loss.
• Total operating expenses increased by $235,449 due to the consolidation of Phytanix Bio.
• The net loss attributable to common shareholders increased by $146,530 to $565,828.
• The company had a working capital deficit of $1,724,768 as of June 30, 2024.
• The company has incurred losses since inception of $12,981,903 and has not received revenues from sales of products or services.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including a large working capital deficit, substantial accumulated losses, and no revenue generation. While there are positive developments such as the business combination and financing activities, the overall sentiment is negative due to the company's financial instability and material weaknesses in internal controls.

Positives

• The company is actively pursuing a business combination with Chain Bridge I, which is expected to result in a Nasdaq listing.
• The company has secured $1,176,406 in net proceeds from notes payable issued by Phytanix Bio.
• The company is developing cannabinoid-based therapeutics and has acquired intellectual property to support this.
• The company has a fully operational US$ and a sterling bank account in the United Kingdom with the HSBC Group.

Negatives

• The company has a significant working capital deficit of $1,724,768.
• The company has incurred substantial losses since inception, totaling $12,981,903.
• The company has not generated any revenue from sales of products or services.
• The company's disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting.
• The company's ability to continue as a going concern is dependent on securing additional financing.
• The company has identified material weaknesses in internal control over financial reporting, including inadequate segregation of duties and insufficient written policies and procedures.

Risks

• The company's ability to continue as a going concern is dependent on generating cash from the sale of its common stock and/or obtaining debt financing.
• There is no assurance that the company will be successful in raising additional funding.
• The company's business plan will be impaired if it is unable to secure additional funding.
• The company has material weaknesses in its internal control over financial reporting.
• The business combination with Chain Bridge I is subject to customary closing conditions and may not be completed.
• The company is dependent on the successful development and commercialization of its cannabinoid-based therapeutics.
• The company is subject to risks associated with the pharmaceutical industry, including regulatory approvals and competition.

Future Outlook

The company expects to incur further losses in the development of its business and is dependent on funding operations. The company intends to raise capital and ramp up its efforts to bring its product candidates to market. The business combination with Chain Bridge I is expected to close in the first quarter of 2025.

Management Comments

• Management identified an error related to the consolidation of its newly formed subsidiary, Phytanix Bio.
• Management determined the effects of the restatement to be material.
• Managements plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations.
• Management believes in harnessing the therapeutic potential of cannabinoids and cannabinoid-like compounds.
• Alterola and ABTI Pharma Ltd management have extensive experience, know-how and connections in the cannabinoid medicines sector.

Industry Context

The company is operating in the cannabinoid pharmaceutical sector, which is experiencing growth and increasing interest in the development of cannabinoid-based therapeutics. The company is focusing on developing new medicines from various sources, including botanical, traditional chemical synthesis, and biosynthetic methodologies. The company is also looking to produce cannabinoids by fermentation, which could potentially reduce the cost of goods.

Comparison to Industry Standards

• The company's financial performance is not directly comparable to established pharmaceutical companies due to its early stage of development and lack of revenue.
• The company's focus on cannabinoid-based therapeutics aligns with a growing trend in the pharmaceutical industry, with companies like GW Pharmaceuticals (now part of Jazz Pharmaceuticals) and Canopy Growth leading the way in this space.
• The company's approach to producing cannabinoids by fermentation is similar to that used in the production of antibiotics, which could potentially offer a cost-effective alternative to traditional botanical production.
• The company's business combination with Chain Bridge I is similar to other SPAC mergers in the biotech sector, such as the merger of Ginkgo Bioworks with Soaring Eagle Acquisition Corp.
• The company's reliance on debt and equity financing is common for early-stage biotech companies, but the company's significant working capital deficit and lack of revenue highlight the risks associated with this approach.

Related Party Transactions

• An officer has provided office space as an arms length transaction with rental at commercial rates.
• A shareholder made advances to the Company to fund operating expenses in the amount of $6,348.

Stakeholder Impact

• Shareholders are impacted by the restatement of financial statements and the company's financial instability.
• Employees are impacted by the company's financial challenges and the potential for job insecurity.
• Customers are impacted by the company's ability to develop and commercialize its products.
• Suppliers are impacted by the company's ability to pay its debts.
• Creditors are impacted by the company's financial instability and the potential for default.

Next Steps

• The company plans to complete the business combination with Chain Bridge I in the first quarter of 2025.
• The company plans to file a registration statement on Form S-4 with the SEC.
• The company plans to seek approval from its stockholders for the business combination.
• The company plans to implement a remediation plan to address the material weaknesses in internal control over financial reporting.
• The company plans to continue to seek additional financing to fund its operations and development activities.

Key Dates

Keywords

Phytanix Bio, cannabinoid, pharmaceutical, restatement, business combination, Chain Bridge I, Nasdaq, working capital, promissory notes, warrants, internal control, financial reporting, debt financing, equity financing