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 June 30, 20212022
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: 001-39169
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 140, Houston, TX |
| 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 | | KRBP | | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large 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 August 13, 2021,12, 2022, there were 15,437,68915,839,112 shares of the registrant’s common stock outstanding.
Kiromic BioPharma, Inc.
Quarterly Report on Form 10-Q
Period Ended June 30, 2021
TABLE OF CONTENTS
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| | Notes to Condensed Consolidated Financial Statements (Unaudited) | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 28 | |
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2
Kiromic Biopharma, Inc.Note Regarding Forward-Looking Statements
Various statements made in this Quarterly Report on Form 10-Q
For the quarterly period ended June 30, 2021
Cautionary Note on Forward-Looking Statements
This report contains 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-lookinginclude, among others, statements include, but are not limited to, statements about:
● | our goals and strategies; |
● | our future business development, financial condition and results of operations; |
● | our expected timing of human clinical trials and other related milestones; |
● | expected changes in our revenue, costs or expenditures; |
● | our ability to obtain financing in amounts sufficient to fund our operations and continue as a going concern and avoid seeking protection under Chapters 7 or 11 of the United States Bankruptcy Code; |
● | 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 industry; |
● | our expectations regarding demand for, and market acceptance of, our products; |
● | our expectations regarding our relationships with investors, institutional funding partners and other parties we collaborate with; |
● | fluctuations in general economic and business conditions in the markets in which we operate; including those fluctuations caused by COVID-19; |
● | our ability to raise capital when needed; |
● | relevant government policies and regulations relating to our |
● | 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”“may," "could," "will,"
3
"should," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "project" or “continue” or"continue".
The following are some of 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 whichthat could materially affect results. Factors that may cause actual results to differ materially from currentthe anticipated results or other expectations include, amongexpressed, anticipated or implied in our forward-looking statements:
● | the extent to which the COVID-19 pandemic impacts our business, our customers’ businesses, the medical community and the global economy; |
● | 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; and |
● | other factors described in our filings with the SEC. |
We cannot guarantee that the results and other things, those listedexpectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under the heading “Risk Factors” included inItem 1A and our Annual Report on Form 10-K (file no. 001-39169), filed withfor the Securities and Exchange Commission on Marchfiscal year ended December 31, 2021 and elsewhere in this report. If one or moresubsequent 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 uncertainties occur,other expectations expressed, anticipated or ifimplied in our forward-looking statements. Should known or unknown risks materialize, or should underlying assumptions prove to be incorrect,inaccurate, actual events or results may vary significantlycould differ materially from past results and those impliedanticipated, estimated or projected byin the forward-looking statements. NoYou should bear this in mind as you consider any forward-looking statement is a guarantee of future performance.statements.
TheOur forward-looking statements made in this report relatespeak only to events or information as of the datedates on which the statementsthey are made in this report. Except as expressly required by the federal securities laws, there is no undertakingmade. We do not undertake any obligation to publicly update or revise anyour forward-looking statements whethereven if experience or future changes makes it clear that any projected results expressed or implied in such statements will not be realized, except as a result of new information, future events, changed circumstances or any other reason.
may be required by law.
34
PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2021 | | 2020 | ||
Assets |
| |
|
| |
|
Current Assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 3,070,400 | | $ | 10,150,500 |
Prepaid expenses and other current assets | |
| 875,600 | |
| 588,800 |
Total current assets | |
| 3,946,000 | |
| 10,739,300 |
Property and equipment, net | |
| 2,468,700 | |
| 2,066,000 |
Other assets | |
| 24,400 | |
| 24,400 |
Total Assets | | $ | 6,439,100 | | $ | 12,829,700 |
| | | | | | |
Liabilities and Stockholders’ Equity: | |
|
| |
|
|
Current Liabilities: | |
|
| |
|
|
Accounts payable | | $ | 1,124,100 | | $ | 665,200 |
Accrued expenses and other current liabilities | |
| 350,900 | |
| 334,200 |
Interest payable | |
| — | |
| 200 |
Loan payable | |
| — | |
| 105,600 |
Note payable | |
| 91,600 | |
| 362,400 |
Total current liabilities | |
| 1,566,600 | |
| 1,467,600 |
| | | | | | |
Total Liabilities | |
| 1,566,600 | |
| 1,467,600 |
| | | | | | |
Commitments and contingencies (Note 8) | |
|
| |
|
|
Stockholders’ Equity: | |
|
| |
|
|
Common stock, $0.001 par value: 300,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 7,387,500 shares and 7,332,999 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | |
| 1,300 | |
| 1,200 |
Additional paid-in capital | |
| 55,327,800 | |
| 52,988,700 |
Accumulated deficit | |
| (50,456,600) | |
| (41,627,800) |
Total Stockholders’ Equity | |
| 4,872,500 | |
| 11,362,100 |
| | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 6,439,100 | | $ | 12,829,700 |
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2022 | | 2021 | ||
| | (Unaudited) | | | ||
Assets |
| |
|
| |
|
Current Assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 6,510,600 | | $ | 25,353,900 |
Accounts receivable | | | — | | | 16,200 |
Prepaid expenses and other current assets | |
| 1,522,600 | |
| 1,699,400 |
Total current assets | |
| 8,033,200 | |
| 27,069,500 |
Property and equipment, net | |
| 9,157,700 | |
| 3,629,000 |
Operating lease right-of-use asset | | | 2,298,300 | | | — |
Other assets | |
| 31,100 | |
| 31,100 |
Total Assets | | $ | 19,520,300 | | $ | 30,729,600 |
