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, 2020March 31, 2024
or
| |
☐ | 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: 001-39169001-39619
Kiromic BioPharma, Inc.
(Exact name of registrant as specified in its charter)
| | |
Delaware |
| 46-4762913 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | |
7707 Fannin Street, Suite |
| 77054 |
(Address of Principal Executive Offices) | | Zip Code |
(832) 968-4888 |
(Registrant’s telephone number) |
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of Each Class |
| Trading symbol |
| Name of Exchange on which registered |
Common Shares, par value $0.001 per share | | KRBP | | The |
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 acceleratedlarge-accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated“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 27, 2020,May 8, 2024, there were 7,332,9991,288,235 shares of the registrant’s ordinary sharescommon stock outstanding.
Kiromic BioPharma, Inc.
Quarterly Report on Form 10-Q
Period Ended September 30, 2020
TABLE OF CONTENTS
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| | Notes to Condensed Consolidated Financial Statements | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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2
Kiromic Biopharma, Inc.
Quarterly Report on Form 10-Q
For the quarterly period ended September 30, 2020
Cautionary Note on Forward-Looking Statements
This report containsVarious statements made in this Quarterly Report on Form 10-Q are forward-looking statements thatand involve substantial risks and uncertainties. We make suchAll statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements pursuant towithin the safe harbor provisionsmeaning of Section 27A of the U.S. Private Securities Litigation Reform Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended,amended. Such statements give our current expectations or forecasts of future events and other federal securities laws. All statements other thanare not statements of historical facts are forward-looking statements. The forward-looking statements are contained principally in, but not limited to, the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."or current facts. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to,among others, statements about:
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| ● | Our expected timing of human clinical trials and other related milestones. |
| ● | Expected changes in our revenue, costs or |
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| ● | Difficulties or delays in the product development process, including the results of preclinical studies or clinical trials. |
| ● | Difficulties or delays in the regulatory approval process. |
| ● | Manufacturing, sales, marketing and distribution of any of our products that may be successfully developed and approved for commercialization. |
| ● | Growth of and competition trends in our |
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| ● |
| ● |
| ● |
| ● | Relevant government policies and regulations relating to our industry. |
| ● | The outcome of any pending or threatened litigation. |
In some cases, you canForward-looking statements also include statements other than statements of current or historical fact, including, without limitation, all statements related to any expectations of revenues, expenses, cash flows, earnings or losses from operations, cash required to maintain current and planned operations, capital or other financial items; any statements of the plans, strategies and objectives of management for future operations; any plans or expectations with respect to product research, development and commercialization, including regulatory approvals; any other statements of expectations, plans, intentions or beliefs; and any statements of assumptions underlying any of the foregoing. We often, although not always, identify forward-looking statements by termsusing words or phrases such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project”" "could," "will," "should," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "project" or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” included in our Registration Statement on Form S-1 (file no. 333-238153), originally filed with the Securities and Exchange Commission on May 11, 2020, as amended, and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance."continue".
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
3
The following are some of the factors that could cause actual results to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements:
| ● | The effectiveness and timeliness of our preclinical studies and clinical trials, and the usefulness of the data. |
| ● | Our expectations regarding the timing and clinical development of our product candidates. |
| ● | Our ability to achieve profitable operations and access to needed capital. |
| ● | Fluctuations in our operating results. |
| ● | The success of current and future license and collaboration agreements. |
| ● | Our dependence on contract research organizations, vendors and investigators. |
| ● | Effects of competition and other developments affecting development of products. |
| ● | Market acceptance of our products. |
| ● | Protection of intellectual property and avoiding intellectual property infringement. |
| ● | Product liability. |
| ● | Other factors described in our filings with the SEC. |
We cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and subsequent quarterly reports on Form 10-Q describe major risks to our business, and you should read and interpret any forward-looking statements together with these risks. A variety of factors, including these risks, could cause our actual results and other expectations to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements. Should known or unknown risks materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward-looking statements. You should bear this in mind as you consider any forward-looking statements.
Our forward-looking statements speak only as of the dates on which they are made. We do not undertake any obligation to publicly update or revise our forward-looking statements even if experience or future changes makes it clear that any projected results expressed or implied in such statements will not be realized, except as may be required by law.
4
PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | | |
|
| September 30, |
| December 31, |
| March 31, |
| December 31, | ||||
| | 2020 | | 2019 | | 2024 | | 2023 | ||||
Assets |
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Assets: | | | | | | | ||||||
Current Assets: |
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Cash and cash equivalents | | $ | 469,300 | | $ | 1,929,100 | | $ | 3,676 | | $ | 3,204 |
Inventories | |
| 22,200 | |
| 22,200 | ||||||
Prepaid expenses and other current assets | |
| 1,051,900 | |
| 89,100 | |
| 1,892 | |
| 1,226 |
Total current assets | |
| 1,543,400 | |
| 2,040,400 | |
| 5,568 | |
| 4,430 |
Property and equipment, net | |
| 1,612,300 | |
| 587,900 | |
| 5,650 | |
| 6,175 |
Operating lease right-of-use asset, net | | | 1,389 | | | 1,543 | ||||||
Other assets | |
| 24,400 | |
| 24,400 | |
| 21 | |
| 21 |
| | | | | | | ||||||
Total Assets | | $ | 3,180,100 | | $ | 2,652,700 | | $ | 12,628 | | $ | 12,169 |
| | | | | | | | | | | | |
Liabilities and Stockholders’ Equity: | |
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Liabilities and Stockholders’ Deficit: | |
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Current Liabilities: | |
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Senior secured convertible promissory notes | | $ | 12,000 | | $ | 14,000 | ||||||
Accounts payable | | $ | 1,672,900 | | $ | 452,400 | | | 2,000 | | | 2,136 |
Accrued expenses and other current liabilities | |
| 473,000 | |
| 221,300 | |
| 1,251 | |
| 1,673 |
Loan payable | |
| 105,600 | |
| — | ||||||
Interest payable | |
| 3,008 | |
| 1,938 | ||||||
Note payable | |
| 192 | |
| — | ||||||
Operating lease liability - short term | | | 642 | | | 631 | ||||||
Total current liabilities | |
| 2,251,500 | |
| 673,700 | |
| 19,093 | |
| 20,378 |
| | | | | | | ||||||
Operating lease liability - long term | | | 747 | | | 912 | ||||||
Total Liabilities | |
| 2,251,500 | |
| 673,700 | |
| 19,840 | |
| 21,290 |
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Commitments and contingencies (Note 8) | |
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Stockholders’ Equity: | |
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Series A‑1 Preferred Stock, $0.0001 par value: 24,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 21,822,301 shares issued and outstanding as of September 30, 2020 and December 31, 2019 | |
| 9,134,700 | |
| 9,134,700 | ||||||
Series B Preferred Stock, $0.0001 par value: 16,500,000 and 14,130,435 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 16,391,397 and 9,869,659 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | |
| 2,331,300 | |
| 1,306,900 | ||||||
Preferred Stock, $0.0001 par value: 19,500,000 and 21,869,565 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019 | |
| — | |
| — | ||||||
Common stock: 300,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 4,989,269 and 2,863,812 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | |
| — | |
| — | ||||||
Stockholders’ Deficit: | |
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Preferred Stock, $0.0001 par value: 60,000,000 shares authorized, 22,000 and 14,000 issued and outstanding, with a liquidation preference of $25,095 and $16,206, as of March 31, 2024 and December 31, 2023, respectively | |
| — | |
| — | ||||||
Common stock, $0.001 par value: 300,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 1,288,235 and 1,258,460 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | |
| 1 | |
| 1 | ||||||
Additional paid-in capital | |
| 27,525,500 | |
| 13,965,000 | |
| 121,832 | |
| 113,775 |
Accumulated deficit | |
| (38,062,900) | |
| (22,427,600) | |
| (129,045) | |
| (122,897) |
Total Stockholders’ Equity | |
| 928,600 | |
| 1,979,000 | ||||||
| | | | | | | ||||||
Total Liabilities and Stockholders’ Equity | | $ | 3,180,100 | | $ | 2,652,700 | ||||||
Total Stockholders’ Deficit | |
| (7,212) | |
| (9,121) | ||||||
Total Liabilities and Stockholders’ Deficit | | $ | 12,628 | | $ | 12,169 | ||||||
See accompanying notes to the condensed consolidated financial statements
45
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | ||||||||||||
| | September 30, | | September 30, | | March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | | 2024 |
| 2023 | ||||||
Operating expenses: |
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Research and development |
| $ | 1,225,700 | | $ | 272,100 | | $ | 3,526,100 | | $ | 601,500 | | $ | 3,022 | | $ | 2,075 |
General and administrative |
| | 1,190,000 | |
| 607,400 | |
| 12,109,200 | |
| 934,300 | |
| 2,091 | |
| 2,702 |
Total operating expenses |
| | 2,415,700 | |
| 879,500 | |
| 15,635,300 | |
| 1,535,800 | |
| 5,113 | |
| 4,777 |
Loss from operations |
| | (2,415,700) | |
| (879,500) | |
| (15,635,300) | |
| (1,535,800) | |
| (5,113) | |
| (4,777) |
Other expense |
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Other expense: | |
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Interest expense |
| | — | |
| (7,400) | |
| — | |
| (22,400) | | | (1,071) | | | (444) |
Debt issuance amortization | |
| — | |
| (79) | ||||||||||||
Other income | | | 36 | | | — | ||||||||||||
Total other expense |
| | — | |
| (7,400) | |
| — | |
| (22,400) | |
| (1,035) | |
| (523) |
Net loss |
| $ | (2,415,700) | | $ | (886,900) | | $ | (15,635,300) | | $ | (1,558,200) | | $ | (6,148) | | $ | (5,300) |
Net loss per share, basic and diluted |
| $ | (0.65) | | $ | (0.32) | | $ | (4.39) | | $ | (0.55) | ||||||
Net loss per preferred share, basic and diluted | | $ | (405.61) | | $ | — | ||||||||||||
Net loss per common share, basic and diluted | | $ | (1.00) | | $ | (6.17) | ||||||||||||
Weighted average preferred shares outstanding, basic and diluted | | | 14,352 | | | — | ||||||||||||
Weighted average common shares outstanding, basic and diluted |
| | 3,719,132 | |
| 2,862,523 | |
| 3,719,132 | |
| 2,862,523 | |
| 1,304,548 | |
| 872,818 |
See accompanying notes to the condensed consolidated financial statements
56
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Shareholders’ EquityStockholders’ Deficit
(Unaudited)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | |||||||
| Number of | | | | | Number of | | | | | Additional | | Accumulated | | |
| ||
| Shares |
| Amount | | Shares |
| Amount |
| Paid-In Capital |
| Deficit | | Total | |||||
Balance at December 31, 2023 | 14,000 | | $ | — | | 1,258,460 | | $ | 1 | | $ | 113,775 | | $ | (122,897) | | $ | (9,121) |
Common stock discount amortization | — | | | — | | — | | | — | | | 86 | | | — | | | 86 |
Warrants underlying common stock issuance | — | | | — | | — | | | — | | | (86) | | | — | | | (86) |
Released restricted stock units | — | | | — | | 29,775 | | | — | | | — | | | — | | | — |
Issuance of convertible preferred stock | 8,000 | | | — | | — | | | — | | | 8,000 | | | — | | | 8,000 |
Stock compensation expense | — | | | — | | — | | | — | | | 57 | | | — | | | 57 |
Net loss | — | | | — | | — | | | — | | | — | | | (6,148) | | | (6,148) |
Balance at March 31, 2024 | 22,000 | | $ | — | | 1,288,235 | | $ | 1 | | $ | 121,832 | | $ | (129,045) | | $ | (7,212) |
See accompanying notes to the condensed consolidated financial statements
7
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Stockholders’ Deficit
(Unaudited)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three and Nine Months Ended September 30, 2020 | Common Stock | | | | | | | | | ||||||||||||||||||||||||||
| | Series A‑1 | | Series B | | | | | | | | | | | | | |
| Number of | | | | | Additional | | Accumulated | | |
| ||||||||
| | Preferred Stock | | Preferred Stock | | Common Stock | | | | | | | | |
| Shares |
| Amount |
| Paid-In Capital |
| Deficit | | Total | |||||||||||||
| | | | | | | | | | | | | | | | | Additional Paid- | | | | | | | ||||||||||||||
| | Number of | | | | | Number of | | | | | Number of | | | | | In | | Accumulated | | |
| |||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit | | Total | |||||||||||||||||||
Balance at December 31, 2019 |
| 21,822,301 | | $ | 9,134,700 |
| 9,869,659 | | $ | 1,306,900 |
| 2,863,812 | | $ | — | | $ | 13,965,000 | | $ | (22,427,600) | | $ | 1,979,000 | |||||||||||||
Issuance of Series B Preferred Stock |
| — | |
| — |
| 6,521,738 | |
| 331,700 |
| — | |
| — | |
| — | |
| — | |
| 331,700 | |||||||||||||
Series B Preferred Stock discount amortization |
| — | |
| — |
| — | |
| 368,400 |
| — | |
| — | |
| (368,400) | |
| — | |
| — | |||||||||||||
Warrants underlying Series B Preferred Stock issuance |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| 2,668,300 | |
| — | |
| 2,668,300 | |||||||||||||
Balance at December 31, 2022 | 648,384 | | $ | 1 | | $ | 96,172 | | $ | (101,948) | | $ | (5,775) | ||||||||||||||||||||||||
Common stock discount amortization | — | |
| — | |
| 85 | |
| — | |
| 85 | ||||||||||||||||||||||||
Warrants underlying common stock issuance | — | |
| — | |
| (85) | |
| — | |
| (85) | ||||||||||||||||||||||||
Released restricted stock units | 1,773 | |
| — | |
| — | |
| — | |
| — | ||||||||||||||||||||||||
Conversion of subordinated convertible notes into shares of common stock | 329,086 | |
| — | |
| 2,914 | |
| — | |
| 2,914 | ||||||||||||||||||||||||
Stock compensation expense |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| 456,000 | |
| — | |
| 456,000 | — | |
| — | |
| 21 | |
| — | |
| 21 |
Net loss |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| — | |
| (1,852,700) | |
| (1,852,700) | — | |
| — | |
| — | |
| (5,300) | |
| (5,300) |
Balance at March 31, 2020 |
| 21,822,301 | |
| 9,134,700 |
| 16,391,397 | | $ | 2,007,000 |
| 2,863,812 | | $ | — | | $ | 16,720,900 | | $ | (24,280,300) | | $ | 3,582,300 | |||||||||||||
Series B Preferred Stock discount amortization |
| — | |
| — |
| — | |
| 324,300 |
| — | |
| — | |
| (324,300) | |
| — | |
| — | |||||||||||||
Exercise of warrants |
| — | |
| — |
| — | |
| — |
| 1,399,921 | |
| — | |
| 4,900 | |
| — | |
| 4,900 | |||||||||||||
Common stock issuance to employees and non-employees |
| — | |
| — |
| — | |
| — |
| 725,536 | |
| — | |
| 9,432,000 | |
| — | |
| 9,432,000 | |||||||||||||
Stock compensation expense |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| 443,000 | |
| — | |
| 443,000 | |||||||||||||
Net loss |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| — | |
| (11,366,900) | |
| (11,366,900) | |||||||||||||
Balance at June 30, 2020 |
| 21,822,301 | |
| 9,134,700 |
| 16,391,397 | | $ | 2,331,300 |
| 4,989,269 | | $ | — | | $ | 26,276,500 | | $ | (35,647,200) | | $ | 2,095,300 | |||||||||||||
Stock compensation expense |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| 1,249,000 | |
| — | |
| 1,249,000 | |||||||||||||
Net loss |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| — | |
| (2,415,700) | |
| (2,415,700) | |||||||||||||
Balance at September 30, 2020 |
| 21,822,301 | | $ | 9,134,700 |
| 16,391,397 | | $ | 2,331,300 |
| 4,989,269 | |
| — | |
| 27,525,500 | |
| (38,062,900) | |
| 928,600 | |||||||||||||
Balance at March 31, 2023 | 979,243 | | $ | 1 | | $ | 99,107 | | $ | (107,248) | | $ | (8,140) | ||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
68
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Shareholders’ EquityCash Flows
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three and Nine Months Ended September 30, 2019 | | Three Months Ended | |||||||||||||||||||||
| | Series A‑1 | | | | | | | | | | | | |
| | | March 31, | |||||||
| | Preferred Stock | | Common Stock | | Additional | | Accumulated | |
| |
| 2024 |
| 2023 | ||||||||||
Cash flows from operating activities: |
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| |
| |||||||||||||||||||
Net loss | | $ | (6,148) | | $ | (5,300) | |||||||||||||||||||
Adjustments to reconcile net loss to net cash used for operating activities: | |
|
| |
|
| |||||||||||||||||||
Depreciation | |
| 557 | |
| 556 | |||||||||||||||||||
Operating lease non-cash expense | | | 154 | | | 132 | |||||||||||||||||||
Stock compensation expense | |
| 57 | |
| 21 | |||||||||||||||||||
Amortization of debt issuance costs | |
| — | |
| 79 | |||||||||||||||||||
Changes in operating assets and liabilities: | |
|
| |
|
| |||||||||||||||||||
Prepaid expenses and other current assets | |
| (666) | |
| (419) | |||||||||||||||||||
Accounts payable | |
| (147) | |
| 844 | |||||||||||||||||||
Interest payable | | | 1,070 | | | 431 | |||||||||||||||||||
Accrued expenses and other current liabilities | |
| (422) | |
| (327) | |||||||||||||||||||
Operating lease liability | |
| (154) | |
| (144) | |||||||||||||||||||
Net cash used for operating activities | |
| (5,699) | |
| (4,128) | |||||||||||||||||||
Cash flows from investing activities: | |
|
| |
|
| |||||||||||||||||||
Purchases of property and equipment | |
| (21) | |
| — | |||||||||||||||||||
Net cash used for investing activities | |
| (21) | |
| — | |||||||||||||||||||
Cash flows from financing activities: | |
|
| |
|
| |||||||||||||||||||
Proceeds from senior secured convertible note payable | |
| 6,000 | |
| 6,000 | |||||||||||||||||||
Borrowings from note payable | | | 400 | | | — | |||||||||||||||||||
Repayments of note payable | |
| (208) | |
| (163) | |||||||||||||||||||
Debt issuance costs | | | — | | | (300) | |||||||||||||||||||
Net cash provided by financing activities | |
| 6,192 | |
| 5,537 | |||||||||||||||||||
Net change in cash and cash equivalents | |
| 472 | |
| 1,409 | |||||||||||||||||||
Cash and cash equivalents: | |
| | |
|
| |||||||||||||||||||
Beginning of period | |
| 3,204 | |
| 645 | |||||||||||||||||||
End of period | | $ | 3,676 | | $ | 2,054 | |||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-In Capital |
| Deficit |
| Total | | | | | | | |||||
Balance at January 1, 2019 | | 20,886,782 | | $ | 8,727,400 |
| 2,862,093 | | $ | — | | $ | 10,237,600 | | $ | (18,699,700) | | $ | 265,300 | ||||||
|
| | | | | | | | | | | | | | | | | | | ||||||
Stock compensation expense |
| — | |
| — |
| — | |
| — | |
| 104,000 | |
| — | |
| 104,000 | ||||||
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (390,900) | |
| (390,900) | ||||||
Balance at March 31, 2019 |
| 20,886,782 | | $ | 8,727,400 |
| 2,862,093 | | $ | — | | $ | 10,341,600 | | $ | (19,090,600) | | $ | (21,600) | ||||||
Stock compensation expense |
| — | |
| — |
| — | |
| — | |
| 105,000 | |
| — | |
| 105,000 | ||||||
Net loss |
| — | |
| — |
| — | |
| — | |
| — | |
| (280,400) | |
| (280,400) | ||||||
Balance at June 30, 2019 |
| 20,886,782 | | $ | 8,727,400 |
| 2,862,093 | |
| — | |
| 10,446,600 | |
| (19,371,000) | |
| (197,000) | ||||||
Conversion of convertible promissory notes and accrued interest into Series A‑1 Preferred Stock |
| 935,519 | | | 407,300 |
| — | |
| — | |
| — | |
| — | |
| 407,300 | ||||||
Warrants underlying Series B Preferred Stock issuance |
| — | |
| — |
| — | |
| — | |
| 1,202,500 | |
| — | |
| 1,202,500 | ||||||
Series B Preferred Stock discount amortization |
| — | |
| — |
|
| |
| — | |
| (16,400) | |
| — | |
| (16,400) | ||||||
Exercised stock options |
| — | |
| — |
| 1,432 | |
| — | |
| 9,500 | |
| — | |
| 9,500 | ||||||
Stock compensation expense |
| — | |
| — |
|
| |
| — | |
| 160,000 | |
| — | |
| 160,000 | ||||||
Net loss |
| — | |
| — |
|
| |
| — | |
| — | |
| (886,900) | |
| (886,900) | ||||||
Balance at September 30, 2019 |
| 21,822,301 | | $ | 9,134,700 |
| 2,863,525 | |
| — | |
| 11,802,200 | |
| (20,257,900) | |
| 679,000 | ||||||
Supplemental disclosures of cash flow information: | |
|
| |
|
| |||||||||||||||||||
Cash paid for interest on note payable | | $ | 5 | | $ | 13 | |||||||||||||||||||
Non-cash investing and financing activities: | | | | | | | |||||||||||||||||||
Exchange of 25% senior convertible promissory notes into preferred stock | | $ | 8,000 | | $ | — | |||||||||||||||||||
Conversion of subordinated convertible promissory notes into common stock | | $ | — | | $ | (2,914) | |||||||||||||||||||
Property and equipment in accounts payable | | $ | 11 | | $ | — | |||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
79
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | �� | | | |
| | Nine Months Ended | ||||
| | September 30, | ||||
|
| 2020 |
| 2019 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net loss | | $ | (15,635,300) | | $ | (1,558,200) |
Adjustments to reconcile net loss to net cash used for operating activities: | |
|
| |
|
|
Depreciation | |
| 118,900 | |
| 63,700 |
Stock compensation expense | |
| 11,580,000 | |
| 369,000 |
Non-cash interest | |
| — | |
| 20,500 |
Changes in operating assets and liabilities: | |
|
| |
|
|
Unbilled receivables from granting agency | |
| — | |
| 5,000 |
Inventories | |
| — | |
| (5,900) |
Prepaid expenses and other current assets | |
| (149,800) | |
| 34,800 |
Accounts payable | |
| 398,300 | |
| 226,100 |
Accrued expenses and other current liabilities | |
| 130,700 | |
| (138,900) |
Deferred rent | |
| — | |
| (19,000) |
Convertible promissory notes derivative liability | |
| — | |
| 2,000 |
Net cash used for operating activities | |
| (3,557,200) | |
| (1,000,900) |
Cash flows from investing activities: | |
|
| |
|
|
Purchases of property and equipment | |
| (1,013,100) | |
| (26,500) |
Net cash used for investing activities | |
| (1,013,100) | |
| (26,500) |
Cash flows from financing activities: | |
|
| |
|
|
Proceeds from sale of convertible promissory notes | |
| — | |
| 250,000 |
Exercise of stock options | |
| — | |
| 9,500 |
Proceeds from warrant exercise | |
| 4,900 | |
| — |
Proceeds from loan payable | |
| 115,600 | |
| — |
Loan repayments | |
| (10,000) | |
|
|
Proceeds from Series B Preferred Stock issuance | |
| 3,000,000 | |
| 1,571,400 |
Net cash provided by financing activities | |
| 3,110,500 | |
| 1,830,900 |
Net change in cash and cash equivalents | |
| (1,459,800) | |
| 803,500 |
Cash and cash equivalents: | |
| | |
|
|
Beginning of year | |
| 1,929,100 | |
| 384,300 |
End of period | | $ | 469,300 | | $ | 1,187,800 |
| | | | | | |
Supplemental disclosures of non-cash investing and financing activities: | |
|
| |
|
|
Accruals for property and equipment | | $ | 130,200 | | $ | 74,700 |
Conversion of accounts payable into convertible promissory notes | | $ | — | | $ | 134,800 |
Conversion of convertible promissory notes and accrued interest into Series A‑1 Preferred Stock | |
| — | | $ | 407,300 |
Accruals for deferred initial public offering costs | | $ | 813,000 | | $ | — |
Warrants underlying Series B Preferred Stock issuance | | $ | 2,668,300 | | $ | — |
See accompanying notes to the condensed consolidated financial statements
8
KIROMIC BIOPHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. | ORGANIZATION |
Nature of Business
Kiromic BioPharma, Inc. and subsidiarysubsidiaries (the "Company" or “We”) isare a preclinicalclinical stage, biopharmaceuticalfully integrated biotherapeutics company formed under the Texas Business Organizations Code in December 2012. On May 27, 2016, the Company converted from a Texas limited liability company into a Delaware corporation and changed its name from Kiromic LLC to Kiromic Inc. On December 16, 2019, the Company amended and restated its certificate of incorporation charter to re-name the company, Kiromic BioPharma, Inc.