| | | | | | |
Liabilities and Stockholders’ Equity: | |
|
| |
|
|
Current Liabilities: | |
|
| |
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|
Accounts payable | | $ | 4,163,700 | | $ | 2,214,300 |
Accrued expenses and other current liabilities | |
| 1,154,600 | |
| 741,000 |
Note payable | |
| 114,900 | |
| 454,500 |
Operating lease liability - short term | | | 535,600 | | | — |
Total current liabilities | |
| 5,968,800 | |
| 3,409,800 |
Operating lease liability - long term | | | 1,770,300 | | | — |
Total Liabilities | |
| 7,739,100 | |
| 3,409,800 |
| | | | | | |
Commitments and contingencies (Note 8) | |
|
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|
Stockholders’ Equity: | |
|
| |
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|
Common stock, $0.001 par value: 300,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 15,839,112 and 15,488,516 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | |
| 9,300 | |
| 9,300 |
Preferred stock | | | — | | | — |
Additional paid-in capital | |
| 94,791,300 | |
| 94,527,000 |
Accumulated deficit | |
| (83,019,400) | |
| (67,216,500) |
Total Stockholders’ Equity | |
| 11,781,200 | |
| 27,319,800 |
| | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 19,520,300 | | $ | 30,729,600 |
See accompanying notes to the condensed consolidated financial statements
45
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2022 |
| 2021 | | 2022 |
| 2021 | ||||||||
Operating expenses: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
|
| |
|
Research and development |
| $ | 2,658,100 | | $ | 1,272,300 | | $ | 4,543,700 | | $ | 2,300,400 | | $ | 3,880,700 | | $ | 2,658,100 | | $ | 6,806,500 | | $ | 4,543,700 |
General and administrative |
| | 2,314,100 | |
| 10,094,600 | |
| 4,385,100 | |
| 10,919,200 | |
| 4,551,700 | |
| 2,314,100 | |
| 8,990,800 | |
| 4,385,100 |
Total operating expenses |
| | 4,972,200 | |
| 11,366,900 | |
| 8,928,800 | |
| 13,219,600 | |
| 8,432,400 | |
| 4,972,200 | |
| 15,797,300 | |
| 8,928,800 |
Loss from operations |
| | (4,972,200) | |
| (11,366,900) | |
| (8,928,800) | |
| (13,219,600) | |
| (8,432,400) | |
| (4,972,200) | |
| (15,797,300) | |
| (8,928,800) |
Other income (expense) |
| |
| |
|
| |
|
| |
|
| |
| | |
|
| |
| | |
|
|
Gain on loan extinguishment | | | — | | | — | | | 105,800 | | | — | | | — | | | — | | | — | | | 105,800 |
Interest expense |
| | (2,100) | |
| — | |
| (5,800) | |
| — | |
| (2,700) | |
| (2,100) | |
| (5,500) | |
| (5,800) |
Total other income (expense) |
| | (2,100) | |
| — | |
| 100,000 | |
| — | |
| (2,700) | |
| (2,100) | |
| (5,500) | |
| 100,000 |
Net loss |
| $ | (4,974,300) | | $ | (11,366,900) | | $ | (8,828,800) | | $ | (13,219,600) | | $ | (8,435,100) | | $ | (4,974,300) | | $ | (15,802,800) | | $ | (8,828,800) |
Net loss per share, basic and diluted |
| $ | (0.68) | | $ | (3.80) | | $ | (1.21) | | $ | (4.52) | | $ | (0.54) | | $ | (0.68) | | $ | (1.02) | | $ | (1.21) |
Weighted average common shares outstanding, basic and diluted |
| | 7,345,147 | |
| 3,077,085 | |
| 7,345,147 | |
| 3,077,085 | |
| 15,732,063 | |
| 7,345,147 | |
| 15,637,777 | |
| 7,345,147 |
See accompanying notes to the condensed consolidated financial statements
56
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| | | | | | | | | | | | | | |
| | Three and Six Months Ended June 30, 2021 | ||||||||||||
| | Common Stock | | Additional Paid- | | | | | | | ||||
| | Number of | | | | | In | | Accumulated | | |
| ||
|
| Shares |
| Amount |
| Capital |
| Deficit | | Total | ||||
Balance at January 1, 2021 |
| 7,332,999 | | $ | 1,200 | | $ | 52,988,700 | | $ | (41,627,800) | | $ | 11,362,100 |
Common stock discount amortization |
| — | |
| — | |
| 24,700 | |
| — | |
| 24,700 |
Warrants underlying common stock issuance |
| — | |
| — | |
| (24,700) | |
| — | |
| (24,700) |
Stock compensation expense |
| — | |
| — | |
| 945,200 | |
| — | |
| 945,200 |
Net loss |
| — | |
| — | |
| — | |
| (3,854,500) | |
| (3,854,500) |
Balance at March 31, 2021 |
| 7,332,999 | | $ | 1,200 | | $ | 53,933,900 | | $ | (45,482,300) | | $ | 8,452,800 |
Common stock discount amortization | | — | | | — | | | 24,900 | | | — | | | 24,900 |
Warrants underlying common stock issuance | | — | | | — | | | (24,900) | | | — | | | (24,900) |
Exercised stock options | | 18,891 | | | 100 | | | 125,300 | | | — | | | 125,400 |
Released restricted stock units | | 35,610 | | | — | | | — | | | — | | | — |
Stock compensation expense | | — | | | — | | | 1,268,600 | | | — | | | 1,268,600 |
Net loss | | — | | | — | | | — | | | (4,974,300) | | | (4,974,300) |
Balance at June 30, 2021 | | 7,387,500 | | $ | 1,300 | | $ | 55,327,800 | | $ | (50,456,600) | | $ | 4,872,500 |
| | | | | | | | | | | | | | | |
| | Three and Six Months Ended June 30, 2022 | |||||||||||||
| | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid- | | | | | | | ||||
| | | Number of | | | | | In | | Accumulated | | |
| ||
|
| | Shares |
| Amount |
| Capital |
| Deficit | | Total | ||||
Balance January 1, 2022 |
| | 15,488,516 | | $ | 9,300 | | $ | 94,527,000 | | $ | (67,216,500) | | $ | 27,319,800 |
Common stock discount amortization | | | — | | | — | | | 85,100 | | | — | | | 85,100 |
Warrants underlying common stock issuance | | | — | | | — | | | (85,100) | | | — | | | (85,100) |
Released restricted stock units | | | 97,071 | | | — | | | — | | | — | | | — |
Stock compensation expense | | | — | | | — | | | 80,100 | | | — | | | 80,100 |
Net loss | | | — | | | — | | | — | | | (7,367,800) | | | (7,367,800) |
Balance at March 31, 2022 | | | 15,585,587 | | $ | 9,300 | | $ | 94,607,100 | | $ | (74,584,300) | | $ | 20,032,100 |
Common stock discount amortization | | | — | | | — | | | 85,900 | | | — | | | 85,900 |
Warrants underlying common stock issuance | | | — | | | — | | | (85,900) | | | — | | | (85,900) |
Released restricted stock units | | | 253,525 | | | — | | | — | | | — | | | — |
Stock compensation expense | | | — | | | — | | | 184,200 | | | — | | | 184,200 |
Net loss | | | — | | | — | | | — | | | (8,435,100) | | | (8,435,100) |
Balance at June 30, 2022 | | | 15,839,112 | | $ | 9,300 | | $ | 94,791,300 | | $ | (83,019,400) | | $ | 11,781,200 |
See accompanying notes to the condensed consolidated financial statements
67
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three and Six Months Ended June 30, 2020 | | Three and Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||
| | Series A‑1 | | Series B | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| |||||||
| | Preferred Stock | | Preferred Stock | | Common Stock | | | | | | | | |
| | Common Stock | | | | | | | | |
| |||||||||||||
| | | | | | | | | | | | | | | | | Additional Paid- | | | | | | | | | | | | | Additional Paid- | | | | | | | |||
| | Number of | | | | | Number of | | | | | Number of | | | | | In | | Accumulated | | |
| | Number of | | | | | In | | Accumulated | | |
| |||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit | | Total |
| Shares |
| Amount |
| Capital |
| Deficit | | Total | |||||||||||
Balance at January 1, 2020 |
| 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 January 1, 2021 |
| 7,332,999 | | $ | 1,200 | | $ | 52,988,700 | | $ | (41,627,800) | | $ | 11,362,100 | |||||||||||||||||||||||||
Common stock discount amortization | | — | | | — | | | 24,700 | | | — | | | 24,700 | |||||||||||||||||||||||||
Warrants underlying common stock issuance | | — | | | — | | | (24,700) | | | — | | | (24,700) | |||||||||||||||||||||||||
Exercised stock options | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||
Released restricted stock units | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||
Stock compensation expense |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| 456,000 | |
| — | |
| 456,000 | | — | | | — | | | 945,200 | | | — | | | 945,200 | |
Net loss |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| — | |
| (1,852,700) | |
| (1,852,700) | | — | | | — | | | — | | | (3,854,500) | | | (3,854,500) | |
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 | |||||||||||||||
Balance at March 31, 2021 | | 7,332,999 | | $ | 1,200 | | $ | 53,933,900 | | $ | (45,482,300) | | $ | 8,452,800 | |||||||||||||||||||||||||
Common stock discount amortization |
| — | |
| — | |
| 24,900 | |
| — | |
| 24,900 | |||||||||||||||||||||||||
Warrants underlying common stock issuance |
| — | |
| — | |
| (24,900) | |
| — | |
| (24,900) | |||||||||||||||||||||||||
Exercised stock options | | 18,891 | | | 100 | | | 125,300 | | | — | | | 125,400 | |||||||||||||||||||||||||
Released restricted stock units | | 35,610 | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||
Stock compensation expense |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| 443,000 | |
| — | |
| 443,000 |
| — | |
| �� | |
| 1,268,600 | |
| — | |
| 1,268,600 | |
Net loss |
| — | |
| — |
| — | |
| — |
| — | |
| — | |
| — | |
| (11,366,900) | |
| (11,366,900) |
|
| — | |
| — | |
| — | |
| (4,974,300) | |
| (4,974,300) |
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 | |||||||||||||||
Balance at June 30, 2021 |
|
| 7,387,500 | | $ | 1,300 | | $ | 55,327,800 | | $ | (50,456,600) | | $ | 4,872,500 |
See accompanying notes to the condensed consolidated financial statements
78
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net loss | | $ | (8,828,800) | | $ | (13,219,600) |
Adjustments to reconcile net loss to net cash used for operating activities: | |
|
| |
|
|
Depreciation | |
| 202,400 | |
| 68,500 |
Stock compensation expense | |
| 2,213,800 | |
| 10,331,000 |
Gain on loan extinguishment | | | (105,800) | | | — |
Changes in operating assets and liabilities: | |
|
| |
|
|
Prepaid expenses and other current assets | |
| 151,500 | |
| (141,500) |
Accounts payable | |
| 41,800 | |
| 291,000 |
Accrued expenses and other current liabilities | |
| (19,000) | |
| 66,800 |
Net cash used for operating activities | |
| (6,344,100) | |
| (2,603,800) |
Cash flows from investing activities: | |
|
| |
|
|
Purchases of property and equipment | |
| (590,600) | |
| (762,300) |
Net cash used for investing activities | |
| (590,600) | |
| (762,300) |
Cash flows from financing activities: | |
|
| |
|
|
Repayments of note payable | | | (270,800) | | | — |
Exercise of stock options | | | 125,400 | | | — |
Proceeds from warrant exercise | | | — | | | 4,900 |
Proceeds from loan payable | | | — | | | 115,600 |
Proceeds from Series B Preferred Stock issuance | |
| — | |
| 3,000,000 |
Net cash (used for) provided by financing activities | |
| (145,400) | |
| 3,120,500 |
Net change in cash and cash equivalents | |
| (7,080,100) | |
| (245,600) |
Cash and cash equivalents: | |
| | |
|
|
Beginning of year | |
| 10,150,500 | |
| 1,929,100 |
End of period | | $ | 3,070,400 | | $ | 1,683,500 |
| | | | | | |
Supplemental disclosures of non-cash investing and financing activities: | |
|
| |
|
|
Accruals for property and equipment | | $ | 14,500 | | $ | 45,000 |
Cash paid for interest on note payable | | $ | 5,800 | | $ | — |
Accruals for deferred public offering costs | | $ | 438,300 | | $ | 594,200 |
Warrants underlying Series B Preferred Stock issuance | | $ | — | | $ | 2,668,300 |
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
|
| 2022 |
| 2021 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net loss | | $ | (15,802,800) | | $ | (8,828,800) |
Adjustments to reconcile net loss to net cash used for operating activities: | |
|
| |
|
|
Depreciation | |
| 581,900 | |
| 202,400 |
Stock compensation expense | |
| 264,300 | |
| 2,213,800 |
Gain on loan extinguishment | | | — | | | (105,800) |
Operating lease interest expense | | | 139,200 | | | — |
Changes in operating assets and liabilities | |
| | |
| |
Accounts receivable | | | 16,200 | | | — |
Prepaid expenses and other current assets | |
| 176,800 | |
| 151,500 |
Accounts payable | |
| 794,500 | |
| 41,800 |
Accrued expenses and other current liabilities | |
| 413,600 | |
| (19,000) |
Operating lease liability | | | (131,700) | | | — |
Net cash used for operating activities | |
| (13,548,000) | |
| (6,344,100) |
Cash flows from investing activities: | |
|
| |
|
|
Purchases of property and equipment | |
| (4,955,700) | |
| (590,600) |
Net cash used for investing activities | |
| (4,955,700) | |
| (590,600) |
Cash flows from financing activities: | |
|
| |
|
|
Exercise of stock options | | | — | | | 125,400 |
Repayments of note payable | | | (339,600) | | | (270,800) |
Net cash used for financing activities | |
| (339,600) | |
| (145,400) |
Net change in cash and cash equivalents | |
| (18,843,300) | |
| (7,080,100) |
Cash and cash equivalents: | |
| | |
|
|
Beginning of year | |
| 25,353,900 | |
| 10,150,500 |
End of period | | $ | 6,510,600 | | $ | 3,070,400 |
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest on note payable | | $ | 5,500 | | $ | 5,800 |
| | | | | | |
Supplemental disclosures of non-cash investing and financing activities: | |
|
| |
|
|
Offering cost accruals | | $ | — | | $ | 438,300 |
Accounts payable and accruals for property and equipment | | $ | 1,154,900 | | $ | 14,500 |
ASC 842 right-of-use asset/liability implementation | | $ | 2,232,700 | | $ | — |
Right-of-use asset/liability acquired through lease liability | | $ | 204,800 | | $ | — |
See accompanying notes to the condensed consolidated financial statements
89
KIROMIC BIOPHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. | ORGANIZATION |
Nature of Business