The Company is focused on discovering, developing, and commercializing novel immune-oncology therapy applications through its robust product pipeline, which are in the pre initial new drug validation stages of the US Food and Drug Administration clinical trial process. The Company maintainsWe maintain offices in Houston, Texas. The Company hasWe have not generated any revenuesrevenue to date.
The Company’s wholly-owned subsidiary, GreenPlanet Pharma, Inc., operatesWe are an oral healthcare business. It has developedallogeneic Gamma Delta T-cell therapy company featuring novel, proprietary end-to-end bioinformatic, AI targeting and manufacturing technologies to address solid tumors. Our end-to-end approach consists of target discovery and validation, product development, and on-site current good manufacturing practices (“cGMP”) which we believe will allow us to leverage a mouthwash usingnew framework for the next generation of cell therapies.
From a high quality, safe,development standpoint, we utilize innovative non-engineered and natural ingredient formulationengineered Gamma Delta T cell (GDT) technologies and are developing proprietary, virus-free cell engineering methods to providedevelop novel therapies for solid tumors that we believe will be effective symptomatic reliefand cost-efficient. Deltacel™️ (Deltacel) is our first allogeneic, off-the-shelf GDT cell-based product currently in a Phase 1 clinical trial. Our Procel™️ and Isocel™️ product candidates consist of allogeneic, engineered, off-the-shelf CAR-GDT cells, and they are currently in the preclinical development stage. Our Procel product candidate consists of engineered GDTs that target PD-L1. Our Isocel product candidate consists of engineered GDTs that target Mesothelin Isoform 2 (“Iso-Meso”). Our Deltacel™️ product candidate consists of non-engineered GDTs which we expand, enrich, and activate ex-vivo through a proprietary process, and it is intended to treat solid tumors regardless of the specific tumor antigen expression. Procel™️ consists of engineered GDTs targeting PD-L1 positive tumors, while Isocel™️ consists of engineered GDTs targeting solid tumors expressing a tumor-specific variant (Isoform) of Mesothelin (“Iso-Meso”).
We have a total of five clinical programs to study our key product candidates:
| 1) | Deltacel-01: This phase 1 clinical trial is active, and it is intended to evaluate Deltacel in combination with low-dose targeted radiation for patients with stage 4 non-small cell lung cancer (NSCLC). |
| 2) | Isocel combination: This phase 1 clinical trial is expected to evaluate Isocel in combination with low-dose radiation for patients with Mesothelin Isoform 2 positive solid malignancies. |
| 3) | Alexis-ISO-1: This phase 1 clinical trial is expected to evaluate Isocel in patients with Mesothelin Isoform 2 positive solid malignancies. |
| 4) | Procel combination: This phase 1 clinical trial is expected to evaluate Procel in combination with low-dose radiation for patients with PD-L1 positive solid malignancies. |
| 5) | Alexis-PRO-1: This phase 1 clinical trial is expected to evaluate Procel in patients with PD-L1 positive solid malignancies. |
Depending on pre-clinical evidence, we might submit 1 IND for Isocel and 1 for Procel, for a wide rangetotal of oral irritations and health concerns. This business is recently formed and the2 new INDs in 2025, to study our product was recently developed. This business has not generated any revenues.candidates either with or without low-dose radiation.
Going Concern—These condensed consolidated financial statements have been prepared onin accordance with generally accepted accounting principles applicable to a going concern, basis, which impliescontemplates the Company will continue to realize itsrealization of assets and discharge itsthe satisfaction of liabilities in the normal course of business.
The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue from the commercialization of its product candidates. The Company had negative cash flow from operations of $3,557,200$5.7 million for the ninethree months ended September 30, 2020,March 31, 2024, and an accumulated deficit of $38,062,900$129 million as of September 30, 2020. Although the Company completed its initial public offering on October 15, 2020 and received net proceeds of $12,372,700, the Company does not have sufficient cash on hand or available liquidity to meet its obligations through the 12 months following the date the condensed consolidated financial statements are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
March 31, 2024. To date, the Company has relied on equity and debt financing to fund its operations. The Company’s product candidates are still in the early stages of development, and
10
substantial additional financing will be needed by the Company to fund its operations and ongoing research and development efforts prior to the commercialization, if any, of its product candidates. The Company does not have sufficient cash on hand or available liquidity to meet its obligations through the twelve months following the date the condensed consolidated financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern.
Given its projected operating requirements and its existing cash and cash equivalents, the Companymanagement’s plans to complete an additional financing transaction in the first half of 2021 in order to continue operations. Management is currentlyinclude evaluating different strategies to obtain the required funding of future operations. These strategiesplans may include, but are not limited to, additional funding from current or new investors. However, there can be no assurance that the Company will be able to secure such additional financing, or if available, that it will be sufficient to meet its needs or on favorable terms. Therefore, the plans cannot be deemed probable.probable of being implemented. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. In the event the Company is unable to secure financing sufficient to allow it to meet its obligations as they become due, the Company may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
NIH Grant—In August 2018, the National Institute of Health ("the NIH"), the primary agency of the US government responsible for biomedical and public health research, awarded a Phase I/II grant to the Company in the amount of $2,235,000 for the development and non-clinical testing of a new anti-arteriosclerosis gene therapy delivered by engineered adeno-associated viral vectors. Phase I of the grant approved amounts of $851,000 and covered the period September 2018 through August 2019, entitled the Company to reimbursement for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees. The Company did not complete Phase I by August 2019, but was granted an extension to complete Phase I by the NIH through August 2021. Starting after Phase 1 completion in 2021, Phase II of the grant covers reimbursements for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees of $1,384,000.
9
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”) for interim financial information (Accounting Standards Codification ("ASC") 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with GAAP. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2023. The results of operations for the period ended March 31, 2024, are not necessarily indicative of the operating results that may be expected for a full year. The consolidated balance sheet as of December 31, 2023, contains financial information taken from the audited Company consolidated financial statements as of that date.
All intercompany balances were eliminated upon consolidation.
On December 17, 2019, the Company completed a 1-for-10 reverse stock split of its outstanding common stock. On June 17, 2020, the Company completed a 1-for-3.494 reverse stock split of its outstanding common stock. Accordingly, unless otherwise noted, all share and per share information has been restated to retroactively show the effect of these stock splits.
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 disclosures 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. Significant estimates include determination of the fair value of common stock and related stock-based compensation, the fair value of convertible promissory notes and the related embedded derivative liability, warrants to purchase common stock underlying shares of Series B Preferred Stock and public offering common stock, and estimating services incurred by third-party service providers used to recognize research and development expense.
Cash and Cash Equivalents—As of September 30, 2020 and December 31, 2019, cash and cash equivalents consisted entirely of cash on hand and bank deposits. The Company considers all highly liquid instruments with remaining maturities at purchase of 90 days or less to be cash equivalents.
Unbilled Receivables from Granting Agency—Unbilled receivables include certain cost reimbursements owed to the Company resulting from a biomedical research grant from the NIH. Direct costs subject to reimbursement are recorded only after actual expenses have been incurred while indirect costs are calculated using the percentage-of-completion accounting method. Unbilled receivables represent qualified cost reimbursements for which reimbursement have not yet been requested from or billed to the NIH due to the timing of the accounting invoicing cycle. The Company estimates the amount of probable credit losses from its existing unbilled receivables in the form of an allowance for doubtful accounts. The Company determines the allowance for doubtful accounts based upon an aging of unbilled receivables, historical experience, and management judgment. Unbilled receivable balances are reviewed individually for collectability. For the three and nine months ended September 30, 2020 and 2019, the Company has not experienced any credit-related losses.
Concentrations of Credit Risk and Other Uncertainties—Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents were deposited in accounts at a small number of national financial institutions. Account balances may at times exceed federally-insured limits. The Company has not incurred losses related to these cash and cash equivalents deposited at financial institutions and management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held.
1011
The Company is subject to certain risks and uncertainties from changes in any of the following areas that the Company believes could have a material adverse effect on future financial position or results of operations: the ability to obtain regulatory approval and market acceptance of, and reimbursement for, the Company’s product candidates; the performance of third-party clinical research organizations and manufacturers; protection of the intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; the Company’s ability to attract and retain employees necessary to support commercial success; and changes in the industry or customer requirements including the emergence of competitive products with new capabilities.
The Company records receivables resulting from activities under its research grant from the NIH. Management believes that the Company is not exposed to significant credit risk due to the financial strength of the granting agency.
Deposit—In connection with 1 of the Company’s facility leases, a deposit is held by the lessor per the terms of the noncancelable agreement. The deposit has been recorded as a long-term asset on the Company’s condensed consolidated balance sheets.
Inventories—Inventories consist entirely of finished products. The balances presented are stated at the lower of cost or market and is determined using the first-in, first-out method. The Company’s policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory quantity in excess of expected requirements. The estimate of write downs to inventory from obsolescence, costs in excess of inventory net realizable value, and inventory quantity in excess of expected requirements is subjective and primarily dependent on the estimates of future demand for a particular product. Adjustments generally increase as demand decreases due to market conditions and product life-cycle changes. As of September 30, 2020 and December 31, 2019, 0 such adjustments have been recorded.
Deferred Initial Public Offering Costs—In the nine months ended September 30, 2020, the Company began incurring costs in connection with the filing of a Registration Statement on Form S-1/A for an initial public offering, which are deferred in other current assets in accordance with ASC 505-10-25 in the condensed consolidated balance sheets. Initial public offering costs consist of legal, accounting, and other costs directly related to the Company’s efforts to raise capital. As of September 30, 2020, $933,100 of deferred costs related to the initial public offering were classified as other current assets on the condensed consolidated balance sheets.
Property and Equipment—Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from 1 to 8 years. Major replacements and improvements are capitalized as leasehold improvements, while general repairs and maintenance are expensed as incurred. Estimated useful lives of leasehold improvements are the shorter of the remaining lease term or the estimated useful economic life of the specific asset.
Estimated useful lives of property and equipment are as follows for the major classes of assets:
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| |
|
| |
|
| |
|
| |
|
|
Internal Use Software Development Costs—The Company capitalizes certain costs incurred to develop internal use software. All costs incurred that relate to planning and post-implementation phases of development are expensed as incurred. Costs incurred in the development and implementation phases are capitalized and amortized over the estimated life of the software, generally five years. The Company capitalized software development costs of approximately $10,200$23 thousand and $20,000$0 for the ninethree months ended September 30, 2020March 31, 2024 and 2019, respectively.2023, respectively, which are recorded in Property and equipment, net on the accompanying condensed consolidated balance sheets.
11
Impairment of Long-Lived Assets—The Company reviews its long-lived assets, including property and equipment, for impairment indicators. If indicators are noted, the Company compares the carrying amount of the asset to its estimated undiscounted cash flows. If the carrying amount exceeds its estimated undiscounted cash flows, an impairment loss is recognized to adjust the long-lived asset to fair value. There hashave been 0no impairment losses on the Company’s long-lived assets since inception.
Comprehensive Loss—Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For all periods presented, there was no difference between net loss and comprehensive loss.
Income Taxes—The Company files federal and state income tax returns, utilizing the accrual basis of accounting. Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and consist of taxes currently due and deferred taxes. Certain transactions of the Company may be subject to accounting methods for income tax purposes, which differ from the accounting methods used in preparing these condensed consolidated financial statements in accordance with GAAP. Accordingly, the net income or loss of the Company reported for income tax purposes may differ from the balances reported for those same items in the accompanying condensed consolidated financial statements.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled. The Company records valuation allowances to reduce deferred income tax assets to the amount that is more likely than not to be realized.
The Company records uncertain tax positions in accordance with Accounting Standard Codification (“ASC 740,740”), Income Taxes, on the basis of a two-step process in which (1) the Company determines whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying condensed consolidated statements of operations. NaNNo such interest or penalties were recognized during the three and nine months ended September 30, 2020 and 2019.March 31, 2024 or 2023.
Research and Development Expense—The Company expenses research and development costs as incurred. Research and development expenses include personnel and personnel-related costs, costs associated with the Company’s pre-clinical development activities including costs of outside consultants and contractors, the submission and maintenance of
12
regulatory filings, equipment and supplies used in developing products prior to market approval and an allocation of certain overhead costs such as facility and related expenses.
The Company accrues and expenses costs of services provided by contract research organizations in connection with preclinical studies and contract manufacturing organizations engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research organizations and service providers. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed rather than when the payment is made.
Proceeds from Grants—During the three months ended September 30, 2020 and 2019, the Company recognized $142,400 and $51,600, respectively, as reductions to research and development expense within the condensed consolidated statements of operations pursuant to its grant from the NIH. During the nine months ended September 30, 2020 and 2019, the Company recognized $142,400 and $239,900, respectively, as reductions to research and development expense within the condensed consolidated statements of operations pursuant to its grant from the NIH.
Convertible Promissory Notes Derivative Liability—The Company has recorded an embedded derivative liability related to the discount on the per share selling price the holders of the convertible promissory notes would receive at the time of conversion in connection with the Company’s next equity financing ("the Next Financing Close"). The embedded derivative liability is initially recorded at fair value, with gains and losses arising from changes in fair value
12
recognized in interest expense in the condensed consolidated statements of operations at each period end while such instruments are outstanding. The embedded derivative liability is valued using a probability weighted expected return model. See Note 7.
Upon repurchase of convertible promissory notes, ASC 470, Debt with conversion and other options, requires the Company to allocate total settlement consideration, inclusive of transaction costs, amongst the liability components of the instrument based on the fair value of the liability component immediately prior to repurchase. The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component would be recognized as gain (loss) on extinguishment of debt in the condensed consolidated statements of operations.
Fair Value Measurements—The carrying value of the Company’s cash and cash equivalents, unbilled receivables from the granting agency, prepaid expenses and other assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to their short-term nature.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
The Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2—Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not directly observable but are corroborated by observable market data.
Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
There were 0 changes in the fair value hierarchy levels during the nine months ended September 30, 2020 and 2019.
The Company’s liabilities that were measured at fair value on a non-recurring and recurring basis converted into Series A-1 Preferred Stock as of September 30, 2020 and December 31, 2019. Per ASC 820, the fair values of the convertible promissory notes are measured on a non-recurring basis at the relevant measurement date. The fair value of convertible promissory notes embedded derivative liability is measured on a recurring basis at the end of each reporting period.
13
Rollforward of Level 3 Liabilities Measured at Fair Value on a Non-Recurring Basis:
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Convertible promissory notes |
| |
|
| |
|
Beginning balance | | $ | — | | $ | — |
Amounts allocated to the embedded derivative liability at inception (at fair value) | |
| — | |
| (21,000) |
Conversions from accounts payable into convertible promissory notes | |
| — | |
| 134,800 |
Proceeds from issuances of convertible promissory notes | |
| — | |
| 250,000 |
Conversions into Series A‑1 Stock | |
| — | |
| (363,800) |
Ending balance | | $ | — | | $ | — |
| | | | | | |
Rollforward of Level 3 Liabilities Measured at Fair Value on a Recurring Basis: | ||||||
Convertible promissory note embedded derivative liability | |
|
| |
|
|
Beginning balance | | $ | — | | $ | — |
Realized and unrealized gains and losses | |
| — | |
| 2,000 |
Fair value of embedded derivative liability at inception | |
| — | |
| 21,000 |
Amounts derecognized upon conversion of the related convertible promissory notes | |
| — | |
| (23,000) |
Ending balance | | $ | — | | $ | — |
Nonvested Stock Options and Restricted Stock Units—Pursuant to the Company’sCompany’s 2017 Stock Incentive Plan (the “Plan”“2017 Plan”) and the Omnibus 2021 Equity Incentive Plan (the “2021 Plan”), the Company has the ability to issue a variety of share-based payments and incentives to board members, employees, and non-employees through grants of nonvested stock options.options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”).