Kiromic BioPharma, Inc. and subsidiarysubsidiaries (the "Company") is 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 aan artificial intelligence-driven, end-to-end CAR-T and gene therapy company, developing the first multi-indication allogeneic CAR-T cell therapy, that exploits the natural potency of Gamma Delta T-cells (“GDTs”) to target discovery and gene-editing company utilizing artificial intelligence and its proprietary neural network platform with a therapeutic focus on immuno-oncology. solid cancers. The Company maintains offices in Houston, Texas. The Company has not generated any revenues to date.
From a development standpoint, the Company utilizes innovative engineered and non-engineered GDT manufacturing technologies and is developing proprietary, virus-free gene editing tools, to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. The Procel, Isocel, and Deltacel product platform candidates consist of allogeneic cell therapy candidates that are currently in the preclinical development stage. Our Procel product candidate consists of engineered GDTs targeting PD-L1. Our Isocel product candidate consists of engineered GDTs targeting Mesothelin Isoform 2 positive tumors (“Iso-Meso”). Our Deltacel product candidate consists of non-engineered GDTs that have been expanded, enriched, and activated ex-vivo through a proprietary process, and are used to treat solid tumors regardless of the specific tumor antigen expression.
The Company currently has one clinical trial candidate with the Procel product candidate platform titled ALEXIS-PRO-1. The Company currently has one clinical trial candidate with the Isocel product candidate platform titled ALEXIS-ISO-1. The ALEXIS-PRO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting PD-L1. The ALEXIS-ISO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting an isoform of Mesothelin that is preferentially present on tumor cells, namely Iso-Meso.
The Company filed two investigational new drug (“IND”) applications in May 2021 for ALEXIS-PRO-1 and ALEXIS-ISO-1. The Food and Drug Administration (“FDA”) placed these applications under a clinical hold in June 2021. On July 13, 2021, the Company received the FDA’s formal clinical hold letters, which asked the Company to address key components regarding the chemical, manufacturing, and control components of the IND applications. Those components included tracing of all reagents used in manufacturing, flow chart of manufacturing processes, and certificate of analysis. The Company is currently working on addressing the FDA’s comments.
Going Concern—These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the 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 $6,344,100$13,548,000 for the six months ended June 30, 2021,2022, and an accumulated deficit of $50,456,600$83,019,400 as of June 30, 2021.2022. 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 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 hasdoes not have sufficient cash on hand andor available liquidity to meet its obligations through the twelve months following the date the condensed consolidated financial statements are issued. After taking into account the Company’s cash flow projections, the Company does not believe it will have sufficient cash on hand or available liquidity to meet its obligations through the twelve months from the date of issuance of the condensed consolidated financial statements for the three months ending September 30, 2021. Therefore, thisThis 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, management is currentlymanagement’s plans include evaluating different strategies to obtain the required funding of future operations. These strategiesplans may include, but are not limited to, additionalobtaining 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 of being implemented. As a result, the Company has concluded that management’s
10
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 accounting principles generally accepted in the United States of America ("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 accounting principles generally accepted in the United States of America (“U.S. 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, 2021. The results of operations for the period ended June 30, 2022 are not necessarily indicative of the operating results that may be expected for a full year. The condensed consolidated balance sheet as of December 31, 2021 contains financial information taken from the audited Company consolidated financial statements as of that date.
All intercompany balances were eliminated upon consolidation.
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, warrants to purchase common stock underlying shares of Series B Preferred Stock and Initial Public Offering (“IPO”)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 June 30, 20212022 and December 31, 2020,2021, 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.
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.
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
11
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.
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-termlong term asset on the Company’s condensed consolidated balance sheets.
Deferred Public Offering Costs—In the six months ended June 30, 2021, and 2020, the Company began incurring costs in connection with the filing of a Registration Statements on Form S-1 and Form S-1/A for a public offering, and an IPO, respectively, which arewere deferred in other current assets in accordance with ASC 505-10-25, Equity, in the condensed consolidated balance sheets. Public offering costs consist of legal, accounting, and other costs directly related to the Company's efforts to raise capital. As of June 30, 2022 and 2021, $0 and 2020, $478,900 and $696,700 of deferred costs related to the public offering and IPO were classified as prepaid expenses and 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.
10
Estimated useful lives of property and equipment are as follows for the major classes of assets:
| | |
Asset Description |
| Estimated Lives |
Laboratory Equipment |
| 3 - 8 |
Leasehold Improvements |
| 1 - 7 |
Office Furniture, Fixtures, and Equipment |
| 5 |
Software |
| 3 - 5 |
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 did not capitalize any software development costs forduring the three and six months ended June 30, 2021 and 2020.2022 or 2021.
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 0 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.
12
The Company records uncertain tax positions in accordance with ASC 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. NaN such interest or penalties were recognized during the three months and six months ended June 30, 2021 and 2020.2022 or 2021.
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-clinicalclinical development activities including costs of outside consultants and contractors, the submission and maintenance of 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
11
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 and six months ended June 30, 2021 and 2020, the Company did not recognize any reductions to research and development expense within the condensed consolidated statements of operations pursuant to its grant from the NIH.
Fair Value Measurements—The carrying value of the Company’s cash and cash equivalents, accounts receivable, 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 three and six months ended June 30, 2021 and 2020.2022 or 2021.
12
Nonvested Stock Options and Restricted Stock Units—Pursuant to the Company’s 2017 Stock Incentive Plan (the “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 throughnon-employees. The Company has issued grants of nonvested stock options and restricted stock units.units under the 2017 Plan and 2021 Plan.
The vesting conditions for stock options and restricted stock units include annual vesting, monthly vesting, and monthly vesting.fully vesting upon grant date. Annual vesting conditions are for four years. Monthly vesting conditions range from 10 to 48 months. When nonvested options are vested, they become exercisable over a 10-year period from grant date.
13
The vesting conditions for restricted stock units include cliff vesting conditions. Certain restricted stock units vest with a range of 6 to 12 months following the expiration of employee lock-up agreements. Certain restricted stock units vest based on the later of achievement of key milestones or the expiration of employee lock-up agreements. When nonvested restricted stock units are vested, they are released to the grantee within sixty days.
Stock-Based Compensation—The Company records stock compensation expense related to the 2017 Plan and 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.
Until the Company’s common stock became publicly traded, the board of directors’ approach to estimating the fair value of the Company’s common stock includes utilizing methods outlined in the American Institute of Certified Public Accountants’ Practice Aid, Valuation of Privately- Held Company Equity Securities Issued as Compensation.
The Company estimates the grant-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 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 after restricted periods expire. The Company has previously 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.
Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes 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. The Company determines the price volatility based on the historical volatilities of industry peers as it has no 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.
Common Stock Valuations. During the three and six months ended June 30, 2022 and 2021, the closing price listed on the Nasdaq Capital Market for the Company’s common stock on the date of the grant was used as the common stock valuation. During the three and six months ended June 30, 2020, the Company’s board of directors, with input from management and third-party valuations, determined the fair value of the common stock underlying all stock-based compensation grants. The Company believes that the board of directors had the relevant experience and expertise to determine the fair value of the Company’s common stock before the Company’s common stock became publicly traded. The board of
13
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 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. From February 2018 to October 2020, 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 determines 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.
14
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 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
14
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. Accordingly, the Company has adopted Topic 842 beginning in the first quarter of 2022. Modified retroactive transition approach will be required for operating leases existing at or entered into after the beginning of the earliest comparative period presented. The Company is currently evaluatingnotes that adopting the potential impactnew standard resulted in recording a lease liability and right-of-use asset associated with the Company’s facility lease agreement and subsequent amendments thereto totaling $2,232,700, as of this standard on its financial position, results of operations, and cash flows.January 1, 2022.
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.
3.NET LOSS PER SHARE OF COMMON STOCK
Basic and diluted net loss per share of common stock is determined by dividing net loss less deemed dividends by the weighted-average shares of common stock outstanding during the period. For all periods presented, the shares of common stock underlying the stock options, and restricted stock units have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares of common stock outstanding used to calculate both basic and diluted loss per share of common stock are the same. The following table illustrates the computation of basic and diluted earnings per share:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net loss | | $ | (8,435,100) | | $ | (4,974,300) | | $ | (15,802,800) | | $ | (8,828,800) |
Less: initial public offering Common Stock discount amortization | | | (24,900) | | | (24,900) | | | (49,600) | | | (49,600) |
Less: public offering Common Stock discount amortization | |
| (61,000) | |
| — | | | (121,400) | |
| — |
Net loss attributable to common shareholders, basic and diluted | | $ | (8,521,000) | | $ | (4,999,200) | | $ | (15,973,800) | | $ | (8,878,400) |
Weighted average common shares outstanding, basic and diluted | |
| 15,732,063 | |
| 7,345,147 | | | 15,637,777 | |
| 7,345,147 |
Net loss per common share, basic and diluted | | $ | (0.54) | | $ | (0.68) | | $ | (1.02) | | $ | (1.21) |
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3.NET LOSS PER COMMON 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, restricted stock units, convertible Series A-1 Preferred Stock, and the convertible Series B Preferred Stock 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 earnings per share:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net loss | | $ | (4,974,300) | | $ | (11,366,900) | | $ | (8,828,800) | | $ | (13,219,600) |
Less: Series B Preferred Stock discount amortization | | | — | | | (324,300) | | | — | | | (692,700) |
Less: IPO Common Stock discount amortization | |
| (24,900) | |
| — | |
| (49,600) | |
| — |
Net loss attributable to common shareholders, basic and diluted | | $ | (4,999,200) | | $ | (11,691,200) | | $ | (8,878,400) | | $ | (13,912,300) |
Weighted average common shares outstanding, basic and diluted | |
| 7,345,147 | |
| 3,077,085 | |
| 7,345,147 | |
| 3,077,085 |
Net loss per common share, basic and diluted | | $ | (0.68) | | $ | (3.80) | | $ | (1.21) | | $ | (4.52) |
For the three and six months ended June 30, 20212022 and 2020,2021, potentially dilutive securities excluded from the computations of diluted weighted-average shares of common sharesstock outstanding were:
| | | | | | | | | | | | | | | |
|
| June 30, |
| June 30, | Three Months Ended | | Six Months Ended | ||||||||
| | 2021 | | 2020 | June 30, | | June 30, | ||||||||
Options to purchase |
| 167 |
| — | |||||||||||
Restricted Stock Units | | 66,668 | | — | |||||||||||
Series A‑1 Preferred Stock |
| — |
| 624,594 | |||||||||||
Series B Preferred Stock |
| — |
| 469,136 | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
Stock options | | — | | | — | | | — | | | 167 | ||||
Restricted stock units | | — | | | 34,668 | | | — | | | 66,668 | ||||
Total |
| 66,835 |
| 1,093,730 | | — |
| | 34,668 | | | — |
| | 66,835 |
4.PROPERTY AND EQUIPMENT
4. | PROPERTY AND EQUIPMENT |
Property and equipment consisted of the following as of June 30, 20212022 and December 31, 2020:2021:
| | | | | | | | | | | | |
|
| June 30, |
| December 31, |
| June 30, |
| December 31, | ||||
| | 2021 | | 2020 | | 2022 | | 2021 | ||||
Equipment | | $ | 1,514,300 | | $ | 780,500 | | $ | 2,468,300 | | $ | 1,593,100 |
Leasehold improvements | |
| 1,284,600 | |
| 1,229,700 | |
| 7,184,700 | |
| 1,464,700 |
Office furniture, fixtures, and equipment | |
| 16,600 | |
| 16,600 | |
| 137,300 | |
| 16,600 |
Software | |
| 151,700 | |
| 151,700 | |
| 359,500 | |
| 359,500 |
Construction in progress | |
| 265,600 | |
| 449,200 | |
| 621,300 | |
| 1,226,600 |
| |
| 3,232,800 | |
| 2,627,700 | |
| 10,771,100 | |
| 4,660,500 |
Less: Accumulated depreciation | |
| (764,100) | |
| (561,700) | |
| (1,613,400) | |
| (1,031,500) |
Total | | $ | 2,468,700 | | $ | 2,066,000 | | $ | 9,157,700 | | $ | 3,629,000 |
Depreciation expense was $106,800$399,100 and $34,700$106,800 for the three months ended June 30, 20212022 and 2020,2021, respectively, and $202,400$581,900 and $68,500$202,400 for the six months ended June 30, 20212022 and 2020,2021, respectively. Depreciation expense is allocated between research and development and general and administrative operating expenses on the condensed consolidated statements of operations.