The vesting conditions for stock options, RSUs and RSAs include annual and monthly.monthly vesting. Annual vesting conditions are forfour years. Monthly vesting conditions range from1010to to 48 months. When nonvested options are vested, they become exercisable over a 10 year 10-yearperiod from grant date.
The vesting conditions for restricted stock unitsRSUs include cliff vesting conditions. Certain restricted stock unitsRSUs vest with a range of6to12 monthsfollowing the expiration of employee lock-up agreements. Certain restricted stock unitsRSUs vest based on the later of achievement of key milestones or the expiration of employee lock-up agreements. When nonvested restricted stock unitsRSUs are vested, they become exercisable over a 10 year period from grant date.are released to the grantee withinsixty days.
Stock-Based Compensation—The Company records stock compensation expense related to the 2017 Equity Incentive Plan (the “2017 Plan”) and the Omnibus 2021 Equity Incentive Plan (the “2021 Plan”) in accordance with ASC 718, Compensation—Stock Compensation. The Company measures and recognizes stock compensation expense for all stock-based awards, including stock options, based on estimated fair values recognized using cliff vesting or the straight-line method over the requisite service period. The fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model (the “Black-Scholes model”). The calculation of stock-based compensation expense requires that the Company make assumptions and judgments about the variables used in the Black-Scholes model, including the fair value of the Company’s common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate. Forfeitures are accounted for when they occur.
The board13
The Company estimates the grant-dategrant date fair value of stock options using the Black-Scholes model and the assumptions used to value such stock options are determined as follows:
Expected Term. The expected term represents the period that the Company’s stock options are expected to be outstanding. Due to limitations on the sale or transfer of the Company’s common stock as a privately held company,under the lock-up agreements and market standoff components of the stock option agreements, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience as a future publicly traded company.after restricted periods expire. The Company has consequently useduses the Staff Accounting Bulletin (“SAB”) No. 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. The Company plans to continue to use the SAB 110 simplified method until it has sufficient trading history as a publicly traded company.
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Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes model on the implied yield available on USU.S. Treasury zero-coupon issues with a term equivalent to that of the expected term of the stock options for each stock option group.
Volatility. The Company determines the price volatility based on the historical volatilities of industry peers as it has nolimited trading history for its common stock price. The Company intends to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of its own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.
Dividend Yield. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. To date, the Company has not declared any dividends and, therefore, the Company has used an expected dividend yield of 0.zero.
Common Stock Valuations. Valuations. The fair value ofclosing price listed on the common stock underlyingOTCQB Capital Market or previously the Company’s stock-based compensation grants has historically been determined by the Company’s board of directors, with input from management and third-party valuations. The Company believes that the board of directors has the relevant experience and expertise to determine the fair value of the Company’s common stock. Given the absence of a public trading market ofNASDAQ Capital Market for the Company’s common stock and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, the board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of the Company’s common stock at each grant date. These factors include:
In valuing the common stock, the board of directors determined the equity value of the Company’s business using various valuation methods including combinations of income and market approaches. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in the Company’s industry or similar business operations as of each valuation date and is adjusted to reflect the risks inherent in the Company’s cash flows. The market approach references actual transactions involving (i) the subject being valued, or (ii) similar assets and/or enterprises.
For each valuation, the equity value determined by the income and market approaches was then allocated to the common stock using either the option pricing method (“OPM”) or probability—weighted expected return model (“PWERM”).
The option pricing method is based on the Black-Scholes option valuation model, which allows for the identification of a range of possible future outcomes, each with an associated probability. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. In general, while simple in its application, management did not use the OPM approach when considering allocation techniques for the valuation of
15
equity interests in early stage, privately held life science companies. Management determined that applying the OPM would violate the major assumptions of the Black Scholes option valuation model approach. Additionally, the simulation approach can generally be reasonably approximated by a scenario-based approach like the PWERM as described below.
PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM include an initial public offering, as well as non- initial public offering market-based outcomes. Determining the fair value of the enterprise using the PWERM requires the Company to develop assumptions and estimates for both the probability of an initial public offering liquidity event and stay private outcomes, as well as the values the Company expects those outcomes could yield. Since February 2018, the Company has valued its common stock based on a PWERM.
Application of the Company’s approach involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact valuations as of each valuation date and may have a material impact on the valuation of the common stock.
For valuations after the completion of an initial public offering, the board of directors will determine the fair value of each share of underlying common stock based on the closing price of the common stock as reported on the date of grant. Future expense amounts for any particular period could be affected by changes in assumptions or market conditions.the grant is used as the common stock valuation.
Segment Data—The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.
Recently Issued Accounting Pronouncements—From time to time, new accounting pronouncementsAccounting Standards Updates (“ASU”) are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed,
Accounting Standards Not Yet Adopted
Segments. In November 2023, the impactFASB issued ASU No. 2023-07, “Improvements to Reportable Segment Disclosures (Topic 280)”. ASU 2023-07 modifies reportable segment disclosure requirements, primarily through enhanced disclosures about segment expenses categorized as significant or regularly provided to the Chief Operating Decision Maker (CODM). In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of recently issued standards that areprofit or loss, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. This ASU is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted. The Company currently operates as one reportable segment and does not yet effectivebelieve there will not havebe a material impact on the Company’srelated disclosures in the consolidated financial position, results of operations, or cash flows upon adoption.statements.
Income Taxes.In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018,December 2023, the FASB issued ASU 2018-11No. 2023-09, “Improvements to amend certain aspectsIncome Tax Disclosures (Topic 740)”. ASU 2023-09 requires enhanced disclosures on income taxes paid, adds disaggregation of Topic 842. These amendments provide entities with an additional (and optional) transition methodcontinuing operations before income taxes between foreign and domestic earnings and defines specific categories for the reconciliation of jurisdictional tax rate to adopt Topic 842. Under this transition method, an entity initially applies the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized astax rate. This ASU is effective for fiscal years beginning after December 15, 2024, and can be applied on a cumulative effect adjustment to the opening balance of retained earnings (or other components of equity or net assets, as appropriate) in the period of adoption. On October 16, 2019, the FASB changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2022.prospective basis. The Company is currently evaluating the potential impact of this new standard on its financial position, results of operations, and cash flows.
In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The amendments in ASU 2016-13 affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope thatwill have the contractual right to receive cash. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the related disclosures in the consolidated financial asset. On October 16, 2019, the FASB has changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2023. The Company is currently evaluating the potential impact of this standard on its financial position, results of operations, and cash flows.
On January 1, 2019, the Company adopted ASU 2016-15 (Topic 230), Classification of Certain Cash Receipts and Payments, a new standard providing guidance on statement of cash flow classification on specific issues. The standard is effective for financial statements issued for fiscal periods beginning after December 15, 2018. It is required to be appliedstatements.
1614
on a retrospective approach. The Company determined that this standard had no impact on its financial position, results of operations, and cash flows for the year ended December 31, 2019.
3.NET LOSS PER COMMON STOCK SHARE
Basic and diluted net loss per common share is determined by dividing net loss less deemed dividends by the weighted-average common shares outstanding during the period. For all periods presented the common shares underlying the stock options, convertible Series A-1 Preferred Stock,RSUs and the convertible Series B Preferred Stockwarrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average common shares outstanding used to calculate both basic and diluted loss per common shares are the same. The following table illustrates the computation of basic and diluted earningsloss per share:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | ||||||||||||
| | September 30, | | September 30, | | March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||||
(In thousands) |
| 2024 |
| 2023 | ||||||||||||||
Net loss | | $ | (2,415,700) | | $ | (886,900) | | $ | (15,635,300) | | $ | (1,558,200) | | $ | (6,148) | | $ | (5,300) |
Less: Series B Preferred Stock discount amortization | |
| — | |
| (16,400) | |
| (692,700) | |
| (16,400) | ||||||
Net loss attributable to common shareholders, basic and diluted | | $ | (2,415,700) | | $ | (903,300) | | $ | (16,328,000) | | $ | (1,574,600) | ||||||
Weighted average common shares outstanding, basic and diluted | |
| 3,719,132 | |
| 2,862,523 | |
| 3,719,132 | |
| 2,862,523 | ||||||
Net loss per common share, basic and diluted | | $ | (0.65) | | $ | (0.32) | | $ | (4.39) | | $ | (0.55) | ||||||
Less: Initial Public Offering Common Stock discount amortization | | | (25) | | | (25) | ||||||||||||
Less: Public Offering Common Stock discount amortization | | | (61) | | | (60) | ||||||||||||
Less: Undeclared dividends attributable to preferred stock | | | (889) | | | — | ||||||||||||
Net loss attributable to common shareholders | | $ | (7,123) | | $ | (5,385) | ||||||||||||
| | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | ||||||||
|
| March 31, 2024 | | March 31, 2023 | ||||||||
(In thousands, except share and per share amounts) | | Common Stock |
| Preferred Stock |
| Common Stock |
| Preferred Stock | ||||
Net loss per share, basic and diluted | | | | | | | | | | | | |
Allocation of undistributed net loss | | $ | (1,302) | | $ | (5,821) | | $ | (5,385) | | $ | — |
Weighted average shares outstanding, basic and diluted | | | 1,304,548 | | | 14,352 | | | 872,818 | | | — |
Basic and diluted net loss per share | | $ | (1.00) | | $ | (405.61) | | $ | (6.17) | | $ | — |
For the ninethree months ended September 30, 2020March 31, 2024, there were 114,009 restricted stock units and 2019, potentially dilutive securities15,416 warrants that were excluded from the computations of diluted weighted-average shares of common shares outstandingstock because they were (in shares):
| | | | |
|
| September 30, |
| September 30, |
| | 2020 | | 2019 |
Options to purchase |
| 1,484 |
| 149,309 |
Restricted Stock Units | | 36,368 | | — |
Series A‑1 Preferred Stock |
| 624,594 |
| 602,426 |
Series B Preferred Stock |
| 452,378 |
| 70,622 |
Total |
| 1,114,824 |
| 822,357 |
anti-dilutive.
4.PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 2020 and December 31, 2019:
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Equipment | | $ | 736,000 | | $ | 488,800 |
Leasehold improvements | |
| 1,126,600 | |
| 302,700 |
Office furniture, fixtures, and equipment | |
| 16,600 | |
| 16,600 |
Software | |
| 151,700 | |
| 141,500 |
Construction in progress | |
| 62,000 | |
| — |
| |
| 2,092,900 | |
| 949,600 |
Less: Accumulated depreciation | |
| (480,600) | |
| (361,700) |
Total | | $ | 1,612,300 | | $ | 587,900 |
Depreciation expense was $50,400 and $20,700 forDuring the three months ended September 30, 2020 and 2019, respectively, and $118,900 and $63,700March 31, 2024, the Company entered into an Exchange Agreement whereby outstanding promissory notes totaling $8,000,000 were exchanged for 8,000 shares of Series D Convertible Voting Preferred Stock (the “Series D Stock”). See Note 10- Stockholder’s Equity for details about conversion price. The Series D Stock accrues an annual 25% dividend, whether or not declared, which if unpaid is added to the nineaggregate liquidation preference. During the three months ended September 30, 2020March 31, 2024 and 2019, respectively. Depreciation expense is allocated between research2023, the preferred shareholders earned $889 thousand and development and general and administrative operating expensesnone, respectively, of preferred dividends. The dividends were not accrued on the condensed consolidated statementsbalance sheet as of operations.
17
5.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at September 30, 2020 and DecemberMarch 31, 2019:2024, as these dividends were not declared.
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Accrued consulting and outside services | | $ | 435,900 | | $ | 221,300 |
Accrued compensation | |
| 37,100 | |
| — |
Total | | $ | 473,000 | | $ | 221,300 |
6.CURRENT LOAN PAYABLE
On May 1, 2020, the Company received a loan in the principal amount of $115,600 (the “SBA Loan”) under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). The intent and purpose of the PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses, with a focus on payroll. As a qualifying business as defined by the SBA, the Company is using the proceeds from this loan to primarily help maintain its payroll. The term of the SBA Loan promissory note (“the Note”) is two years, though it may be payable sooner in connection with an event of default under the Note. The SBA Loan carries a fixed interest rate of 1 percent per year, with the first payment due seven months from the date of initial cash receipt. Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. The Company intends to use the SBA Loan for qualifying expenses and to apply for forgiveness of the SBA Loan in accordance with the terms of the CARES Act.
The Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, materially false or misleading representations to the SBA, and adverse changes in the Company’s financial condition or business operations that may materially affect its ability to pay the SBA Loan.
As the legal form of the Note is a debt obligation, the Company accounts for it as debt under ASC 470, Debt, and recorded $105,600 during the nine months ended September 30, 2020 in the condensed consolidated balance sheet. During the nine months ended September 30, 2020, the Company received initial proceeds of $115,600 and made a repayment of $10,000 on the SBA Loan, bringing the balance to $105,600 as of September 30, 2020. The Company accrues interest over the term of the loan and does not impute additional interest at a market rate because the guidance on imputing interest in ASC 835-30, Interest, excludes transactions where interest rates are prescribed by a government agency. If any amount of the loan is ultimately forgiven, income from the extinguishment of debt would be recognized as a gain on loan extinguishment in the condensed consolidated statement of operations.
7.CONVERTIBLE PROMISSORY NOTES
Starting in June 2016, the Company sold convertible promissory notes to certain investors to help finance its operations. The convertible promissory notes were in amounts ranging from $12,500 to $500,000, earning annual interest between 6% and 17% and all maturities were on June 1, 2019, January 2, 2020, or June 30, 2020 (the “Maturity Date”).
The convertible promissory notes were convertible into shares issued in the Company’s Next Financing Close by dividing the total amount of convertible promissory notes, plus accrued interest (the “Balance”), by the applicable conversion price, as defined in the convertible promissory notes. If the convertible promissory notes have not been converted, the Balance shall be payable in full if the Company consummates a change of control transaction. If there has not been a Next Financing Close or a change in control by the Maturity Date, then at the noteholders’ option, the Company shall either repay the Balance then outstanding or convert into the Company’s common stock at a set conversion price then in effect, as defined in the convertible promissory notes.
The estimated fair value of the conversion discount related embedded derivative was determined using a probability-weighted expected return model. The probability of a Next Financing Close occurring prior to the Maturity Date was determined to be 55% during the nine months ended September 30, 2019. The net present value of the conversion discount related embedded derivative was measured using a discount rate of 25% in the nine months ended
1815
4. | PROPERTY AND EQUIPMENT, NET |
Property and equipment, net consisted of the following:
| | | | | |
(In thousands) | March 31, 2024 |
| December 31, 2023 | ||
Equipment | $ | 3,135 | | $ | 3,126 |
Leasehold improvements |
| 7,372 | |
| 7,372 |
Office furniture, fixtures, and equipment |
| 137 | |
| 137 |
Software |
| 360 | |
| 360 |
Construction in progress |
| 124 | |
| 101 |
|
| 11,128 | |
| 11,097 |
Less: Accumulated depreciation |
| (5,478) | |
| (4,921) |
Total | $ | 5,650 | | $ | 6,175 |
Depreciation expense was $557 thousand and $556 thousand for the three months ended March 31, 2024 and 2023, respectively. Depreciation expense is allocated between research and development and general and administrative operating expenses on the condensed consolidated statements of operations.
September 30, 2019. There have been 0 convertible promissory note issuances in5.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the nine months ended September 30, 2020. Below is a table that outlines the initial value of issuances and the bifurcated embedded derivative liability during the nine months ended September 30, 2020 and 2019:following as of:
| | | | | | |
|
| September 30, |
| September 30, | ||
| | 2020 | | 2019 | ||
Convertible promissory notes- issuances | | $ | — | | $ | 250,000 |
Conversion of accounts payable into convertible promissory notes | |
| — | |
| 134,800 |
Total issuances and conversions into convertible promissory notes | |
| — | |
| 384,800 |
| | | | | | |
Embedded derivative liability | |
|
| |
|
|
Initial fair value upon issuance of convertible promissory notes | |
| — | |
| 21,000 |
Realized and unrealized gains and losses | |
| — | |
| 2,000 |
Converted embedded derivative liability into Series A‑1 Preferred Stock | |
| — | |
| (23,000) |
Embedded derivative liability balance at September 30 | | $ | — | | $ | — |
| | | | | | |
(In thousands) |
| March 31, 2024 |
| December 31, 2023 | ||
Accrued litigation | | $ | — | | $ | 448 |
Accrued compensation | | | 946 | |
| 865 |
Accrued consulting and outside services | |
| 305 | |
| 361 |
Total | | $ | 1,251 | | $ | 1,673 |
On August 15, 2019, each holder
6.NOTE PAYABLE
In January 2024, the Company entered into a financing arrangement for its Director and Officer Insurance policy. The total amount financed was approximately $400 thousand with an annual interest rate of 4.93%, to be paid over a period of eleven months. As of March 31, 2024, the remaining payable balance on the financed amount was $192,000.
7.SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
The Company began issuing senior secured convertible promissory notes (each a “CPN” and together the “Notes”) payable to a private accredited investor (the “Investor”) during 2022.
Through March 31, 2024, the Company has issued to the Investor thirteen notes totaling $34 million, of which $6 million were issued during 2019 agreedthe three months ended March 31, 2024. The notes are each 25% Senior Secured Convertible Promissory Notes with largely consistent terms including a stated interest rate of 25% per year, a stated conversion price subject to voluntarily converta beneficial ownership limitation and share cap representing a certain percentage of the amountsoutstanding shares of Common Stock at the time of conversion, and a one-year maturity. As of March 31, 2024, there were five outstanding notes. Two outstanding notes with a value of $2,400,000, were each issued with a conversion price of $6.50. Two outstanding notes with a value of $2,400,000 were each issued with a conversion price of $5.00. One outstanding note with a value of $2,400,000 was issued with a conversion price of $2.50.
The stated interest rates for these notes increase to 27% per annum or the highest rate then allowed under applicable law (whichever is lower) upon the occurrence of an event of default, including the failure by the Company to make payment of principal or interest due under the related note on the respective maturity date, and interest then outstanding into sharesany commencement by the Company of Series A-1 Preferred Stock. See Note 9 for further details. NaN additional convertible promissory notes were issued for the nine months ended September 30, 2020 following the conversion on August 15, 2019.a case under any applicable bankruptcy or insolvency law.
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8.COMMITMENTS AND CONTINGENCIES
Facility Lease Agreements—TheIn April 2023, July 2023 and March 2024, the Company leases its premises in Houston, Texas under a noncancelable operating lease expiring in May 2021. The lease renewal which occurred in 2019 resulted inexecuted an expansionexchange agreement to the lease of approximately 4,100 square feet. The Company may extend this lease for up to two years. The total lease payments per month will be $21,353 beginning January 1, 2020. The Company records rent expense on a straight-line basis over the termconvert $8,000,000, $6,000,000 and $8,000,000 of the respective leases.senior secured promissory notes principal into shares of preferred stock, respectively. See Note 10— Stockholder’s Equity for further discussion.