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5.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following as of June 30, 20212022 and December 31, 2020:2021:
| | | | | | | | | | | | |
|
| June 30, |
| December 31, |
| June 30, |
| December 31, | ||||
| | 2021 | | 2020 | | 2022 | | 2021 | ||||
Accrued consulting and outside services | | $ | 294,500 | | $ | 143,200 | | $ | 504,100 | | $ | 467,100 |
Accrued compensation | |
| 56,400 | |
| 191,000 | |
| 650,500 | |
| 273,900 |
Total | | $ | 350,900 | | $ | 334,200 | | $ | 1,154,600 | | $ | 741,000 |
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6.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 usingused 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 as of December 31, 2020 in the condensed consolidated balance sheet. During the year ended December 31, 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 December 31, 2020. The Company accrued interest over the term of the loan and did 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.
During the year ended December 31, 2020, the Company applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On February 16, 2021, the SBA granted forgivenessforgiveness of the SBA Loan and all applicable interest. On the date of forgiveness, the principal and accrued interest totaled $105,800. The forgiveness was classified as a gain on loan extinguishment in the condensed consolidated statement of operations.
7.NOTE PAYABLE
In November 2020,2021, the Company entered into a financing arrangement for its Director and Officer Insurance policy. The total amount financed was approximately $540,500$665,900 with an annual interest rate of 4.59%, to be paid over a period of nineten months. As of June 30, 20212022 and December 31, 2020,2021, the remaining payable balance on the financed amount was $91,600$114,900 and $362,400,$454,500, respectively.
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 June 30, 2022 and December 31, 2021, the Company has not incurred any milestone or royalty liabilities related to these license agreements.
Legal Proceedings— On March 22, 2021, Jason Terrell (“Terrell”), a former consultant and former 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 Action, Terrell seeks a declaratory judgment that the Company is obligated to issue him (i) options to purchase 500,000 shares of common stock at a price of $0.50 per share pursuant to an alleged 2014 consulting agreement, and (ii) options to purchase an additional 500,005 shares of common stock at a price of $0.17 per share pursuant to an alleged January 2017 non-employee director options agreement. In his complaint, Terrell also claimed that, pursuant to the 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.
The Company disputes Terrell’s claims and allegations in the Action and intends 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
17
with any activities or duties of Terrell in his official capacity as former director. In response to the motion, filed on June 21, 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.
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. As of June 30, 2022, the parties were awaiting the Compensation Committee’s determination(s). As of June 30, 2022, the Action was stayed. See Item 1. Legal Proceedings in this report for further information.
In a separate matter, 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, submitted substantially identical reports (the “Complaints”) through the Company’s complaint hotline. These Complaints, alleged, among other topics, risks associated with the Company’s public disclosures in securities filings and in statements made to the public, investors, and potential investors regarding (i) the anticipated timing of the FDA authorization of the 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 Company’s Special Committee reported the results of its Internal Review to the Board. The Board approved certain actions to address the fact that the Company had received communications from the FDA on June 16 and June 17, 2021 that the FDA was placing the IND applications that the Company 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 FDA Communications”). On July 13, 2021, the Company received the FDA’s formal clinical hold letters, which asked the Company to address key components regarding the chemical, manufacturing, and control components of the IND applications. On July 16, 2021, the Company issued a press release disclosing that it had received comments from the FDA on the two INDs, but did not use the term “clinical hold.” The Company then consummated a public offering of $40 million of its common stock pursuant to the Registration Statement on July 2, 2021. On August 13, 2021, the Company issued a press release announcing that these INDs were placed on clinical hold. The Company did not disclose the June 16 and 17, 2021 FDA Communications in (i) the 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) the Form 10-Q for the fiscal quarter ended June 30, 2021 that was filed with the Securities and Exchange Commission on August 13, 2021.
As a result of the disclosure omission of the June 16 and 17 FDA Communications, on March 7, 2022, entities related to Sabby Management LLC (the “Sabby Entities”) and Empery Asset Management, LP (the “Empery Entities”) filed a complaint in the United States District Court for the Southern District of New York 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. On July 1, 2022, the defendants filed motions to dismiss the complaint. In response, on July 22, 2022, the plaintiffs amended their complaint to, among other things, include ThinkEquity LLC as a defendant. The plaintiffs seek unspecified damages; rescission to the extent they still hold the Company’s securities, or if sold, rescissory damages; reasonable costs and expenses, including attorneys’ and experts’ fees; and other unspecified equitable and injunctive relief. The Court directed the defendants to respond to the amended complaint by August 12,
18
2022. At the parties’ request, the Court extended the defendants’ response date to September 12, 2022 to allow the parties time to discuss a potential resolution. Those discussions are ongoing. The Company has evaluated that it is reasonably possible that the Sabby Entities’ and Empery Entities’ claims may result in an estimated loss ranging between $0 and $8,100,000. This estimated range of loss excludes any legal and others costs that we will incur in connection with the defense of this action, and any legal and other costs incurred by the other defendants that we are required to reimburse. Subject to certain exceptions, the Company is obligated to indemnify the defendants in this action, including ThinkEquity, for their reasonable costs incurred in connection with this action and those costs could be substantial.
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 covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors 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. The Company has evaluated the Karp class claims and has determined that it is not possible to estimate a potential range of loss at this time.
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.
8.9.COMMITMENTS AND CONTINGENCIESLEASES
Facility Lease AgreementsThe Company adopted FASB ASU No. 2016-02, Leases (Topic 842) on January 1, 2022, using the modified retrospective method, in which it did not restate prior periods. Upon adoption, the Company elected the —package of practical expedients permitted under the transition guidance within Topic 842 which, among other things, allowed the Company to carry forward the historical lease classification.
In our implementation of ASU No. 2016-02 the Company elected to discount lease obligations using our incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company’s incremental borrowing rate represents the rate of interest that it would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company considers publicly available data for instruments with similar terms and characteristics when determining its incremental borrowing rates. In addition, we elected the practical expedient to account for the lease and non-lease components on a combined basis. The Company intends to use the full lease term under the existing lease agreement as the lease term, which is currently set to expire on April 30, 2026. As of June 30, 2022, the Company is not able to determine if any renewal options will be exercised.
The Company leases its premises in Houston, Texas under an operating lease which was renewed on November 19, 2020. This renewed lease agreement will commence under an operating lease agreement that is noncancelable from commencement until May 1, 2024.
On March 22, 2021, the Company’s board of directors approved a lease expansion within its premises in Houston, Texas. The amended lease agreement commenced on August 1, 2021 under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The amended lease agreement adds approximately 15,385 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation.
NaN further amendments were executed in 2021. The agreements commenced on November 1, 2021, and December 1, 2021 under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The amended lease agreement adds approximately 3,684 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation.
An amendment to the lease agreement was executed in January 2022 and commenced May 1, 2022. The amendment will add approximately 9,352 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation. In year one and two
19
monthly rent is $4,800 per month, in year three and four monthly rent is $4,896 per month, and in year five monthly rent is $5,000 per month.
If the Company exercises the cancellation option, the Company must also pay the lessor a termination payment equal to three3 months of base rent.
The totalfollowing table indicates the balance sheet line items that include the right-of-use assets and lease payments per month are $22,477, 45,554,liabilities for our operating lease:
| | | |
| | June 30, | |
| | 2022 | |
| | Operating lease | |
Right-of-Use Asset | | | |
Operating lease | | $ | 2,298,300 |
Total right-of use asset | | $ | 2,298,300 |
| | | |
Lease Liabilities | | | |
Operating lease - short term | | $ | (535,600) |
Operating lease - long term | | | (1,770,300) |
Total lease liabilities | | $ | (2,305,900) |
For the three and $46,116 beginning May 1, 2021, August 1, 2021, and May 1, 2023, respectively. The Company records rentsix months ended June 30, 2022, the components of lease expense were as incurred over the term of the leases.follows:
| | | | | | | |
| | Three Months Ended | | | Six Months Ended | ||
| | June 30, | | | June 30, | ||
Operating lease cost allocated to research and development expense | | $ | 131,300 | | | | 213,700 |
Operating lease cost allocated to general and administrative expense | | | 38,200 | | | | 106,300 |
Total lease expense | | $ | 169,500 | | | $ | 320,000 |
Weighted-average remaining lease term | | | 3.84 | | | | 3.84 |
Weighted-average discount rate | | | 7.12 % | | | | 7.12 % |
As of June 30, 2021,2022 the future minimum commitments undermaturities of the amendedCompany’s operating lease agreement will beliabilities were as follows:
| | | | | | |
|
| Amount | ||||
2021 | | $ | 250,200 | |||
Maturity of Lease Liabilities | | | Operating lease | |||
2022 | | | 546,700 | | $ | 338,800 |
2023 | | | 551,100 | | 684,300 | |
2024 | | | 461,200 | | 687,700 | |
Total | | $ | 1,809,200 | |||
2025 | | 694,300 | ||||
2026 | | | 232,600 | |||
Total lease payments | | | 2,637,700 | |||
Less: imputed interest | | | (331,800) | |||
Present value of lease payments | | $ | 2,305,900 |
Rent expense for the facility lease agreements was $74,900 and $67,100 during the three months ended June 30, 2021 and 2020, respectively, and $143,900 and $127,100 during the six months ended June 30, 2021 and 2020, respectively. Rent expense is included as an allocation between research and development and general and administrative expense in the condensed consolidated statements of operations.
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 June 30, 2021 and December 31, 2020, the Company has not incurred any milestone or royalty liabilities related to these license agreements.
Strategic Alliance Agreement with Leon Office (H.K.)—On January 28, 2021, the Company executed a strategic alliance agreement with Leon Office (H.K.) (“Leon”) a company established under existing laws of Hong Kong. It is intended that Leon acts as an independent business development advisor on behalf of the Company. Leon will seek to introduce organizations and individuals that will create business development opportunities for the Company, to expand the Company’s reach to international markets with a focus on certain Asian markets and to increase brand recognition and exposure through developing liaisons, collaborations, branches and subsidiaries. They will also use commercially reasonable efforts to research the Asian market, with a primary, but not exclusive, focus on determining the most suitable structures for the development of medical partnerships or joint ventures with scientific partners in the Asian market with a mission to test products to be created by the joint venture resulting from such partnership and to develop validation programs for any products produced by such joint venture, including programs for clinical trials and human testing and, ultimately, for product certification. The cost of the agreement is $360,000 annually, payable in 4 quarterly installments.