AsSenior secured convertible promissory notes consisted of September 30, 2020, future minimum commitments under facility lease agreements were as follows:the following:
| | | |
|
| Amount | |
2020 | | $ | 64,100 |
2021 | |
| 85,400 |
Total | | $ | 149,500 |
| | | | | | |
(In thousands) |
| March 31, 2024 |
| December 31, 2023 | ||
Senior secured convertible promissory note, maturing June 26, 2024 | | | 2,400 | |
| 2,400 |
Senior secured convertible promissory note, maturing July 25, 2024 | |
| 2,400 | |
| 2,400 |
Senior secured convertible promissory note, maturing August 25, 2024 | | | 2,400 | |
| 2,400 |
Senior secured convertible promissory note, maturing September 27, 2024 | | | 2,400 | | | 2,400 |
Senior secured convertible promissory note, maturing November 2, 2024 | | | 2,400 | | | 2,400 |
Senior secured convertible promissory note, maturing December 12, 2024 | | | — | | | 2,000 |
Total senior secured convertible promissory notes | | $ | 12,000 | | $ | 14,000 |
Rent expense for the facility lease agreements was $194,800 and $91,300 during the nine months ended September 30, 2020 and 2019, respectively, and $67,700 and $33,300 during the three months ended September 30, 2020 and 2019, respectively. Rent expense is included as an allocation between research and development and general and administrative expense in the condensed consolidated statements of operations.
8.COMMITMENTS AND CONTINGENCIES
License Agreements—The Company has entered into a number of licensing arrangements for various intellectual property and licensed patent rights for technologies being developed for commercial sale. As part of these arrangements, the Company is subject to contingent milestone payments in accordance with agreed-upon development objectives, as well as future royalty payments on product sales of the underlying assets. As of September 30, 2020March 31, 2024, and December 31, 2019,2023, the Company has not incurred any milestone or royalty liabilities related to these license agreements.
Legal Proceedings—
—
Jason Terrel Claim
On March 22, 2021, Jason Terrell (“Terrell”), a former consultant and director of the Company, commenced an action against us in the Court of Chancery of the State of Delaware, C.A. No. 2021-0248-MTZ (the “Action”). In the normal courseAction, Terrell seeks a declaratory judgment that we are obligated to issue him (i) options to purchase 16,667 shares of business,our common stock at a price of $15.00 per share pursuant to an alleged 2014 consulting agreement, and (ii) options to purchase an additional 16,667 shares of common stock at a price of $5.10 per share pursuant to an alleged January 2017 non-employee director options agreement. In his complaint, Terrell also claimed that, pursuant to our operative certificate of incorporation, he is entitled to indemnification from us for attorneys’ fees and costs he incurs in connection with the Action because the Action arises in connection with his position as a former director.
We dispute Terrell’s claims and allegations in the Action and intend to vigorously defend against them. On May 21, 2021, the Company filed a motion to dismiss Terrell’s claims in the actions with prejudice, arguing that (i) Terrell’s options-related claims fail because his 2014 and January 2017 agreements were explicitly superseded by a later options agreement, under which Terrell relinquished his prior options; and (ii) Terrell is not entitled to indemnification because the Action relates to contracts between the Company and Terrell in his personal capacity, and not in connection with any activities or duties of Terrell in his official capacity as former director. In response to the motion filed on June 2021, Terrell withdrew his claim for indemnification, but opposed the portion seeking dismissal of his declaratory judgment claim. The motion was fully briefed with the filing of the Company’s reply brief on July 7, 2021.
Oral argument was held before the Vice Chancellor on October 20, 2021. During oral argument, the Vice Chancellor invited the parties to submit supplemental letter briefs on the question of whether the Court of Chancery even had the authority to adjudicate the Action in light of the delegation of authority in Terrell’s most recent stock option agreement with the Company (the “SOA”) to the Company’s Compensation Committee to resolve all disputes regarding the interpretation of the SOA. The parties submitted simultaneous supplemental letters briefs on this issue on November 15, 2021. On January 20, 2022, the Vice Chancellor issued her decision on our motion to dismiss, ruling that the Action is stayed until the Compensation Committee itself resolves whether it has sole authority to resolve the parties’ contract interpretation dispute.
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Subsequently, the parties agreed upon a process for coordinating submissions and/or presentations to the Compensation Committee. The parties made their respective written submissions to the Compensation Committee on March 31, 2022, and on July 21, 2022, the Compensation Committee determined that (i) the Compensation Committee has sole authority under the SOA to resolve the parties’ contract interpretation dispute, and (ii) Terrell’s most recent options agreement superseded and nullified any option rights Terrell may have varioushad under his prior agreements. On August 2, 2022, the Vice Chancellor issued an order dismissing the Action for lack of subject matter jurisdiction.
On August 23, 2022, Terrell filed a notice of appeal of the Vice Chancellor’s order of dismissal to the Delaware Supreme Court.
Oral argument on Terrell’s appeal was held before the Delaware Supreme Court on February 8, 2023. On May 4, 2023, the Delaware Supreme Court issued a written opinion (the “Opinion”) reversing the Vice Chancellor’s order of dismissal and remanding to Chancery Court for further proceedings consistent with the Opinion. In its Opinion, the Delaware Supreme Court affirmed several of the Chancery Court’s legal determinations on the motion to dismiss, but concluded that Chancery Court itself should independently review the Compensation Committee’s determinations under Delaware law.
The Delaware Supreme Court also rejected Terrell’s argument that the waiver clause in the third options agreement (which, according to the Company, superseded and extinguished unexercised options under the prior options agreements) was unconscionable.
Pursuant to a stipulated scheduling order, the parties submitted supplemental letter briefs to the Chancery Court in mid-August 2023, addressing the impact of the Opinion on the Company’s motion to dismiss. Thereafter, the Chancery Court notified the parties that it had received the supplemental letter briefs and would take the matter under advisement without holding oral argument.
On January 31, 2024, the Chancery Court issued a letter opinion that dismissed Terrell’s claims based on the contract-interpretation grounds the Company originally advanced back in process2021, as well as the Delaware Supreme Court’s determination that the third options agreement was not unconscionable. On March 11, 2024, the Chancery Court entered a stipulated form of Final Order and other contingencies. Judgment, dismissing Terrell’s claims consistent with the Chancery Court’s January 31, 2024 letter opinion. Terrell thereafter commenced an appeal of the dismissal to the Delaware Supreme Court. Under the briefing schedule ordered by the Delaware Supreme Court, Terrell’s opening appellate brief is due on or before May 9, 2024, and the Company’s answering brief is due 30 days after the date of service of Terrell’s opening brief. On appeal, the Company intends to vigorously argue that the Chancery Court’s dismissal should be affirmed.
Karp and Podmore Class Actions
On August 5, 2022, Ronald H. Karp, filed a class action complaint in the United States District Court for the Southern District of New York (the “Karp Class Action”) in connection with a public offering by the Company that closed on or about July 2, 2021, and asserting claims against the Company and certain current and former officers and directors of the Company for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. On October 3, 2022, Joseph Podmore filed a class action complaint in the United States District Court for the Southern District of New York (the “Podmore Class Action”) raising similar claims.
The Karp Class Action and the Podmore Class Action were consolidated and are collectively referred to as the “Class Action”. Please refer to the Settlement of the Class Action described more fully below.
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Settlement in Principle of the Class Action
On August 7, 2023, we entered into a term sheet with the plaintiffs in the Class Action, to settle in principle (and globally resolve) the Class Action. We subsequently reached agreement with the plaintiffs in the Class Action on all settlement materials and terms including with respect to payment of up to $2,300,000 and, on September 29, 2023, counsel for plaintiffs submitted the proposed settlement materials to the Court for approval. Of this amount, insurance covered $570,000, resulting in a net settlement of $1,730,000 owed by the Company. As of March 31, 2024, we have paid the totality of the settlement to the plaintiffs, of which $448,000 was payable as of December 31, 2023.
The Company regularly assesses all contingencies and believes, based on information presently known, the Company is not involved in any other matters that would have a material effect on the Company’s financial position, results of operations and cash flows.
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9.STOCKHOLDERS’ EQUITY (DEFICIT)
On December 16, 2019, the Company amended and restated its certificate of incorporation to, among other things, (i) complete a 1-for-10 reverse split of the Company’s outstanding shares of common stock; (ii) increase the Company’s authorized Preferred Stock to 60,000,000 shares and (iii) change the par value of the Preferred Stock from $0.01 to $0.0001 per share.
On June 17, 2020, the Company filed an amendment to its amended and restated certificate of incorporation to complete a 1-for-3.494 reverse split of the Company’s outstanding shares common stock.
Accordingly, unless otherwise noted, all share and per share information has been restated to retroactively show the effect of these stock splits.
As of September 30, 2020, the Company was authorized to issue 300,000,000 shares of common stock and 60,000,000 shares of Preferred Stock, of which 24,000,000 shares were designated as Series A-1 Preferred Stock and 16,500,000 shares were designated as Series B Preferred Stock.
As of December 31, 2019, the Company was authorized to issue 300,000,000 shares of common stock and 60,000,000 shares of Preferred Stock, of which 24,000,000 shares were designated as Series A-1 Preferred Stock and 14,130,435 shares were designated as Series B Preferred Stock.
Common Stock—From inception in December 2012 through May 2016, the Company raised proceeds from capital contributions for common stock at a $0.001 par value, net of redemptions, totaling $6,214,800. When the Company converted from Kiromic, LLC to Kiromic, Inc., the shares converted from two classes to a single class of common stock. At the time of conversion, the par value on the two classes of common stock eliminated, and the par value of common stock transferred entirely into additional paid-in capital. There were 0 additional raises from common stock that occurred in the nine months ended September 30, 2020 or 2019.
The Company authorized shares of 300,000,000 as of September 30, 2020 and December 31, 2019. On June 8, 2020, the Company agreed to amend the warrant vesting schedule such that the warrants became immediately exercisable for each warrant holder. On June 8, 2020, warrant holders exercised their option to purchase 335,982 shares of common stock for proceeds of $1,200. Then, on June 10, 2020, warrant holders exercised their option to purchase an additional 1,063,939 shares of common stock for proceeds of $3,700. There are 0 and 839,952 warrants outstanding as of September 30, 2020 and December 31, 2019, respectively.
On June 8, 2020, the Company issued 3,106 and 430 shares of common stock to the Company’s Chief Medical Officer and another employee, respectively. In addition, on June 19, 2020, the Company issued 402,000 and 320,000 shares of common stock to the Company’s Chief Financial Officer and Chief Operating Officer ("the CFO and COO") and Chief Strategy and Innovation Officer ("the CSO"), respectively. The shares were issued in exchange for services rendered and 0 cashconsiderations. These issuances resulted in $9,432,000 in stock compensation expenses.
Each holder of outstanding shares of common stock shall be entitled to 1 vote in respect of each share. The number of authorized shares of common stock may be increased or decreased by the affirmative vote of a majority of the outstanding shares of common stock and preferred stock voting together as a single class.
The Company has never paid dividends and has 0 plans to pay dividends on common stock. As of December 31, 2017, the Company adopted a stock option plan (“the Plan”). On September 25, 2019, the board of directors approved an additional 10,000,000 shares to be reserved and authorized under the Plan. This approval increased the total number of authorized shares from 20,000,000 to 30,000,000. After the reverse stock splits, the total number of authorized shares was updated to 858,615. On June 19, 2020, the board of directors approved an additional 850,000 shares to be reserved and authorized under the Plan. This approval increased the total number of authorized shares from 858,615 to 1,708,615.
There were 142,141 shares and 258,813 shares available for issuance as of September 30, 2020 and December 31, 2019, respectively.
Series A-1 Preferred Stock—Between June 8, 2018 and August 14, 2018, the Company entered into agreements to issue preferred stock and received advances of $900,000. The advances received under the agreements were recorded as liabilities until the preferred stock was issued and bore interest at a rate of 6.5%. The agreements were amended on
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September 10, 2018, when, in exchange for additional preferred stock to be issued, the advances no longer bore interest. On December 20, 2018, 2,032,749 shares of Series A-1 Preferred Stock were issued for the $912,800, representing the advances received and accrued interest through September 10, 2018.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or the occurrence of a liquidation the holders of the shares of Series A-1 Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to $0.50, the original issue price.
On matters submitted to a vote of the stockholders of the Company, Series A-1 Preferred Stock and common stock (see above) vote together as one class, with the vote of the Series A-1 Preferred Stock on an as-converted basis. Each holder of Series A-1 Preferred Stock shall have a number of votes equal to the shares of common stock into which the shares of Series A-1 Preferred Stock held by such holder are then convertible.
With respect rights on liquidation, winding up and dissolution, shares of the Series A-1 Preferred Stock rank senior to all shares of common stock.
Each share of Series A-1 Preferred Stock is convertible at any time at the option of the holder at the then current conversion rate. In addition, upon the closing of the sale of shares of common stock to the public in an initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, all shares of preferred stock shall automatically be converted into shares of common stock at the then effective conversion rate.
Series B Preferred Stock—On September 13, 2019, the Company amended and restated its certificate of incorporation to authorize the issuance of up to 14,130,435 shares of Series B Preferred Stock. On September 13, 2019, the Company sold 7,608,696 shares of Series B Preferred Stock for $3,500,000. Proceeds of $1,571,400 were received as of September 30, 2020, with the remaining balance received as of October 31, 2019. On November 13, 2019, the Company issued an additional 2,173,913 shares of Series B Preferred Stock for $1,000,000. In connection with the sale of the Series B Preferred Stock, each investor was issued warrants to purchase 0.0859 shares of common stock for each share of Series B Preferred Stock purchased at a price of $0.003494 per share of common stock ("Warrants"). See below for further details.
Until the filing of the amended and restated certificate of incorporation on December 16, 2019, shares of Series B Preferred Stock had accrued unpaid dividends at an annual rate of 6% per share. The amended and restated certificate of incorporation eliminated the clause requiring the dividend accrual. In addition, on December 6, 2019, the Series B Preferred Stock investors voted in favor of forfeiting all accrued and unpaid dividends, along with all future dividends. In exchange, the Company issued 87,050 shares of Series B Preferred Stock to the investors. The Company treated this transaction as accretion and settlement of a Series B Preferred Stock dividends in the amount of $40,000. Accordingly, additional paid-in capital was reduced by $40,000.
The Series B Preferred Stock conversion price is initially equal to the Series B Preferred Stock original issuance price of $0.46 per share divided by the rate at which shares of Series B Preferred Stock may be converted into shares of common stock. The holders of the Series B Preferred Stock held a special redemption right. In the event the Company had not filed an initial registration statement with the United States Securities and Exchange Commission and submitted an application to be listed on the Nasdaq Stock market on or prior to November 15, 2019, subject to Delaware law governing distributions to stockholders and the Company’s ability to redeem its shares, all or part of the shares of Series B Preferred Stock held by any holder of record as of such date of shares of Series B Preferred Stock with an aggregate purchase price of at least $1,000,000 would have been be redeemable at the option of such holders of record commencing any time on or after November 16, 2019 at a price equal to the purchase price paid for such shares plus all unpaid dividends accrued on such shares. Also, in the event that the Company was not ultimately approved for listing on a Nasdaq Stock Market tier lower than the Nasdaq Global Select Market, the special redemption right would remain in effect and may have been exercisable on any date thereafter. If the Company was unable to execute a redemption upon request of a holder, interest would accrue on the shares at rate of 14.6%, or warrants underlying the shares would be exercisable and the fair market value of the shares of common stock received in connection therewith would be treated as payment in exchange for the shares of Series B Preferred Stock submitted for redemption by such holder.
On November 12, 2019 and November 13, 2019, the Series B Preferred Stock investors signed waivers, which provided consent to the Company to eliminate the special redemption right. When the Company amended and restated its certificate of incorporation on December 16, 2019, the special redemption right provision was eliminated.
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9.LEASES
The eliminationCompany leases real estate for office and warehouse space under non-cancelable operating leases, with a total rentable space of 149,000 square feet. The Company intends to use the full lease term under the existing lease agreement which is currently set to expire on April 30, 2026. As of March 31, 2024, the Company is not able to determine if any renewal options will be exercised.
There are no variable payments associated with the lease agreements, as the rent payments are predetermined on a fixed schedule.
The following table indicates the balance sheet line items that include the right-of-use assets and lease liabilities for our operating lease:
| | | | | | |
| | | | | ||
(In thousands) |
| March 31, 2024 | | | December 31, 2023 | |
| | Operating lease | | | Operating lease | |
Right-of-Use Asset | | | | | | |
Operating lease, net | | $ | 1,389 | | $ | 1,543 |
Total right-of use asset, net | | $ | 1,389 | | $ | 1,543 |
| | | | | | |
Lease Liabilities | | | | | | |
Operating lease - short term | | $ | (642) | | $ | (631) |
Operating lease - long term | | | (747) | | | (912) |
Total lease liabilities | | $ | (1,389) | | $ | (1,543) |
For the three months ended March 31, 2024, the components of lease expense were as follows:
| | | | | | | |
|
| Three Months Ended | |||||
(In thousands) | | | March 31, 2024 | | | March 31, 2023 | |
Operating lease cost allocated to research and development expense | | $ | 113 | | $ | 90 | |
Operating lease cost allocated to general and administrative expense | | | 66 | | | 90 | |
Total lease expense | | $ | 179 | | $ | 180 | |
Weighted-average remaining lease term | | | 2.09 | | | 3.09 | |
Weighted-average discount rate | | | 7.12 | % | | 7.12 | % |
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As of March 31, 2024, the maturities of the special redemption right allows for permanent equity classification forCompany’s operating lease liabilities were as follows:
| | | |
Maturity of Lease Liabilities (In thousands) | | | Operating lease |
2024 (remaining) | | $ | 538 |
2025 | | | 725 |
2026 | | | 243 |
Total lease payments | | | 1,506 |
Less: imputed interest | | | (117) |
Present value of lease payments | | $ | 1,389 |
10.STOCKHOLDERS’ EQUITY
Stock— As of March 31, 2024, and December 31, 2023, the Company was authorized to issue 60,000,000 shares of preferred stock (24,000,000 shares designated as Series A-1 Preferred Stock and 16,500,000 shares designated as Series B Preferred Stock. Since the Warrants are equity classified,stock) and 300,000,000 shares of common stock. Additionally, as of March 31, 2024, the Company allocatedauthorized the relative fairissuance of 14,000 shares of Series C Convertible Voting Preferred Stock (the “Series C Stock”) and 8,000 shares of Series D Convertible Preferred Stock (the “Series D Stock” and together with the Series C Stock, the “Preferred Shares”). The Company issued 8,000 shares of Series C Stock on April 2, 2023, 6,000 shares of Series C Stock on July 18, 2023, and 8,000 shares of Series D Stock on March 28, 2024 as part of the three Exchange agreements discussed below, of which 14,000 shares of Series C Stock and 8,000 shares of Series D Stock remain outstanding as of March 31, 2024.
The Preferred Shares are convertible into shares of the Company’s common stock, par value $0.001 per share. The Preferred Shares are voting stock and holders are entitled to vote together with the Common Stock on an as-if-converted-to-Common-Stock basis as determined by dividing the Liquidation Preference with respect to such shares of Preferred Shares by their conversion price. Holders of Common Stock are entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. Accordingly, holders of Preferred Shares are entitled to one vote for each whole share of Common Stock into which their Preferred Shares are convertible on all matters submitted to a vote of stockholders.
Cumulative Rights of Series C and D Stock Shareholders— The Preferred Shares accumulate undeclared dividends at an annual rate of 25%. Unpaid dividends and undeclared dividends are added to the aggregated Liquidation Preference, which also includes the face value of the cash proceeds between the Series B Preferred Stock and the Warrants. The fair value of the Warrants is offset by a contra account, which is classified as a discount to the Series B Preferred Stock. The discount is amortized using the effective interest method at an effective interest rate of 28% per annum.
On January 24, 2020, the Company issued 4,782,608 shares of Series B Preferred Stock for $2,200,000. On January 29, 2020, the Company filed a certificate of correction to its amended and restated its certificate of incorporation to authorize the issuance of up to 16,500,000 shares of Series B Preferred Stock. On January 31, 2020, the Company issued an additional 1,739,130 shares of Series B Preferred Stock for $800,000.
Below is a table that outlines the initial value of issuances allocated to Series B Preferred Stock and the Series B Preferred Stock discount amortized during the three months and nine months ended September 30:
| | | | | | |
|
| 2020 |
| 2019 | ||
Series B Preferred Stock |
| |
|
| |
|
Balance at January 1, | | $ | 1,306,900 | | $ | — |
Series B Preferred Stock proceeds | |
| 3,000,000 | |
| — |
Series B Preferred Stock discount | |
| (2,668,300) | |
| — |
Series B Preferred Stock discount amortization | |
| 368,400 | |
| — |
Balance at March 31 | | $ | 2,007,000 | | $ | — |
Series B Preferred Stock discount amortization | |
| 324,300 | |
| — |
Balance at June 30 | | $ | 2,331,300 | | $ | — |
Series B Preferred Stock proceeds | |
| — | |
| 1,571,400 |
Series B Preferred Stock discount | |
| — | |
| (1,202,600) |
Series B Preferred Stock discount amortization | |
| — | |
| 16,400 |
Balance at September 30 | | $ | 2,331,300 | | $ | 385,200 |
Shares outstanding. In the event of any voluntary or involuntary liquidation dissolution or winding up of the Company, or the occurrence of a liquidation, the holders of the shares of Series B Preferred StockShares then outstanding shall be entitled to be paid the Liquidation Preference out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to the holders of common stock by reasonany other shares of their ownership thereof, an amount per sharecapital. As of March 31, 2024 and December 31, 2023, the outstanding Liquidation Preference of the Series C Stock and Series D Stock is $25,094,500 and $16,205,500, respectively.
Participating Rights of Series C and D Stock Shareholders— In the event the Company declares a dividend, and all cumulative dividends have been distributed, the Series C Stock participates in any remaining declared dividends to be paid equal to $0.46,(on an as-if-converted-to-common-stock basis) and in the original issue price.same form as dividends paid on shares of Common Stock.
Exchange Agreements
On matters submittedApril 2, 2023, the Company entered into an Exchange Agreement with the holder of promissory notes to a voteexchange an aggregate principal amount of $8 million of the stockholdersCompany’s 25% Senior Secured Convertible Promissory Notes for 8,000 shares of Series C Stock. The $8 million Senior Secured Convertible Promissory Notes is the aggregate of four promissory notes that were issued in the previous months, for $2 million each.
On July 18, 2023, the Company entered into an Exchange Agreement (the “July 18 Exchange Agreement”) with the holder of promissory notes of the Company Series B Preferred Stock, Series A-1 Preferred Stock, and common stock vote together as one class, with(the “Holder”) pursuant to which the voteHolder agreed to exchange aggregate principal amount of $6 million of the Series B Preferred Stock on an as-converted basis. Each holder of Series B Preferred Stock shall have a number of votes equal to the shares of common stock into which theCompany’s 25% Senior Secured Convertible Promissory Notes (the “July 18 Exchange Notes”) for 6,000 shares of Series B Preferred Stock held by such holder are then convertible.
With respect rights on liquidation, winding up and dissolution, shares of Series B Preferred Stock rank senior to all shares of common stock, but not senior to Series A-1 PreferredC Stock.
Each share of Series B Preferred Stock is convertible at any time at the option of the holder at the then current conversion rate. In addition, upon the closing of the sale of shares of common stock to the public in an initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, all shares of preferred stock shall automatically be converted into shares of common stock at the then effective conversion rate.
Conversion of The $6 million Senior Secured Convertible Promissory Notes—On December 20, 2018, is the Company’s certificateaggregate of incorporation was amended to authorize 24,000,000 shares Series A-1 Preferred Stock. This amendment qualified as the Next Financing Close with respect to the convertible promissory notes. Therefore, the outstanding principal and accrued interest was converted into Series A-1 Preferred Stock. At the time of conversion, outstanding principal and accrued interest of the convertiblethree promissory notes totaled $7,541,600. Per the convertible promissory notes, the conversion price was $0.40. Accordingly, 18,854,033 sharesthat were issued to convertin the outstanding principal and accrued interest into Series A-1 Preferred Stock.
On August 15, 2019, each holder of convertible promissory notes issued during 2019 agreed to voluntarily convert the amounts of principal and interest then outstanding into shares of Series A-1 Preferred Stock. At the time of conversion, outstanding principal and accrued interest of the convertible promissory notes totaled $405,300. Per the convertible promissory notes, the notes containing a $250,000 principal balance with a 17% coupon rate had a conversion price ofprevious months, for $2 million each.
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$0.43. Additionally,On March 28, 2024, the Company settledentered into an accounts payableExchange Agreement with a vendor by issuing a convertiblethe holder of promissory notenotes to exchange an aggregate principal amount of $8 million of the Company’s 25% Senior Secured Convertible Promissory Notes for 8,000 shares of Series D Stock. The $8 million Senior Secured Convertible Promissory Notes is the aggregate of four promissory notes that were issued in the amount of $134,800 with a 6% coupon rate, with a conversion rate of $0.43. Accordingly, 935,519 shares were issued to convert the outstanding principal and accrued interest into Series A-1 Preferred Stock.previous months, for $2 million each.
Warrants Underlying Series B Preferred Stock—In connection withHolders of warrants (the “Warrants”) grant the saleholder the right to purchase a specified number of shares of the Series B Preferred Stock, each investor was issued warrants toCompany at a specified price with an expiration date of five years. Holders of the Warrants may purchase 0.08592,083 shares of common stock for each share of Series B Preferred Stock purchased at aan exercise price of $0.003494$450.00 per share of common stock. The warrants become exercisable in accordance with the schedule set forth below following completion by the Company of an initial public offering and thereafter may be exercised at any time prior to expiration ten years from the date of issuance.
As of December 31, 2019, the Company sold 9,782,609 shares of Series B Preferred Stock, which contained 839,952 underlying warrants to purchase common stock based on the exercise price and vesting schedule outlined above. As of September 30, 2020, the Company soldOctober 14, 2025, or an additional 6,521,738 shares of Series B Preferred Stock, which contained 559,969 underlying warrants to purchase common stock based on the exercise price and vesting schedule outlined above. These warrants were equity classified and the fair value of $5,208,700 is reflected as additional paid-in capital. On June 8, 2020, the Company agreed to amend the warrant vesting schedule such that the warrants became immediately exercisable for each warrant holder.
On June 8, 2020, warrant holders exercised their option to purchase 335,98213,333 shares of common stock for proceedsat an exercise price of $1,200. Then, on June 10, 2020, warrant holders exercised their option$187.50 per share with an expiration date of July 1, 2026. All of the Warrants were outstanding as of March 31, 2024 and December 31, 2023.
Standby Equity Purchase Agreement Financing
On October 13, 2022, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (the “Investor”). Pursuant to purchase an additional 1,063,939the SEPA, the Company has the right to sell to the Investor up to $8,000,000 (the “Commitment Amount”) of its shares of common stock, for proceedspar value $0.001 per share (“Common Stock”), at the Company’s request any time during the commitment period commencing on October 13, 2022 and terminating on the earliest of $3,700. There are 0 warrants outstanding as of September 30, 2020.
The Black-Scholes option-pricing model was used to estimate(i) the fair valuefirst day of the warrants withmonth following the following weighted-average assumptions24-month anniversary of the SEPA or (ii) the date on which the Investor has paid for shares of Common Stock equal to the nine months ended September 30, 2020 and 2019:Commitment Amount.
| | | | | |
|
| September 30, |
| September 30, |
|
| | 2020 | | 2019 |
|
Risk-free interest rate |
| 1.54% - 1.88 | % | 1.81% - 1.84 | % |
Expected volatility |
| 71.95% - 72.71 | % | 72.18% - 72.20‑ | % |
Expected life (years) |
| 10.00 |
| 10.00 | |
Expected dividend yield |
| 0 | % | 0 | % |
On May 24, 2023, we exercised the Commitment increase under the SEPA and issued to YA II PN, Ltd. 97,000 shares of common stock at a purchase price of $3.89, for an advance amount of $377,000.
On June 2, 2023, we exercised an additional Commitment increase under the SEPA and issued to YA II PN, Ltd. 100,000 shares of common stock at a purchase price of $2.82, for an advance amount of $282,100.
10.11.STOCK-BASED COMPENSATION
2017 Stock Incentive Plan—Restricted Stock OptionsUnits
The Black-Scholes option-pricing model was used to estimatefollowing table summarizes the fair value of stock options withactivity for all RSUs outstanding under the following weighted-average assumptions for the nine months ended September 30:2017 Plan at March 31, 2024 and March 31, 2023:
| | | | | |
|
| 2020 |
| 2019 |
|
Risk-free interest rate |
| 0.15% - 2.92 | % | 1.61% - 2.92 | % |
Expected volatility |
| 72.29% - 82.52 | % | 72.29% - 78.16 | % |
Expected life (years) |
| 4.93 – 6.07 |
| 4.93 – 6.01 | |
Expected dividend yield |
| 0 | % | 0 | % |
| | | | | | | | | | |
| | 2024 | | 2023 | ||||||
|
| |
| Weighted Average |
| |
| Weighted Average | ||
| | | | Grant Date | | | | Grant Date | ||
| | | | Fair Value | | | | Fair Value | ||
| | Shares | | Per Share | | Shares | | Per Share | ||
Nonvested RSUs at beginning of period |
| 605 | | $ | 285.36 |
| 650 | | $ | 259.50 |
Granted |
| — | |
| — |
| — | |
| — |
Vested |
| — | |
| 255.85 |
| (35) | |
| 252.60 |
Cancelled and forfeited |
| (30) | |
| 260.10 |
| — | |
| — |
Nonvested RSUs at March 31 |
| 575 | | $ | 285.36 |
| 615 | | $ | 258.88 |
Total stock compensation expense recognized from stock-based compensation awards classified as restricted stock units were recognized in the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023, as follows:
| | | | | |
| March 31, | ||||
(In thousands) | 2024 |
| 2023 | ||
Research and development | $ | 5 | | $ | — |
General and administrative |
| 8 | |
| — |
Total | $ | 13 | | $ | — |
2321
The fair value of the common shares underlying the stock options has historically been determined by the board of directors, with input from management. Because there was no public market for Company’s common shares, the board of directors determined the fair value of the common shares at the time of grant of the stock option by considering a number of objective and subjective factors, including important developments in the Company’s operations, third-party valuations performed, sales of Series A-1 Preferred2017 Stock sales of Series B PreferredIncentive Plan— Stock actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common shares, among other factors.Options
The following table summarizes the activity for all stock options outstanding at September 30March 31, 2024 under the 2017 Plan:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2024 | | 2023 | ||||||||||||
|
| |
| Weighted |
| |
| Weighted |
| |
| Weighted |
| |
| Weighted | ||||
| | | | Average | | | | Average | | | | Average | | | | Average | ||||
| | | | Exercise | | | | Exercise | | | | Exercise | | | | Exercise | ||||
| | Shares | | Price | | Shares | | Price | | Shares | | Price | | Shares | | Price | ||||
Options outstanding at beginning of year |
| 598,083 | | $ | 11.11 |
| 520,517 | | $ | 8.64 | ||||||||||
Options outstanding at beginning of period |
| 5,853 | | $ | 285.36 |
| 11,286 | | $ | 254.40 | ||||||||||
Granted |
| 86,536 | |
| 17.95 |
| 209,505 | |
| 17.47 |
| — | |
| — |
| — | |
| — |
Exercised |
| — | |
| — |
| (1,432) | |
| 6.64 |
| — | |
| — |
| — | |
| — |
Cancelled and forfeited |
| (66,109) | |
| 15.06 |
| (94,318) | |
| 11.40 |
| — | |
| — |
| (5,185) | |
| 215.35 |
Balance at September 30 |
| 618,510 | | $ | 11.58 |
| 634,272 | | $ | 11.15 | ||||||||||
Options exercisable at September 30: |
| 390,075 | | $ | 8.51 |
| 389,584 | | $ | 7.82 | ||||||||||
Weighted average grant date fair value for options granted during the year: |
|
| | $ | 17.43 |
|
| | $ | 11.28 | ||||||||||
Balance at March 31 |
| 5,853 | | $ | 285.36 |
| 6,101 | | $ | 287.58 | ||||||||||
Options exercisable at March 31: |
| 5,853 | | $ | 285.36 |
| 6,083 | | $ | 286.20 | ||||||||||
In addition, the weighted average remaining contractual life for the options is 3.68 years and 3.93 years as of March 31, 2024, and December 31, 2023, respectively. The options have no intrinsic value as of March 31, 2024, or December 31, 2023, respectively.
There were no stock compensation expenses recognized from stock-based compensation awards classified as stock options in the condensed consolidated statements of operations for the three months ended March 31, 2024, and 2023.
As of March 31, 2024, there was no unrecognized stock compensation expense related to unvested stock options.
2021 Stock Incentive Plan—Restricted Stock Units
The following table summarizes additional information about stock optionsthe activity for all RSUs outstanding as of March 31, 2024 and exercisable at September 30, 2020 and 20192023 under the 2021 Plan:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable | | 2024 | | 2023 | ||||||||||||||||||||
| | | | Weighted | | | | | | | | | | | | | | |
| |
| Weighted Average |
| |
| Weighted Average | ||
| | | | Average | | Weighted | | | | | | | Weighted | | | | | | | Grant Date | | | | Grant Date | ||||
| | | | Remaining | | Average | | Aggregate | | | | Average | | Aggregate | | | | Fair Value | | | | Fair Value | ||||||
As of | | Options | | Contractual | | Exercise | | Intrinsic | | Options | | Exercise | | Intrinsic | ||||||||||||||
September 30, |
| Outstanding |
| Life |
| Price |
| Value |
| Exercisable |
| Price |
| Value | ||||||||||||||
2019 |
| 634,272 |
| 7.97 | | $ | 11.15 | | $ | 4,009,000 |
| 389,584 | | $ | 7.82 | | $ | 3,761,100 | ||||||||||
2020 |
| 618,510 |
| 7.79 | | $ | 11.58 | | $ | 1,787,200 |
| 390,075 | | $ | 8.51 | | $ | 1,521,400 | ||||||||||
| | Shares | | Per Share | | Shares | | Per Share | ||||||||||||||||||||
Nonvested RSUs at beginning of period | | 89,206 | | $ | 1.56 |
| 684 | | $ | 133.20 | ||||||||||||||||||
Granted | | 54,000 | |
| 2.34 |
| — | |
| — | ||||||||||||||||||
Vested | | (29,775) | |
| 4.95 |
| — | |
| — | ||||||||||||||||||
Cancelled and forfeited | | — | |
| — |
| (667) | |
| 126.60 | ||||||||||||||||||
Nonvested RSUs at March 31 | | 113,431 | | $ | 1.76 |
| 17 | | $ | 126.60 | ||||||||||||||||||
Total stock compensation expense recognized from stock-based compensation awards classified as restricted stock optionsunits were recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020March 31, 2024 and 20192023, as follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | March 31, | ||||||||||||
| | September 30, | | September 30, | |||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||||||
(In thousands) | 2024 |
| 2023 | ||||||||||||||
Research and development | | $ | 169,000 | | $ | 43,000 | | $ | 980,000 | | $ | 85,000 | $ | 11 | | $ | 8 |
General and administrative | |
| 160,000 | |
| 62,000 | |
| 248,000 | |
| 124,000 |
| 33 | |
| 13 |
Total | | $ | 329,000 | | $ | 105,000 | | $ | 1,228,000 | | $ | 209,000 | $ | 44 | | $ | 21 |
On August 20, 2020, the board of directors canceled and terminated 15,792 stock options, granted during the quarter ended June 30, 2020 to 4 non-employees. Thereafter, on August 20, 2020, the board of directors granted 21,112 stock options to the same individuals with a grant date fair value of $12.41 per share. There were 3,959 stock option grants that were considered vested on the grant date. The effects of the stock option modifications resulted in $71,600 of stock compensation expense allocable to general and administrative for the three months ended September 30, 2020. Included in that amount were $19,700 of incremental compensation costs resulting from the modifications for the three months ended September 30, 2020.
2422
The vested outstanding restricted stock units that have not been released to grantees as of March 31, 2024, were included in calculation of weighted average common shares outstanding, basic and diluted (See Note 3, Net Loss Per Common Share). The Company plans to release these shares to the grantees in the near future. Since there is a possibility that any portion of those shares could be sold as part of the release, the shares will be released in compliance with the Company’s insider trading policy when there is an open trading window and grantees are not in possession of any material non-public information.
As of September 30, 2020, totalMarch 31, 2024, there was $344,700 unrecognized stock compensation expense is $2,088,400, related to unvested restricted stock options to be recognized over the remaining weighted-average vesting period of 2.72 years.units.
2017
2021 Stock Incentive Plan—RestrictedPlan — Stock Units
In January 2017, the Company’s board of directors approved the adoption of the Plan. The Plan permits the Company to grant up to 1,708,615 shares of the Company’s common stock awards, including incentive stock options; non-statutory stock options; and conditional share awards to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited, or expired are returned to the Plan and are available for grant in conjunction with the issuance of new common stock awards. Restricted stock units (“RSUs”) vest over a specified amount of time or when certain performance metrics are achieved by the Company.
The fair value of the common shares underlying the RSUs has historically been determined by the board of directors, with input from management. As there was no public market for Company’s common shares, the board of directors determined the fair value of the common shares at the time of grant of the RSUs by considering a number of objective and subjective factors, including important developments in the Company’s operations, third-party valuations performed, sales of Series A-1 Preferred Stock, sales of Series B Preferred Stock, actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common shares, among other factors.Options
The following table summarizes the activity for all RSUsstock options outstanding at September 30March 31, 2024 under the 2021 Plan:
| | | | | | | | | | | | | | | |
| | 2020 | | 2024 | | 2023 | |||||||||
|
| |
| Weighted Average |
| |
| Weighted |
| |
| Weighted | |||
| | | | Grant Date | | | | Average | | | | Average | |||
| | | | Fair Value | | | | Exercise | | | | Exercise | |||
| | Shares | | Per Share | | Shares | | Price | | Shares | | Price | |||
Nonvested RSUs at beginning of year |
| — | | $ | — | ||||||||||
Options outstanding at beginning of period |
| 12,240 | | $ | 12.90 |
| 21,420 | | $ | 12.90 | |||||
Granted |
| 1,655,579 | |
| 15.23 |
| — | |
| — |
| — | |
| — |
Vested |
| — | |
| — | ||||||||||
Exercised |
| — | |
| — |
| — | |
| — | |||||
Cancelled and forfeited |
| (709,334) | |
| 19.00 |
| — | |
| — |
| (9,180) | |
| — |
Nonvested RSUs at September 30 |
| 946,245 | | $ | 12.41 | ||||||||||
Balance at December 31 |
| 12,240 | | $ | 12.90 |
| 12,240 | | $ | 12.90 | |||||
Options exercisable at March 31: |
| 12,240 | | $ | 12.90 |
| 12,240 | | $ | 12.90 | |||||
During the nine months ended September 30, 2020, 1,655,579 RSUs were granted and 709,334 RSUs were cancelled. During the nine months ended September 30, 2020, 0 RSUs vested. NaN RSUs were granted or vested in the nine months ended September 30, 2019.
On August 20, 2020, the board of directors canceled and terminated 709,334 RSUs, granted during the quarter ended June 30, 2020. The cancelled RSUs were originally granted to 5 individuals with a grant date fair value of $19.00 per share. Thereafter, on August 20, 2020, the board of directors granted 946,245 RSUs to the same individuals with a grant date fair value of $12.41 per share. None ofIn addition, the stock option and RSU grants were considered vested on the grant date. The RSU grants were modified for 3 employees and 2 non-employees. The effectsoptions had weighted average remaining contractual life of the RSU modifications resulted in $299,000 and $621,000 of3.68 years. There was no stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended September 30, 2020. Included in those amounts were incremental compensation costs of $65,600 and $141,200 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended September 30, 2020.March 31, 2024 or March 31, 2023.
11.12.INCOME TAXES
The Company’s effective tax rate from continuing operations was 0% for the three and nine months ended September 30, 2020March 31, 2024 and 2019.2023. The Company recorded 0no income tax provision for the three and nine months ended September 30, 2020 and 2019.March 31, 2024.
The provision for income taxes during the interim reporting periods is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to "ordinary"“ordinary” income or loss for the reporting period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of
25
the pre-tax income and the jurisdictions to which it relates, changes in tax laws, business reorganizations and settlements with taxing authorities.
The income tax rates vary from the US federal statutory rate of 21% primarily due to the full valuation allowance on the Company’s deferred tax assets. The Company has recorded the full valuation allowance based on an evaluation of both positive and negative evidence, including latest forecasts and cumulative losses in recent years. The Company has concluded that it was more likely than not that NaNnone of its deferred tax assets would be realized.
On March 27, 2020, in response to the COVID-19 pandemic, the president of the United States signed the CARES Act. The Company does not expect there to be any significant benefit to its income tax provision as a result of the CARES Act, and the Company continues to monitor for any potential tax legislation related to the COVID-19 pandemic.
12.RELATED PARTY TRANSACTIONS
Through September 30, 2020, the Company maintained 2 separate consulting agreements with the Company’s CSO and the Company’s CFO and COO.
Beginning in the year ended December 31, 2014, the Company entered into its first consulting agreement with the CSO. Pursuant to the amended agreement dated July 20, 2018, the CSO is entitled to a consulting fee of $400 per hour, provided that he is limited to 19 (19) hours per month unless he obtains approval from the Company’s Chief Executive Officer. The consulting agreement indicates that the CSO will provide a leadership role for the Company’s business development strategies. The consulting fees paid to the CSO totaled $579,700 and $135,900 in the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company issued the CSO 320,000 shares of common stock on June 19, 2020 in exchange for services rendered and 0 cash considerations. See Note 9.
Beginning in the year ended December 31, 2018, the Company entered into its first consulting agreement with the CFO and COO. Initially, his title was "Consultant", and the Company changed his title to CFO and COO on October 25, 2019. The CFO and COO was elected as a director of the Company on January 17, 2020. Pursuant to the agreement on April 18, 2018 and amended on September 4, 2019, the CFO and COO is entitled to a consulting fee of $2,500 per month amended to $10,000 per month plus discretionary bonuses approved by management. The consulting fees paid to the CFO and COO totaled $140,000 and $23,800 in the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company issued the CFO and COO 402,000 shares of common stock on June 19, 2020 in exchange for services rendered and 0 cash considerations. See Note 9.
On June 8, 2020, the Company issued the Chief Medical Officer and another employee 3,106 and 430 shares of common stock, respectively. The shares were issued in exchange for services rendered and 0 cash considerations. See Note 9.
13.SUBSEQUENT EVENTS
Initial Public Offering and Preferred Stock ConversionIssuance of Senior Secured Convertible Promissory Note
On October 15, 2020,April 2, 2024, the Company received net proceedsissued a 25% Senior Secured Convertible Promissory Note (the “April 2 Note”) to the investor. The Note has a principal amount of $12,372,700 its initial public offering (“the IPO”$2,000,000, bears interest at a rate of 25% per annum (the “Stated Rate”) and matures on April 2, 2025 (the “April 2 Maturity Date”), after deducting underwriting discountson which the principal balance and commissionsaccrued but unpaid interest under the Note shall be due and payable. The Stated Rate will increase to 27% per annum or the highest rate then allowed under applicable law (whichever is lower) upon occurrence of $1,275,000an event of default, including the failure by the Company to make payment of principal or interest due under the Note on the Maturity Date, and other offering expensesany commencement by the Company of $1,352,300 incurred. Thea case under any applicable bankruptcy or insolvency laws.
23
On May 1, 2024, the Company issued and sold 1,250,000 sharesa 25% Senior Secured Convertible Promissory Note (the “May 2 Note”) to the Investor. The Note has a principal amount of common stock in the IPO$2,000,000, bears interest at a pricerate of $12.0025% per share. In connection withannum (the “Stated Rate”) and matures on May 1, 2025, on which the IPO, allprincipal balance and accrued but unpaid interest under the Note shall be due and payable. The Stated Rate will increase to 27% per annum or the highest rate then allowed under applicable law (whichever is lower) upon occurrence of an event of default, including the failure by the Company to make payment of principal or interest due under the Note on the Maturity Date, and any commencement by the Company of a case under any applicable bankruptcy or insolvency laws.
The April 2 Note and May 2 Note are convertible into shares of the Company’s Series A-1 Preferred Stock and Series B Preferred Stock were converted into 624,594 and 469,136 shares of common stock, respectively.
par value $0.001 per share, at an initial conversion price of $2.50 per share, subject to a beneficial ownership limitation equivalent to 9.99% which will increase to 19.99% on May 14, 2024.
2624
Lease Facility Renewal
On November 19, 2020, the Company’s board of directors approved the lease renewal of its premises in Houston, Texas. Once the current lease expires in May, 2021, the renewed lease agreement will commence under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after 90 days notice of cancellation.
If the Company exercises the cancellation option, the Company must also pay the lessor a termination payment equal to 3 months of base rent.
The future minimum commitments under the renewed facility lease agreement will be as follows:
| | | |
|
| Amount | |
2021 | | $ | 179,800 |
2022 | | | 269,700 |
2023 | | | 274,200 |
2024 | | | 230,400 |
Total | | $ | 954,100 |
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.
Our Business
Overview
Kiromic BioPharma, Inc. (together with its subsidiary, “we,” “us,” “our” or theand subsidiaries (the “Company”) is a pre-clinical stage immuno-oncology,an allogeneic Gamma Delta T-cell therapy company featuring unique, proprietary end-to-end bioinformatic, AI targeting, and manufacturing technologies to address solid tumors. Our end-to-end approach consists of target discovery and gene editing company developing tumor-specific cancer engineered immunotherapies to facevalidation, product development, and defeat multiple cancer types. We are focused on extending the benefits of immunotherapy by leveraging our proprietary technologies. Our approach seeks to generate a therapeutic immune response in patients by unleashing the demonstrated natural power of a patient's own immune system to recognize tumor-specific peptide sequences presented on cancer cells, known as tumor specific iso-antigens, capable of generating an immunological response and therefore eradicate cancer cells. We are developing our brand of chimeric antigen receptoron-site current good manufacturing practices (“CAR”cGMP”) T cell product candidates known as ALEXIS. These are designed to treat cancer by capitalizing on the immune system's ability to destroy cancer cells. These products are in the pre-initial new drug (“IND”) stages of the US Food and Drug Administration (the “FDA”) clinical trial process. We are currently going through the IND validation process and we expect that IND enabling trials will commence in the fourth quarter of 2020.
CAR T cell therapy, a form of cancer immunotherapy, has recently emerged as a revolutionary and potentially curative therapy for patients with hematologic cancers, including refractory cancers. In 2017, two autologous anti-CD19 CAR T cell therapies, Kymriah, developed by Novartis International AG, and Yescarta, developed by Kite Pharma, Inc., were approved by the FDA for the treatment of relapsing/remitting B-cell precursor acute lymphoblastic leukemia and relapsing/remitting large B cell lymphoma, respectively. Autologous CAR T cell therapies are manufactured individually for the patient's use by modifying the patient's own T cells outside the body, causing the T cells to express CARs. The entire manufacturing process is dependent on the viability of each patient's T cells and takes approximately two to four weeks. Allogenic T cell therapies involve engineering healthy donor T cells, which we believe will allow us to leverage a new framework for the creationnext generation of cell therapies.
From a development standpoint, we utilize innovative non-engineered and engineered GDT technologies and are developing proprietary, virus-free cell engineering tools to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. DeltacelTM (Deltacel) is our first allogeneic off-the-shelf non-engineered GDT cell-based product in Phase 1 clinical stage. Our ProcelTM (“Procel”) and IsocelTM (“Isocel”) product candidates consist of allogeneic, engineered, off-the-shelf GDT cells and they are currently in the preclinical development stage. Our Deltacel product candidate consists of non-engineered GDTs which we expand, enrich, and activate ex-vivo through a proprietary process, and it is intended to treat solid tumors regardless of the specific tumor antigen expression. Procel consists of engineered GDTs targeting PD-L1 positive tumors, while Isocel consists of engineered GDTs targeting solid tumors expressing a tumor-specific variant (Isoform) of Mesothelin (“Iso-Meso”).
We currently have three product candidates: 1) DeltacelTM, non-engineered GDTs, expanded and activated with proprietary technology; 2) IsocelTM, GDTs engineered with an inventoryanti-Mesothelin isoform Chimeric Antigen Receptor; and 3) ProcelTM, GDTs engineered with a PD-1 switch receptor.
The Company is developing a novel and virus-independent engineering method, which will result in the submission of off-the-shelf products that cannew IND applications. These applications are expected to be deliveredready for submission to a larger portionthe FDA in the first half of eligible patients throughout2025, subject to sufficient financing to support the world.progression of the development of those additional clinical trial candidates. Depending on evidence from preclinical studies, we may limit the new IND submission to two instead of four: one for Isocel and one for Procel. IND #1 named Deltacel-01 study, is evaluating DeltacelTM GDTs in combination with low-dose radiation.
We have not generated any revenue from sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred losses in each period since we began principal business operations in 2012.
Trends As discussed in more detail below, the Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and Uncertainties—COVID-19
We are subject to risks and uncertainties as a resultfund other liquidity needs through the end of the COVID-19 pandemic. The extentyear.In the absence of the impact of the COVID-19 pandemic on our business is highly uncertainsuch financing, management anticipates that existing cash resources will not be sufficient to meet operating and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.liquidity needs beyond July 2024.
The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's service providers, suppliers, contract research organizations and our clinical trials, all of which are uncertain and cannot be predicted. As of the date of this report, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.
Recent Developments
As of the date of the audit report on our 2019 financial statements, conditions and events existed that raised substantial doubt with respect to the going concern assumption on the financial statements. Based on proceeds obtained from the
2825
Series B Preferred Stock round of financingRecent Developments
Going Concern and our plans to reduce discretionary spending, management projected it wouldLiquidity
We do not have sufficient cash on hand and available liquidity to support operationsmeet our obligations through at least April 7, 2021. As a result, the Company concluded that management's plans were probable of being implemented and alleviatedtwelve months following the date the condensed consolidated financial statements are issued. Therefore, this condition raises substantial doubt about itsthe Company’s ability to continue as a going concern.
As of June 26, 2020, management evaluated substantial doubt regarding the going concern assumption through June 26, 2021. Management's Management’s plans were updated to further finance operations throughevaluate different strategies to obtain the required funding of future operations. These plans may include, but are not limited to, additional equityfunding from current or debt financing arrangements, and/or third party collaboration funding;new investors, inclusive of a potential public offering of equity; however, if the Company waswe are unable to raise additional funding to meet its working capital needs, itwe will be forced to delay or reduce the scope of itsour research programs and/or limit or cease its operations. The negative cash flows and lack of financial resources of the Company raised substantial doubt as to the Company's ability to continue as a going concern, and that substantial doubt was not alleviated as of June 26, 2020.
After considering the Form 10-Q filing date of November 30, 2020, management extended its consideration of the going concern assumption through November 30, 2021. Management's plans were updated to further finance operations through additional equity or debt financing arrangements, and/or third party collaboration funding; however, if the Company is unable to raise additional funding to meet its working capital needs, it will be forced to delay or reduce the scope of its research programs and/or limit or cease its operations. The negative cash flows and lack of financial resources of the Company raise substantial doubt as to the Company'sour ability to continue as a going concern, and that substantial doubt has not been alleviated. Therefore, this condition raises substantial doubt about the Company’s ability to continue as a going concern. See Note 1 to the Company’s Condensed Consolidated Financial Statements, “Going Concern” for further details.
The Company’s cash and cash equivalents were $3,676,000 as of March 31, 2024. The Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and fund other liquidity needs through 12 months after the date of the filing of this quarterly report on Form 10-Q. The Company is working with a financial advisor to assist it with its efforts to obtain financing. In the absence of such financing, management anticipates that existing cash resources as of March 31, 2024, combined with verbal, non-contractual commitments for additional financing will not be sufficient to meet operating and liquidity needs beyond July 2024. However, management may further evaluate additional cost reduction actions, including additional reductions in the Company’s workforce and delay of research and development expenditures on one or more product candidates, in order to reduce the Company’s current expenditures and preserve cash. We are not able to predict whether any such cost reduction actions will be successful.
As a result of the Company’s current liquidity position, management can provide no assurance that the Company will be able to obtain financing on acceptable terms, if at all. If financing is available, it may not be on favorable terms and may have a significant dilutive effect on our existing stockholders. In the event we are unable to secure financing sufficient to allow us to meet our obligations as they become due, we may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation. See Part II, Item 1A. “Risk Factors” for further details.
26
Financing Update
On March 28, 2024, the Company entered into an Exchange Agreement with the holder of promissory notes to exchange an aggregate principal amount of $8 million. See Note 10 – Stockholder’s Equity for more information.
On April 2 and May 1, 2024, the Company issued on each date $2 million of senior secured promissory notes. Please see Note 7 – Senior Secured Convertible Promissory Notes for more information.
Clinical Update
In the second half of 2022, we started the development of Deltacel, our novel, non-engineered GDT cell product based on a proprietary methodology of expanding and activating GDT cells from healthy donors. We submitted the IND application for the Deltacel-01 trial in March 2023. On April 28, 2023, the FDA authorized us to proceed with the study. We began the clinical trial activation process during the second quarter of 2023. On October 23, 2023, we entered into a clinical trial agreement with Beverly Hills Cancer Center (BHCC) to conduct our Deltacel-01 Phase 1 Study in patients with stage 4 Non-Small Cell Lung Cancer (NSCLC).
On December 13, 2023, the first patient in the Deltacel-01 trial received the first dose of Deltacel at BHCC. We report no dose-limiting toxicities to date and a favorable preliminary outcome showing stabilization of disease at the 6-week follow-up, and a reduction of the tumor lesion at the two-month follow-up. Such favorable condition persists as of the 4-month follow-up visit. As we continue to monitor this patient, we enrolled four additional patients at BHCC between January and April 2024. We expect to enroll one more patient in May 2024. The results of our first three patients are in the following table:
Early Results
Patient | Safety | Six Weeks | Two Months | Four Months |
1 | ✓ No dose limiting toxicities | ✓ Stable disease | ✓ Tumor size reduction by 6.6% | ✓ Stable disease (compared with two-month follow-up) |
2 | ✓ No dose limiting toxicities | ✓ Stable disease ✓ Complete resolution of brain lesions | ✓ Stable disease ✓ Confirmed clean brain imaging ✓ No new brain lesions | q Expected in June 2024 |
3 | ✓ No dose limiting toxicities | ✓ Stable disease | ✓ Stable disease | q Expected in June 2024 |
| ✓ | In April 2024, patient 4 completed treatment, and patient 5 was enrolled |
| ✓ | Patient 6 expected to be enrolled in May 2024 |
On February 28, 2024, we activated a second clinical trial site with Virginia Oncology Associates, PC. in our Deltacel-01 Phase 1 Study. On April 8, 2024 we activated the third site in the Deltacel-01 trial, Texas Oncology, at Tyler, TX. On May 8, 2024, we activated our fourth clinical trial site, UPMC Hillman Cancer Center located in Pittsburgh, VA. We expect to have one additional clinical trial site in May 2024.
The Deltacel-01 study, encompassing long-term follow-up, spans up to 24 months. By the mid-term follow-up, expected by the conclusion of 2024, we anticipate gathering substantial evidence of clinical benefit from approximately 15 patients. At this juncture, we may consider petitioning for early termination of the Deltacel-01 Phase 1 study, contingent upon demonstrated clinical benefits and the absence of toxicities.
To advance the clinical development of Deltacel, we envision two primary pathways, as follows.
| 1. | Pursuing Fast Track designation concurrent with the ongoing Deltacel-01 Phase 1 study. This could be followed by a pivotal Phase 2 trial and subsequent submission of a Biologics License Application (BLA), or |
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| 2. | Opting for completing our Phase 1 trial, followed by a seamless Phase 2-3 trial to support a BLA application. The seamless Phase 2-3 design integrates both learning and confirmation stages into a singular study, thereby reducing sample size and development duration. |
By June 2024 we anticipate acquiring substantial clinical evidence to support a Fast Track designation application, with an expected FDA response within sixty days of the application. Fast Track designation expedites the review process for drugs with the potential to address serious conditions or unmet clinical needs based on compelling nonclinical and clinical data. The early clinical data we have collected thus far is favorable for this application. Fast Track designation offers benefits such as Accelerated Approval, Rolling Review, and Priority Review, which collectively accelerate the approval process.
In the mid-term development trajectory of Deltacel™️, provided there is a continued absence of toxicities and promising preliminary clinical evidence suggesting substantial therapeutic advancement over the current standard of care, we have the option to apply for Breakthrough Therapy Designation (BTD) in 2025, ahead of the conclusion of the Deltacel-01 Phase 1 trial. The FDA typically responds to BTD requests within sixty days. Notably, drugs granted BTD status also qualify for Fast Track designation benefits.
We plan to continue the development of Isocel and Procel and expect to be able to submit the Isocel and Procel INDs by the first half of 2025, subject to obtaining sufficient financing to support the progression of the development of these additional clinical trial candidates.
Results from our Internal Review
On or about August 17 and 23, 2021, Tony Tontat, who at the time was the Chief Financial Officer and a member of the Board of Directors (“the Board”), submitted substantially identical reports (the “Complaints”) through our complaint hotline. These Complaints, alleged, among other topics, risks associated with our public disclosures in our securities filings and in statements made to the public, investors, and potential investors regarding (i) the anticipated timing of the U.S. Food and Drug Administration’s (“FDA”) authorization of our investigational new drug (“IND”) applications and (ii) the anticipated timing of human clinical trials. These Complaints were subsequently submitted to the Audit Committee of the Board.
After receiving the Complaints, the Audit Committee recommended that the Board form, and the Board did in turn form, a Special Committee comprised of three independent directors (the “Special Committee”) to review the Complaints and other related issues (the “Internal Review”). The Special Committee retained an independent counsel to assist it in conducting the Internal Review.
On February 2, 2022, following the conclusion of the Internal Review, the Special Committee reported the results of its Internal Review to the Board. The Board approved certain actions to address the fact that we had received communications from the FDA on June 16 and June 17, 2021, that the FDA was placing our IND applications that we submitted to the FDA on May 14 and May 17, 2021, for the ALEXIS-PRO-1 and ALEXIS-ISO-1 product candidates, respectively, on clinical hold (the “June 16 and 17, 2021 FDA Communications”). On July 13, 2021, we received the FDA’s formal clinical hold letters, which asked us to address key components regarding the chemical, manufacturing, and control components of the IND applications. On July 16, 2021, we issued a press release disclosing that it had received comments from the FDA on our two INDs, but did not use the term “clinical hold.” On August 13, 2021, we issued a press release announcing that these INDs were placed on clinical hold. We did not disclose the June 16 and 17, 2021 FDA Communications in (i) our Registration Statement on Form S-1 (Registration No. 333-257427) that was filed on June 25, 2021 and declared effective on June 29, 2021, nor the final prospectus contained therein dated June 29, 2021 (collectively, the “Registration Statement”); or (ii) our Form 10-Q for the fiscal quarter ended June 30, 2021 that was filed with the Securities and Exchange Commission on August 13, 2021. We consummated a public offering of $40 million of our common stock pursuant to the Registration Statement on July 2, 2021.
In the course of the Internal Review, the Special Committee also identified that Mr. Tontat submitted incorrect information regarding his educational background to us. Specifically, although Mr. Tontat represented to us that he held a BA in Economics from Harvard University, it was determined that he had actually received an ALB, a degree conferred by the Harvard Extension School. We have implemented changes to our vetting process for prospective director and officer candidates including the implementation of thorough background checks to verify background information provided by such candidates.
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Upon completion of the Internal Review, we voluntarily contacted the SEC to report certain information about the Internal Review. Since that time, we have been voluntarily cooperating with requests for information from the SEC and intend to fully cooperate with any further requests from the SEC.
In November 2022, we received a Grand Jury Subpoena (the “Subpoena”) from the U.S. Department of Justice requesting certain information from the company in connection with an ongoing investigation being conducted by the Federal Grand Jury in the Southern District of Texas. The Company is not a target of this investigation at this time.
Remediation Actions resulting from the Internal Review
| 1. | The Board approved the inclusion of certain Risk Factors for inclusion in its periodic reports. See Part II, Item 1A. Risk Factors for further information. Such risk factors have been included in our Form 10-K for the year ended December 31, 2023. |
| 2. | On January 10, 2022, the Board approved the formation of a Disclosure Committee comprised of certain members of the management including (i) its Chief Executive Officer; (ii) the executive in charge of overseeing submissions of any nature to the FDA; (iii) its Chief Financial Officer, if any; (iv) its General Counsel, if any; (v) its Controller, if any; (vi) any other finance executive overseeing financial disclosures; (vii) the executive in charge of investor relations, if any; and (viii) such other employees as the Chief Financial Officer, who serves as chairman of the Disclosure Committee, may invite from time to time. The Disclosure Committee shall be responsible for preparing and reviewing all corporate disclosures made by us to our security holders, the Securities and Exchange Commission and/or the broader investment community to ensure that such disclosures (i) shall be accurate and complete; (ii) shall fairly present, in all material respects, our financial condition, results of operations and cash flows; and (iii) shall be made on a timely basis in accordance with all applicable requirements of (A) the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder, (B) the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (C) the Nasdaq Stock Market or such other stock exchange on which the our securities may be traded and (D) any other applicable laws or legal requirements. The Board adopted and approved the Disclosure Committee Charter. |
| 3. | The Board terminated Maurizio Chiriva-Internati as Chief Executive Officer for cause on January 27, 2022, after the Special Committee’s Internal Review found evidence of conduct that the Board believed was inconsistent with company policies. Under the terms of the Executive Employment Agreement between Dr. Chiriva and the Company effective as of July 1, 2020, as amended October 21, 2021, as the result of the termination of his employment, Dr. Chiriva also is deemed to have resigned as a Director on the Board effective as of January 27, 2022. |
| 4. | The Board named Pietro Bersani as Interim Chief Executive Officer, effective as of January 27, 2022. Mr. Bersani has resigned from all Committees of the Board. Subsequently on May 10, 2022, Mr. Bersani was named Chief Executive Officer. |
| 5. | The Board named independent Director Michael Nagel as Chairperson of the Board, effective as of January 27, 2022. |
| 6. | The Board approved the appointment of Frank Tirelli as a member of the Board to fill a vacancy, effective as of January 28, 2022. The Board determined that Mr. Tirelli was “independent” as that term is defined under Nasdaq Listing Rule 5605(a)(2). Mr. Tirelli was named Chairperson of the Audit Committee effective January 28, 2022. He was also nominated and appointed as a member of the Nominating and Corporate Governance Committee effective March 1, 2022. Mr. Tirelli was nominated by our Nominating and Corporate Governance Committee of the Board after a thorough review of all his background, relevant experience, and professional and personal reputations. |
| 7. | On November 16, 2022, Frank Tirelli informed the Board of Directors (the “Board”) of Kiromic BioPharma, Inc. (the “Company”) that he was resigning his position as a director of the Company, effective immediately. Mr. Tirelli also ceased to be a member of the Audit Committee, and the Nominating and Corporate Governance Committee of the Board, effective immediately. Mr. Tirelli’s resignation did not involve a disagreement with the Company on any matter relating to the Company’s operations, policies or practices. |
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| 8. | On February 10, 2022, we and Dr. Scott Dahlbeck (“Dr. Dahlbeck”) entered into a Modification to Employment Agreement dated as of February 9, 2022 (the “Dahlbeck Agreement”). The Dahlbeck Agreement amends and supersedes certain terms of the Employment Agreement dated as of January 1, 2020, between the Company and Dr. Dahlbeck. Pursuant to the Dahlbeck Agreement, effective as of February 9, 2022, Dr. Dahlbeck’s title was changed to Chief of Staff, and he ceased to be our Chief Medical Officer and Head of Clinical. |
| 9. | On February 10, 2022, we and Mr. Gianluca Rotino (“Mr. Rotino”) entered into a Transition and Consulting Agreement dated as of February 9, 2022 (the “Rotino Agreement”). Pursuant to the terms of the Rotino Agreement, effective as of February 9, 2022, Mr. Rotino’s employment as our Chief Strategy and Innovation Officer terminated and the Company retained Mr. Rotino to provide consulting services to the Company for a period of nine months (until November 9, 2022). |
| 10. | Under the terms of the Executive Employment Agreement between Mr. Rotino and the Company effective as of July 1, 2020, as amended October 21, 2020, as the result of the termination of Mr. Rotino’s employment, Mr. Rotino is deemed to have resigned as a member of the Board effective as of February 9, 2022. |
| 11. | The Board approved the appointment of Karen Reeves as a member of the Board to fill a vacancy, effective as of February 14, 2022. The Board has determined that Dr. Reeves is “independent” as that term is defined under Nasdaq Listing Rule 5605(a)(2). Dr. Reeves was nominated and appointed to be the Nominating and Corporate Governance Committee Chairperson and a member of the Compensation Committee effective March 1, 2022. Dr. Reeves was nominated by our Nominating and Corporate Governance Committee of the Board after a thorough review of all her background, relevant experience, and professional and personal reputations. |
| 12. | On December 6, 2022, Dr. Karen Reeves informed the Board of Directors (the “Board”) of Kiromic BioPharma, Inc. (the “Registrant”) that she was resigning her position as a director of the Registrant, effective immediately. Dr. Reeves also ceased to be a member of the Nominating and Corporate Governance Committee, and the Compensation Committee of the Board. Dr. Reeves’ resignation did not involve a disagreement with the Registrant on any matter relating to the Registrant’s operations, policies or practices. |
| 13. | On July 20, 2023, the Board of Directors of Kiromic BioPharma, Inc. (the “Company”) appointed Pam Misajon and Mike Catlin as independent members of the Board of Directors. |
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
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Emerging Growth Company
We qualify as an "emerging“emerging growth company"company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with
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new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year (a) following the fifth anniversary of our initial public offering, which was October 15, 2020, (b) the date in which our total annual gross revenues exceed $1.07 billion, (ii)or (c) the date thatin which we become a "large“large accelerated filer"filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii)(ii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Components of Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the foreseeable future. We will record revenue from collaboration agreements, including amounts related to upfront payments, annual fees for licenses of our intellectual property and research and development funding. However, none of those agreements have been executed as of the issuance date of this report.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. These include the following:
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Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we initiate a Phase 1/2a1 clinical trialtrials for our ALEXIS AIDT-1Isocel and IsomesothelinProcel product candidates and continue to discover and develop additional candidates. However, management is currently evaluating various cost reduction actions, including suspending research and development expenditures on one or more product candidates.candidates, in order to reduce the Company’s expenditures and preserve cash. As of the date of this quarterly report, we are not able to predict on what product candidates and how much expenditures we plan to reduce. However, we
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expect that our research and development and general and administrative costs will increase over the long-term, even if we are able to successfully reduce our costs in the short-term in order to preserve cash in light of the Company’s current liquidity situation.
We cannot determine with certainty the duration and costs of future clinical trials of our IsomesothelinDeltacel, Procel, and Isocel product candidates, ALEXIS AIDT-1 product candidate, or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain
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marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our IsomesothelinIsocel and Procel product candidates and ALEXIS AIDT-1 product candidate and any other our producttrial candidate we may develop will depend on a variety of factors, including:
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| ● | Our ability to effectively address the deficiencies elucidated in the FDA’s clinical hold letters for our IND applications related to key chemical manufacturing and control components. |
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation for personnel in our executive, finance, business development, operations and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.
We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities, development, and developmentmanufacturing of product candidates. We also have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with NasdaqOTCQB and SEC requirements; director and officer insurance costs; and investor and public relations costs.
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Results of Operations
Comparison of the Three Months Ended September 30, 2020March 31, 2024 and 20192023
The following table sets forth key components of our results of operations for the three and nine months ended September 30, 2020March 31, 2024 and 2019.2023.
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| | Three Months Ended | | | | | |
| | Three Months Ended | | | | | |
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| | September 30, | | Increase (Decrease) |
| | March 31, | | Increase (Decrease) |
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| 2019 |
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(In thousands) |
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| 2023 |
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Operating expenses: |
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Research and development | | $ | 1,225,700 | | $ | 272,100 | | $ | 953,600 |
| 350.46 | % | | $ | 3,022 | | $ | 2,075 | | $ | 947 |
| 46 | % |
General and administrative | |
| 1,190,000 | |
| 607,400 | |
| 582,600 |
| 95.92 | % | |
| 2,091 | |
| 2,702 | |
| (611) |
| (23) | % |
Total operating expenses | |
| 2,415,700 | |
| 879,500 | |
| 1,536,200 |
| 174.67 | % | |
| 5,113 | |
| 4,777 | |
| 336 |
| 7 | % |
Loss from operations | |
| (2,415,700) | |
| (879,500) | |
| 1,536,200 |
| 174.67 | % | |
| (5,113) | |
| (4,777) | |
| 336 |
| 7 | % |
Other expense | |
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Other expense: | |
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Interest expense | |
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| (7,400) | |
| (7,400) |
| (100.00) | % | |
| (1,071) | |
| (444) | |
| 627 | | 141 | % |
Debt issuance amortization | |
| — | |
| (79) | |
| (79) |
| (100) | % | ||||||||||||
Other income | | | 36 | | | — | | | 36 | | NM | | ||||||||||||
Total other expense | |
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| (7,400) | |
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| (100.00) | % | | | (1,035) | | | (523) | | | 512 |
| 98 | % |
Net loss | | $ | (2,415,700) | | $ | (886,900) | | $ | 1,528,800 |
| 172.38 | % | | $ | (6,148) | | $ | (5,300) | | $ | 848 | | 16 | % |
NM – Not meaningful
Research and development expenses. Our research and development expenses increased by $953,600, or 350.46%, to $1,225,700 for the three months ended September 30, 2020 from $272,100 for the three months ended September 30, 2019.
The following table summarizes our change in research and development expenses by product candidate or development program:
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Direct research and development expenses by product candidate: |
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AIDT-1 development costs | | $ | — | | $ | 26,200 | | $ | (26,200) | | (100.00) | % | | $ | 20 | | $ | 548 | | $ | (528) | | (96) | % |
Isomesothelin development costs | |
| 13,500 | |
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Platform development, early-stage research and unallocated expenses: | |
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Employee-related costs | |
| 813,300 | |
| 144,500 | |
| 668,800 | | 462.84 | % | |
| 1,096 | | | 576 | |
| 520 | | 90 | % |
Laboratory supplies and services | |
| 252,000 | |
| 28,200 | |
| 223,800 | | 793.62 | % | |
| 316 | | | 110 | |
| 206 | | 187 | % |
Outsourced research and development (net of reimbursements) | |
| (11,300) | |
| 48,400 | |
| (59,700) | | (123.35) | % | |
| 810 | | | 107 | |
| 703 | | 656 | % |
Laboratory equipment and maintenance | |
| 22,300 | |
| 1,100 | |
| 21,200 | | 1,927.27 | % | |
| 558 | | | 584 | |
| (26) | | (4) | % |
Facility-related costs | |
| 104,600 | |
| 23,600 | |
| 81,000 | | 343.22 | % | |
| 190 | | | 115 | |
| 75 | | 66 | % |
Intellectual property | | | 4 | | | (2) | | | 6 | | (287) | % | ||||||||||||
Other research and development costs | |
| 31,300 | |
| 100 | |
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| 28 | | | 37 | |
| (9) | | (24) | % |
Total research and development expenses | | $ | 1,225,700 | | $ | 272,100 | | $ | 953,600 | | 350.46 | % | | $ | 3,022 | | $ | 2,075 | | $ | 947 | | 46 | % |
As illustrated above, the increase in research and development expenses resulted from (i) a $668,800 increase in employee related costs, which primarily included a $314,500 increase in wages, benefits and payroll taxes and a $342,000 increase in stock compensation expenses attributable to research and development employees; (ii) a $223,800 increase in laboratory supplies in services, which primarily included a $197,500 increase in spending on disposables and consumables for in-vitro testing and validation of pipeline candidates, with the remaining balance driven by supplies spending; (iii) a $81,000 increase in facility-related costs, primarily driven by a $46,800 increase in allocated rent net of granting agency reimbursements, and a $29,900 increase in allocated depreciation expenses with the remaining amount attributed to repairs, maintenance, and utilities; (iv) a $31,200 increase in other research and development costs, which were driven by intellectual property legal expenses and intellectual property filings; (v) a $21,200 increase in laboratory equipment and maintenance, driven entirely by new non-capitalizable equipment purchases and maintenance to support in-vitro testing and validation by our research and development scientists.
These increases were offset by a $59,700 decrease in outsourced research and development costs, which primarily included a $118,000 in cost reductions from grant reimbursements, offset by an increase in for research studies and other
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consulting fees of $55,300. The remaining offsetting variance is driven by stock compensation expenses attributable to non-employees.
These cost increases were primarily incurred to support in-vitro testing and validation of our product candidates.
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The cost increases were also partially due to the difference in grant reimbursements in the three months ended September 30, 2020 and 2019. In August 2018, the National Institute of Health (NIH), the primary agency of the United States government responsible for biomedical and public health research, awarded a Phase I/II grant in the amount of $2,235,000 for the development and non-clinical testing of a new anti-arteriosclerosis gene therapy delivered by engineered adeno-associated viral vectors. Phase I of the grant approved amounts of $851,000 and which covers the period September 2018 through August 2019, entitles us to reimbursement for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees. The Company did not complete Phase I by August 2019, but was granted an extension to complete Phase I by the NIH through August 2021. Starting after Phase 1 completion in 2021, Phase II of the grant covers reimbursements for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees of $1,384,000. During the three months ended September 30, 2020 and 2019, we recognized $142,400 and $51,600, respectively, as reductions to research and development expense within the statements of operations pursuant to the grant from the NIH.
General and administrative expenses. Our general and administrative expenses increased by $582,600, or 95.92%, to $1,190,000 for the three months ended September 30, 2020 from $607,400 for the three months ended September 30, 2019.
During the three months ended September 30, 2020 and 2019, the increase primarily resulted from an increase in stock compensation expenses of $744,000 and wages and salaries of $104,000. These increases were offset by reductions to corporate finance and development expenses of $229,800, travel of $22,300, and $19,600 in professional services costs.
Employee related expenses were impacted by increases to headcount, employee salary rates, and equity grant modifications. During the three months ended September 30, 2020 and 2019, the headcount for employees allocated to general and administrative purposes increased to four employees from three employees, respectively. In addition, the Chief Executive Officer's salary increased to an annual rate of $504,000 from $280,000 as of September 30, 2020 and 2019, respectively.
The increase in stock compensation expense was primarily driven by stock option grant modification allocated to general and administrative expense increased stock compensation expense by $692,600. The decrease in corporate finance and development expenses are driven by reduced consulting fees owed to our Chief Scientific and Innovation Officer and Chief Financial Officer during the three months ended September 30, 2020 compared to the same period in the prior year. The decrease in professional service costs were primarily driven by reduced legal, and accounting costs.
Interest expense. Interest expense decreased by $7,400, to $0 for the three months ended September 30, 2020 from $7,400 for the three months ended September 30, 2019. The decrease is driven by the variance in the balance of convertible promissory notes during the three months ended September 30, 2020 and 2019.
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Total interest expense accrued on the notes in the three months ended September 30, 2019 totaled $7,400. On August 15, 2019, each holder of convertible promissory notes issued during 2019 agreed to voluntarily convert the amounts of principal and interest then outstanding into shares of Series A-1 Preferred Stock.
Net loss. As a result of the cumulative effect of the factors described above, our net loss increased to $2,415,700 during the three months ended September 30, 2020 compared to $886,900 during the three months ended September 30, 2019.
Comparison of the Nine Months Ended September30, 2020 and 2019
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Operating expenses: |
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Research and development | | $ | 3,526,100 | | $ | 601,500 | | $ | 2,924,600 | | 486.22 | % |
General and administrative | |
| 12,109,200 | |
| 934,300 | |
| 11,174,900 | | 1,196.07 | % |
Total operating expenses | |
| 15,635,300 | |
| 1,535,800 | |
| 14,099,500 | | 918.06 | % |
Loss from operations | |
| (15,635,300) | |
| (1,535,800) | |
| 14,099,500 | | 918.06 | % |
Other expense | |
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Interest expense | |
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| (22,400) | |
| (22,400) | | (100.00) | % |
Total other expense | |
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| (22,400) | |
| (22,400) | | (100.00) | % |
Net loss | | $ | (15,635,300) | | $ | (1,558,200) | | $ | 14,077,100 | | 903.42 | % |
Research and development expenses. Our research and development expenses increased by $2,924,600, or 486.22%, to $3,526,100The primary drivers for the nine months ended September 30, 2020 from $601,500 for the nine months ended September 30, 2019. The following table summarizes our research and development expenses by product candidate or development program:
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Direct research and development expenses by product candidate: |
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AIDT-1 development costs | | $ | 3,000 | | $ | 46,300 | | $ | (43,300) | | (93.52) | % |
Isomesothelin development costs | |
| 59,000 | |
| — | |
| 59,000 | | 100.00 | % |
Platform development, early-stage research and unallocated expenses: | |
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Employee-related costs | |
| 1,940,400 | |
| 208,200 | |
| 1,732,200 | | 831.99 | % |
Laboratory supplies and services | |
| 385,800 | |
| 73,400 | |
| 312,400 | | 425.61 | % |
Outsourced research and development | |
| 653,000 | |
| 190,900 | |
| 462,100 | | 242.06 | % |
Laboratory equipment and maintenance | |
| 49,600 | |
| 1,100 | |
| 48,500 | | 4,409.09 | % |
Facility-related costs | |
| 282,500 | |
| 81,200 | |
| 201,300 | | 247.91 | % |
Other research and development costs | |
| 152,800 | |
| 400 | |
| 152,400 | | n/m | |
Total research and development expenses | | $ | 3,526,100 | | $ | 601,500 | | $ | 2,924,600 | | 486.22 | % |
As illustrated above, the increase in research and development expenses resulted from (i)a $1,732,200 increase in employee related costs, which primarily included a $904,400 increase in wages, benefits and payroll taxes and a $801,400 increase in stock compensation expenses attributableof $947,000, or 46%, for the three months ended March 31 2024, compared to research and development employees; (ii)a $462,100 increase in outsourced research and development costs, which primarily included a $165,800 increase in research studies and other consulting fees along with a $310,000 increase in stock compensation expenses attributable to non-employees; (iii)a $312,400 increase in laboratory supplies in services, which primarily included a $301,000 increase in spending on disposables and consumables for in-vitro testing and validation of pipeline candidates, with the remaining balance driven
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by supplies spending; (iv)a $201,300 increase in facility-related costs, primarily driven by a $142,200 increase in allocated rent net of granting agency reimbursements, and a $56,100 increase in allocated depreciation expenses with the remaining amount attributed to repairs, maintenance, and utilities; (v)a $152,400 increase in other research and development costs, which were driven by intellectual property legal expenses and intellectual property filings; (vi)a $48,500 increase in laboratory equipment and maintenance, driven entirely by new non-capitalizable equipment purchases and maintenance to support in-vitro testing and validation by our research and development scientists.
These cost increases were primarily incurred to support in-vitro testing and validation of our product candidates.March 31, 2023 are as follows:
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| 3- | Laboratory supplies and services increased by $206,100, primarily due to the prioritization of the Deltacel-01 development. |
| 4- | Outsourced research and development |
| 5- |
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The cost increases were also partially due to the difference in grant reimbursements in the nine months ended September30, 2020 and 2019. In August 2018, the NIH, the primary agency of the United States government responsible for biomedical and public health research, awarded a PhaseI/II grant in the amount of $2,235,000 for the development and non-clinical testing of a new anti-arteriosclerosis gene therapy delivered by engineered adeno-associated viral vectors. PhaseI of the grant approved amounts of $851,000 and which covers the period September 2018 through August 2019, entitles us to reimbursement for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees. The Company did not complete Phase I by August 2019, but was granted an extension to complete Phase I by the NIH through August 2021. Starting after Phase 1 completion in 2021, PhaseII of the grant covers reimbursements for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees of $1,384,000. During the nine months ended September30, 2020 and 2019, we recognized $142,400 and $239,900, respectively, as reductions to research and development expense within the statements of operations pursuant to the grant from the NIH.
General and administrative expenses.Our The decrease in general and administrative expenses increased by $11,174,900,$611,000, or 1,196.07%23%, to $12,109,200 for the ninethree months ended SeptemberMarch 31, 2024, compared to March 31, 2023 were primarily due to:
| 1- | A decrease in legal services of $474,400 driven by a significant decline in expenses related to the Settlement in Principle of the Class Action. |
| 2- | A decrease in professional fees of $348,000 driven by a decrease in the use of consultants to the benefit of full time employees. |
30, 2020 from $934,300 for the nine months ended September30, 2019.
During the nine months ended September 30, 2020 and 2019, the increase primarily resulted from an increase in stock compensationOther expenses of $10,099,600, an increase in corporate finance and development expenses of $349,700, a $337,100 increase in professional services costs, and $375,200 of increased employee related expenses.
.The increase in stock compensation expense was primarily drivenother expenses by common stock issuances of 725,536 shares$511,800, for the three months ended March 31, 2024, compared to our Chief Financial Officer, Chief Strategy and Innovation Officer, Chief Medical Officer, and another employee in exchange for services rendered totaling $9,432,000. In addition, stock option grant modification allocated to general and administrative expense increased stock compensation expense by $692,600. The increase in corporate finance and development expenses are driven by consulting fees owed to our Chief Scientific and Innovation Officer and Chief Financial Officer. The increase in professional service costsMarch 31, 2023 were primarily driven by increased legal, and accounting expenses.due to:
| 1- | An increase in interest expense of $627,000 driven by the issuance of $28,000,000 convertible promissory notes subsequent to the three months ended March 31, 2023. See Note 7— Senior Secured Convertible Promissory Note for more discussion, which was partially offset by an increase in other income. |
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Employee related expenses were impacted by increases to headcount and employee salary rates. During the nine months ended September30, 2020 and 2019, the headcount for employees allocated to general and administrative purposes increased to four employees from three employees, respectively. In addition, the Chief Executive Officer's salary increased to an annual rate of $504,000 from $280,000 as of September30, 2020 and 2019, respectively.
Interest expense.Interest expense decreased by $22,400, to $0 for the nine months ended September30, 2020 from $22,400 for the nine months ended September30, 2019. The decrease is driven by the variance in the balance of convertible promissory notes during the nine months ended September30, 2020 and 2019.
During the nine months ended September30, 2019, we issued an additional $250,000 convertible promissory notes. The issued notes accrued interest at a rate of 17% per annum. Additionally, the Company settled an accounts payable with a vendor by issuing a convertible promissory note in the amount of $134,800 which accrued interest at a rate of 6% per annum. Total interest expense accrued on the notes in the nine months ended September30, 2019 totaled $22,400. On August15, 2019, each holder of convertible promissory notes issued during 2019 agreed to voluntarily convert the amounts of principal and interest then outstanding into shares of SeriesA-1 Preferred Stock.
Net loss.As a result of the cumulative effect of the factors described above, our net loss increased to $15,635,300 during the nine months ended September30, 2020 compared to $ $1,558,200 during the nine months ended September30, 2019.
Liquidity and Capital Resources
As of September30, 2020,March 31, 2024, we had cash and cash equivalents of $469,300. As of December31, 2019 we had cash and cash equivalents of $1,929,100.$3,676,000. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations primarily with proceeds from the sale of our convertible promissory notes, preferred stock, common stock from the initial public offering and preferred stock.follow-on offering.
FollowingAs of April 30, 2024, we had cash and cash equivalents of $4,073,000. We have material contractual obligations which will require cash to meet their requirements. These applicable obligations include our recent offering of SeriesB Preferred Stock discussed belowfacility lease agreement, our employment contracts, and increased expenditures relatedour financing arrangement for our Director and Officer Insurance Policy. We also plan to our ongoingdeploy cash for other research and development efforts as well asand general and administrative operating expenses. Our ability to continue meeting these contractual obligations will be reliant upon our ability to secure significant additional capital funding.
As described above under “Going Concern and Liquidity,” in the completionabsence of an initial public offering on October 15, 2020, we determinedfinancing, management anticipates that our current levels ofexisting cash resources combined with verbal, non-contractual commitments for additional financing will not be sufficient to meet operating and liquidity needs beyond July 2024. Management may further evaluate various cost reduction actions, including possible reductions in the Company’s workforce and suspending research and development expenditures on one or more product candidates, in order to reduce the Company’s expenditures and preserve cash. We are limited in our anticipated cash needsability to reduce expenditures for our operations through November 30, 2021. Weknown contractual obligations. As a result, we are not able to predict whether any cost reduction actions will be successful or how much longer any such actions will allow the Company to continue to operate without financing.
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As previously disclosed, we have incurred significant operating losses since inception, and we expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will increase includingover the long-term, even if we are able to successfully reduce our costs in connection withthe short-term in order to preserve cash in light of the Company’s current liquidity situation. These costs include conducting preclinical studies and clinical trials for our product candidates, contracting with contract manufacturingclinical research organizations and building out internal capacity to have product candidates manufactured to support preclinical studies and clinical trials, expanding our intellectual property portfolio and providing general and administrative support for our operations. As a result, substantial doubt exists regarding the going concern assumption on our condensed consolidated financial statements. Therefore, these condition raises substantial doubt about our ability to continue as a going concern.
We are currently seeking short-term financing to be able to continue our operations. If we are successful in obtaining short-term financing to fund our operations beyond the end of the year, we intend to seek significant additional capital funding to develop our platform, additional hiring ofhire scientific professionals hiringand other general and administrative employees, and for clinical trials. However, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of any such financingfinancings will be favorable. Further, there are other factors which may make financing our operations more difficult, including potential governmental investigation, continued elevated legal and accounting professional fees associated with litigation, and other risk factors listed in Item 1A. of Part II of our Annual Report on Form 10-K for the year ended December 31, 2023. In consideration of our plans, substantial doubt cannot be alleviated with respect to our continued operations through November 30, 2021. Management's plans, of which the raising additional capital is not within management's control and cannot be assured, do not alleviate such substantial doubt through November 30, 2021.alleviated.
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Summary of Cash Flow
The following table sets forth a summary of our cash flows for the periods presented:
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Three Months Ended March 31, | ||||||||
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| 2020 |
| 2019 | ||||||||
(In thousands) |
| 2024 |
| 2023 | ||||||||
Net cash used in operating activities | | $ | (3,557,200) | | $ | (1,000,900) | | $ | (5,699) | | $ | (4,128) |
Net cash used in investing activities | |
| (1,013,100) | |
| (26,500) | |
| (21) | |
| — |
Net cash provided by financing activities | |
| 3,110,500 | |
| 1,830,900 | |
| 6,192 | |
| 5,537 |
Net increase (decrease) in cash and cash equivalents | |
| (1,459,800) | |
| 803,500 | ||||||
Net change in cash and cash equivalents | |
| 472 | |
| 1,409 | ||||||
Cash and cash equivalents at beginning of the period | |
| 1,929,100 | |
| 384,300 | |
| 3,204 | |
| 645 |
Cash and cash equivalents at end of the period | |
| 469,300 | |
| 1,187,800 | | $ | 3,676 | | $ | 2,054 |
| | | | | | | ||||||
Cash flows from operating activities
Net cash used in operating activities was $3,557,200$5.7 million for the ninethree months ended September30, 2020,March 31, 2024, as compared to $1,000,900$4.1 million for ninethe three months ended September30, 2019. In the nine months ended September30, 2020, net loss of $15,635,300 and outflows from prepaid expenses and other current assets in the amount of $149,800 were the cash outflows drivers. These cash outflows were offsetMarch 31, 2023. The increase by stock compensation expenses from common stock issuances in the amount of $9,432,000, stock compensation expenses from stock options and restricted stock units of $2,148,000, accounts payable in the amount of $398,300, and accrued expenses in the amount of $130,700.
Net cash used in operating activities increasedapproximately $1.6 million dollars is driven primarily by a total of $2,556,300 period-over-period. The main driver for the increase is the $14,077,100 increase in net loss offset by non-cash inflows from increased stock compensation expensesoverall spending in the amount of $11,211,000. We primarily used cash to augment our research and development team, expanddue to the development of Deltacel combined with an overall increase in headcount. See our leased property, expanddiscussion in Results of Operations and our intellectual property portfolio, and payStatement of Cash Flows for corporate development costs related to obtaining additional financing. See "Results of Operations" above for further details.more information.
Cash flows from investing activities
Net cash used in investing activities was $1,013,100$21 thousand for the ninethree months ended September30, 2020,March 31, 2024, as compared to $20,000none for the ninethree months ended September30, 2019.March 31, 2023. Our net cash used in investing activities for the three months ended March 31, 2024 primarily consisted entirely of cash flows for purchases of property and equipment.
Net cash used in investing activities increased by a total of $986,600 in the nine months ended September30, 2020 from September30, 2019. This was primarily driven by $986,400 in cash outflows from equipment, and leasehold improvements attributed tofor our Clean Room and Vivarium current good manufacturing practicescGMP facilities located in our leased facility in Houston, office.Texas.
Cash flows from financing activities
Net cash provided by financing activities was $3,110,500 during$6.2 million for the ninethree months ended September30, 2020March 31, 2024, as compared to $1,830,900net cash used of $5.5 million for the ninethree months ended SeptemberMarch 31, 2023. The change in cash flows from financing activities
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for the nineperiods shown are driven by the issuance of approximately $0.4 million of note payable and $6.0 million of convertible notes, offset by $0.2 million repayment of the note payable, for the three months ended SeptemberMarch 31, 2024.30, 2020, the net cash provided by financing activities primarily consisted of proceeds from preferred stock issuance in the amount of $3,000,000 and proceeds from a loan payable of $105,600, net of repayments. During the nine months ended September30, 2019, the net cash provided by financing activities consisted of proceeds from the sale of convertible promissory notes in the amount of $250,000, proceeds from the Series B Preferred Stock round of financing totaling $1,571,400, and stock option exercises totaling $9,500.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements for any of the periods presented.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles (“U.S.GAAP”) requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
Fair Value Measurements—The carrying value of our cash and cash equivalents, unbilled receivables from the granting agency, prepaid expenses and other assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to their short-term nature.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In estimating the fair value of an asset or a liability, we take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
We account for financial instruments in accordance with Accounting Standards Codification (“ASC”) 820,Fair Value Measurements and Disclosures. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1 measurements) and the lowest priority to unobservable inputs (Level3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level2—Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not directly observable but are corroborated by observable market data.
Level3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
There were no changes in the fair value hierarchy leveling during the years ended December31, 2019 and 2018.
Stock-Based Compensation—We record stock compensation expense related to our 2017 Equity Incentive Plan in accordance with ASC718,Compensation—Stock Compensation. We measure and recognize stock compensation expense for all stock-based awards, including stock options, based on estimated fair values recognized using the straight-line method over the requisite service period. The fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model. The calculation of stock-based compensation expense requires that we make assumptions and judgments about the variables used in the Black- Scholes option-valuation model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate. Forfeitures are accounted for when they occur.
We estimate the grant-date fair value of stock options using the Black-Scholes option-valuation model and the assumptions used to value such stock options are determined as follows:
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Expected Term.The expected term represents the period that our stock options are expected to be outstanding. Due to limitations on the sale or transfer of our common stock as a privately held company, we do not believe our historical exercise pattern is indicative of the pattern we will experience as a future publicly traded company. We have consequently used the SAB No.110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. We plan to continue to use the SAB110 simplified method until we have sufficient trading history as a publicly traded company.
Risk-Free Interest Rate.We base the risk-free interest rate used in the Black-Scholes option-valuation model on the implied yield available on US Treasury zero-coupon issues with a term equivalent to that of the expected term of the stock options for each stock option group.
Volatility.We determine the price volatility based on the historical volatilities of industry peers as we have no trading history for our common stock price. We intend to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.
Dividend Yield.The expected dividend assumption is based on our current expectations about our anticipated dividend policy. To date, we have not declared any dividends and, therefore, we used an expected dividend yield of zero.
Common Stock Valuations.The fair value of the common stock underlying our stock-based compensation grants has historically been determined by our board of directors, with input from management and third-party valuations. We believe that the board of directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid,Valuation of Privately- Held Company Equity Securities Issued as Compensation, the board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:
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In valuing our common stock, the board of directors determined the equity value of our business using various valuation methods including combinations of income and market approaches. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar business operations as of each valuation date and is adjusted to reflect the risks inherent in our
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cash flows. The market approach references actual transactions involving (i)the subject being valued, or (ii)similar assets and/or enterprises.
For each valuation, the equity value determined by the income and market approaches was then allocated to the common stock using either the option pricing method, or OPM, or probability—weighted expected return model, or PWERM.
The option pricing method is based on the Black Scholes option valuation model, which allows for the identification of a range of possible future outcomes, each with an associated probability. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. In general, while simple in its application, management did not use the OPM approach when considering allocation techniques for the valuation of equity interests in early stage, privately held life science companies. Management determined that applying the OPM would violate the major assumptions of the Black Scholes option valuation model approach. Additionally, the simulation approach can generally be reasonably approximated by a scenario-based approach like the PWERM as described below.
PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM include an initial public offering, as well as non- initial public offering market-based outcomes. Determining the fair value of the enterprise using the PWERM requires us to develop assumptions and estimates for both the probability of an initial public offering liquidity event and stay private outcomes, as well as the values we expect those outcomes could yield. Since in February 2018, we have valued our common stock based on a PWERM.
Application of our approach involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact valuations as of each valuation date and may have a material impact on the valuation of our common stock.
For valuations after the completion of an initial public offering, the board of directors will determine the fair value of each share of underlying common stock based on the closing price of the common stock as reported on the date of grant. Future expense amounts for any particular period could be affected by changes in assumptions or market conditions.
Warrants Underlying Shares of SeriesB Preferred Stock—We record warrants to purchase shares of common stock underlying our shares of SeriesB Preferred Stock in accordance with ASC470,Debt with conversion and other options. The fair value of the warrants is estimated on the purchase date using the Black-Scholes option- valuation model. The calculation of warrants requires that we make assumptions and judgments about the variables used in the Black-Scholes option-valuation model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate.
We estimate the fair value of warrants using the Black-Scholes option-valuation model and the assumptions used to value such warrants are determined as follows:
Expected Term.The expected term represents the period that our warrants are expected to be outstanding. The warrants become exercisable in accordance with the schedule set forth below following completion by the Company of an initial public offering and thereafter may be exercised at any time prior to expiration ten years from the date of issuance.
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Since the vesting schedule is contingent upon completion of an initial public offering, we assessed the expected term of the warrants to be ten years.
Risk-Free Interest Rate.We base the risk-free interest rate used in the Black-Scholes option-valuation model on the implied yield available on US Treasury zero-coupon issues with a term equivalent to that of the expected term of the warrants.
Volatility.We determine the price volatility based on the historical volatilities of industry peers as we have no trading history for our common stock price. We intend to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.
Dividend Yield.The expected dividend assumption is based on our current expectations about our anticipated dividend policy. To date, we have not declared any dividends and, therefore, we used an expected dividend yield of zero.
Common Stock Valuations.The fair value of the common stock underlying our warrants has historically been determined by our board of directors, with input from management and third-party valuations. We believe that the board of directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid,Valuation of Privately-Held Company Equity Securities Issued as Compensation, the board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:
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In valuing our common stock, the board of directors determined the equity value of our business using various valuation methods including combinations of income and market approaches. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar business operations as of each valuation date and is adjusted to reflect the risks inherent in our cash flows. The market approach references actual transactions involving (i)the subject being valued, or (ii)similar assets and/or enterprises.
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For each valuation, the equity value determined by the income and market approaches was then allocated to the common stock using either the option pricing method, or OPM, or probability—weighted expected return model, or PWERM.
The option pricing method is based on the Black-Scholes option valuation model, which allows for the identification of a range of possible future outcomes, each with an associated probability. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. In general, while simple in its application, management did not use the OPM approach when considering allocation techniques for the valuation of equity interests in early stage, privately held life science companies. Management determined that applying the OPM would violate the major assumptions of the Black Scholes option valuation model approach. Additionally, the simulation approach can generally be reasonably approximated by a scenario-based approach like the PWERM as described below.
PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM include an initial public offering, as well as non- initial public offering market-based outcomes. Determining the fair value of the enterprise using the PWERM requires us to develop assumptions and estimates for both the probability of an initial public offering liquidity event and stay private outcomes, as well as the values we expect those outcomes could yield. Since in February 2018, we have valued our common stock based on a PWERM.
Application of our approach involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact valuations as of each valuation date and may have a material impact on the valuation of our common stock.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations, or cash flows upon adoption.
In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11 to amend certain aspects of Topic 842. These amendments provide entities with an additional (and optional) transition method to adopt Topic 842. Under this transition method, an entity initially applies the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized as a cumulative effect adjustment to the opening balance of retained earnings (or other components of equity or net assets, as appropriate) in the period of adoption. On October 16, 2019, the FASB changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2022. The Company is currently evaluating the potential impact of this standard on its financial position, results of operations, and cash flows.
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In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The amendments in ASU 2016-13 affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. On October 16, 2019, the FASB has changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2023. The Company is currently evaluating the potential impact of this standard on its financial position, results of operations, and cash flows.
On January 1, 2019, the Company adopted ASU 2016-15 (Topic 230), Classification of Certain Cash Receipts and Payments, a new standard providing guidance on statement of cash flow classification on specific issues. The standard is effective for financial statements issued for fiscal periods beginning after December 15, 2018. It is required to be applied on a retrospective approach. The Company determined that this standard had no impact on its financial position, results of operations, and cash flows for the year ended December 31, 2019.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and ChiefPrincipal Financial Officer, (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020.March 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’sCompany’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The closing Under the supervision, and with the participation, of our initial public offering occurred on October 20, 2020. Consequently,current management, including our CEO and Principal Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as a newly reporting companydefined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, we are not required to evaluate the effectivenessas of March 31, 2024. Based on this evaluation of our internaldisclosure controls and procedures, our management, including our CEO and Principal Financial Officer, have concluded that our disclosure controls and procedures were effective as of March 31, 2024.
Changes in Internal Control over financial reporting until the end of the fiscal year after we file our first annual report on Form 10-K, which will occur on December 31, 2021. However, in connection with the audit of our financial statements for the years ended December 31, 2019 and 2018, prior to our initial public offering, we observed material weaknessesFinancial Reporting
There have been no changes in our internal controls over financial reporting during those periods because we did not have a formal process for period end financial closing and reporting, and also because we historically had insufficient resources to conduct an effective monitoring and oversight function independent from our operations. We believe we are addressing these weaknesses through measures including:
Our management intends to monitor these weaknesses and evaluate whether the remedial actions taken by the Company have remediated these weaknesses when it completes its first evaluation of the Company’s internal controls over financial reporting for the fiscal year ending Decemberquarter ended March 31, 2021.
2024.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time
Information related to timeItem 1.Legal Proceedings is included in the future, we may become involved in litigation or other legal proceedings that arise in the ordinary course of business. We are not currently party to any legal proceedings,Note 8 – Commitments and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results or financial condition. In the event we are subject to a legal proceeding, it could have a material adverse impact on us because of litigation costs and diversion of management resources.Contingencies.
ITEM 1A. RISK FACTORS.
Not applicable.
There have been no material changes from the risk factors disclosed in our Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We have not sold any equity securities during three months ended September 30, 2020 that were not previously disclosed.None.
We did not repurchase any36
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
We have no information to disclose that was required to be in a report on Form 8-K during the three months ended September 30, 2020 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
ITEM 6. EXHIBITS.
See Exhibit Index.
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EXHIBIT INDEX
| ||
Exhibit No. |
| Description of Exhibit |
3.1 | | |
|
|
|
| | |
| | |
31.1 | | |
| | |
|
| |
| | |
|
| Inline XBRL Instance Document |
|
| Inline XBRL Taxonomy Extension Schema Document |
|
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
______________
*Filed herewith
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
5 | |
Date: | KIROMIC BIOPHARMA, INC. |
| |
| /s/ |
| Name: |
| Title: Chief Executive Officer (Principal Executive Officer) |
|
|
| |
| /s/ |
| Name: |
| Title: Chief Financial Officer (Principal Financial and Accounting Officer) |
|
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