Membership Purchase Agreement with In Silico Solutions, LLC—On June 14, 2021, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with In Silico Solutions, LLC (“In Silico”) and Michael Ryan (the “Seller”) pursuant to which the Company will acquire all of the outstanding membership interests of
1820
In SilicoThe Company maintains a month to month lease in Arlington, VA, which is considered a short term lease. The Company elected to exclude this lease from the Seller for an aggregate purchase price of $540,000 (the “Purchase Price”). The Purchase Price is payable in full through (i) the delivery to the Seller of a number of sharesdetermination of the Company’s stock that is equal to $400,000right-of-use asset and (i)lease liability, as permitted under ASC 842. The Company will recognize the delivery tolease payments in profit or loss in the employeesstatement of In Silicooperations on a straight-line basis over the term of the Company’s restricted stock units underlease. The monthly rent expense as of June 30, 2022 is $2,500 per month. For the Company’s 2021 Plan that is equal to $140,000. three and six months ended June 30, 2022, short-term lease were as follows:
Pursuant to the Purchase Agreement, as soon as practicable following the closing, the Purchase Price shall be subject to a working capital adjustment. In addition, the Purchase Agreement contains customary representations, warranties, covenants (including restrictive covenants), indemnification and other terms for transactions of this nature. The Purchase Agreement may be terminated by either the Company or the Seller if the closing does not occur on or before the 45th day following execution of the Purchase Agreement.
| | | | | | | |
| | Three Months Ended | | | Six Months Ended | ||
| | June 30, | | | June 30, | ||
Short-term lease expense | | $ | 7,500 | | | $ | 15,000 |
Legal Proceedings—In the normal course of business, the Company may have various claims in process and other contingencies. A complaint was filed on March 22, 2021 in the Court of Chancery of the State of Delaware against the Company by a former consultant and director. The complaint alleges, among other things, that the plaintiff is entitled to additional stock options and he is seeking declaratory judgment and specific performance. The Company believes that all of the claims in the complaint are without merit and the Company intends to defend vigorously against them.
The Company regularly assesses all contingenciesUnder ASC 840, rent expense recognized under the leases was $74,900 and believes, based on information presently known,$143,900 for the Company is not involved in any matters that would have a material effect on the Company’s financial position, results of operationsthree and cash flows.six months ended June 30, 2021.
9.10.STOCKHOLDERS’ EQUITY
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 this stock split.
As of June 30, 20212022 and December 31, 2020,2021, 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.
Common Stock—As of June 30, 20212022 and December 31, 2020,2021, the Company has a single class of common stock.
On October 15, 2020,July 2, 2021, the Company received net proceeds of $12,332,700$37,118,100 from its IPO,public offering, after deducting underwriting discounts and commissions of $1,275,000$2,494,900 and other offering expenses of $1,392,300$457,000 incurred. The Company issued and sold 1,250,0008,000,000 shares of common stock in the IPOpublic offering at a price of $12.00$5.00 per share.
In connection with the IPO, all 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.
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Below is a table that outlines the initial value of issuances allocated to the IPO and public offering of common stock and the IPO and public offering common stock discount amortized, and value of IPO common stock that was converted into additional-paid-in-capitalamortization, during the three and six months ended June 30, 2021:30:
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| 2021 | | 2022 | | 2021 | |||
Common Stock |
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Balance at January 1, | | $ | 11,975,400 | | $ | 48,264,300 | | $ | 11,975,400 |
Common stock IPO discount amortization | |
| 24,700 | ||||||
Common stock initial public offering discount amortization | | | 24,700 | | | 24,700 | |||
Common stock public offering discount amortization | | | 60,400 | | | — | |||
Balance at March 31, | | $ | 12,000,100 | | $ | 48,349,400 | | $ | 12,000,100 |
Common stock IPO discount amortization | | | 24,900 | ||||||
Common stock initial public offering discount amortization | | | 24,900 | | | 24,900 | |||
Common stock public offering discount amortization | | | 61,000 | | | — | |||
Balance at June 30, | | $ | 12,025,000 | | $ | 48,435,300 | | $ | 12,025,000 |
On June 8, 2020, the Company agreed to amend the warrant vesting schedule such that the warrants underlying shares of Series B Preferred Stock 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.
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 the 2017 Plan. On September 25, 2019, the board of directors approved an additional 10,000,000 shares to be reserved and authorized under the 2017 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 2017 Plan. This approval increased the total number of authorized shares from 858,615 to 1,708,615.
As of June 25, 2021, the Company adopted the 2021 Plan. Under the 2021 Plan, the board of directorsBoard approved an additional 200,000 shares to be reserved and authorized under the 2021 Plan plus any unallocated shares from the 2017 Plan. On June 22, 2022, the Board approved an additional 1,000,000 shares to be reserved and authorized under 2021 Plan.
There were 193,6791,149,682 shares and 379,563433,895 shares available for issuance as of June 30, 2022, and December 31, 2021, and 2020, respectively.
Series B Preferred Stock—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.
On matters submitted to a vote of the stockholders of the Company, Series B Preferred Stock, Series A-1 Preferred Stock, and common stock vote together as one class, with the vote 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 the 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 Preferred Stock.
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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.
Accordingly, in connection with the IPO, all shares of the Company’s Series B Preferred Stock were converted into 469,136 shares of common stock on October 15, 2020.
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 and six months ended June 30:
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| 2020 | |
Series B Preferred Stock |
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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 |
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 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 $0.46, the original issue price.
Warrants Underlying Series B Preferred Stock—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. 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 June 30, 2020, the Company sold 16,391,397 shares of Series B Preferred Stock, which contained 1,399,921 underlying warrants to purchase common stock based on the exercise price and vesting schedule outlined above. These warrants are equity classified and the fair value of $5,533,000 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 335,982 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. As of June 30, 2021, there were no warrants underlying Series B Preferred Stock.
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The Black-Scholes option-pricing model was used to estimate the fair value of the warrants with the following weighted-average assumptions for the six months ended June 30, 2020:
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Representative'sRepresentative’s Warrants—In connection with the IPO on October 15, 2020, the Company granted the underwriters warrants (the "Underwriters' Warrants"“Underwriters’ Warrants”) to purchase an aggregate of 62,500 shares of common stock at an exercise price of $15.00 per share, which is 125% of the initial public offering price. The Underwriters'Underwriters’ Warrants have a five-year term and arewere not exercisable prior to April 13, 2021. All of the Underwriters'Underwriters’ Warrants were outstanding and exercisable at June 30, 2021.2022.
These warrants were equity classified. As of June 30, 20212022 and December 31, 2020,2021, the warrant fair values of $307,700 $207,700
and $357,300,$257,300, respectively, is reflected as additional paid-in capital. On the issuance date, the Black-Scholes option-pricing model was used to estimate the fair value of the warrants with the following weighted-average assumptions on October 15, 2020: